Destruction is NOT a Blessing

One of the most enduring economic fallacies is that destruction is an economic blessing. It cries out for a response.

 

Who can forget the awesome scenes of devastation from some of the worst earthquakes of recent decades in places like Japan or California — skyscrapers reduced to piles of rubble, freeways heaved and twisted, homes wiped out by fire?

 

Amid ruin like that, some observers see a ray of hope. Destruction, they argue, will require repair and that means the creation of new jobs. In their aftermath, earthquakes and other natural catastrophes stimulate economic activity, turning at least some of the pain of the initial losses into a national blessing. Or so we’re told.

 

In the wake of the horrific quake that rocked Kobe, Japan in January 1995, Nicholas D. Kristof reported this in the New York Times: “Despite the devastation, some experts said that in some ways the earthquake could give a boost to an economy struggling to recover from a long recession.” The spending needed to rebuild the port of Kobe, he wrote, “may give a stimulus to Japan’s economy, the world’s largest after America’s.”

 

This notion that destruction is an economic stimulus is not new. After World War II, some who surveyed the wreckage of Western Europe argued that the rebuilding effort would lift the continental economy. Reflecting back on those years, British Prime Minister Harold Wilson once explained the rapid rise of Germany and the stagnation of Britain in these terms: Germany had the good fortune of having its manufacturing capacity totally wiped out, whereas Britain was still using plants that had survived the war. The implication was that Britain would be better off today if only Germany had dropped far more bombs on it in the 1940s.

 

After natural disasters here in the United States, one sometimes hears the same line of reasoning. When floods in the Midwest left behind billions of dollars-worth of lost property in 1993, then-U.S. Treasury Secretary Lloyd Bentsen openly declared on national television that the nation’s economy would receive a healthy stimulus as a result.

 

It’s hard to imagine survivors of the Kobe earthquake or the Midwest flood deriving much solace or consolation from such assurances. “I’m so glad my home was flattened because now I have the chance to rebuild it and stimulate the economy,” was not a widely held view, I’m sure.

 

The late, great free-market economist Henry Hazlitt dismissed “the blessings of destruction” myth in a chapter by that title in his classic “Economics in One Lesson” (available in its entirety here).

 

“No man would want to have his own property destroyed either in war or in peace. What is harmful or disastrous to an individual must be equally harmful or disastrous to the collection of individuals that make up a nation.

 

“Many of the most frequent fallacies in economic reasoning come from the propensity, especially marked today, to think in terms of an abstraction — the collectivity, the ‘nation’ — and to forget or ignore the individuals who make it up and give it meaning. No one could think that the destruction of war was an economic advantage who began by thinking first of all of the people whose property was destroyed.”

 

In other words, the problem with all this is that some people are not using their heads to think this through; they are looking at a tree or two and ignoring the forest.

 

This is the same fallacy that arises if one looks only at where a thief spends his loot and not where he got it from in the first place. We don’t assume that bank robbery is an economic stimulus just because some businesses benefit when the thief goes on a shopping spree. Everyone seems to understand, in that instance, that every dollar the thief spends at the local mall is a dollar that can’t be spent by the people to whom the money really belongs.

 

When destruction is part of the equation, the futility ought to be even clearer. If the citizens of Japan rebuilt Kobe at a cost of $20 billion, that was $20 billion they didn’t have for other things. Much was lost forever because it was simply irreplaceable at any price. Anyone who simply observes the increased activity in the construction business as people spend to rebuild, and concludes that an earthquake is some sort of economic blessing is myopic and simplistic.

 

Wouldn’t it be great if we lived in a world wherein destruction was indeed a magical route to economic progress? It’s the one thing that governments do very well and have more experience in than any other group or institution. Blowing things up or tearing them down is a lot easier to accomplish than creating them in the first place — and for some, it can be downright entertaining as well. We could dispense with toil and sweat and just go on a rampage, knowing that the economy was being boosted in the process. If Mother Nature wouldn’t cooperate by giving us an occasional disaster, we could blow up a few dams and create our own floods.

 

The fact that a lot of people still see blessings in destruction is an indication that we have a lot of economics educating to do!