A small silver lining about the LA fires.
Today I have a very strange (and minor) piece of good news. I went looking and couldn’t find anyone prominent on X or the interwebs saying anything like, “Well, at least the Los Angeles fires will be good for the economy!”
I looked because my wife thought I should write a little something rebutting arguments like this, because so often after a natural disaster, there’s some deluded Keynesian making that erroneous (and frankly, obnoxious) claim.
I was pleased to find nothing. Maybe people are wising up?
I sure hope so. This dumb idea has been with us for a long time. Frederic Bastiat famously refuted it in his 1850 essay “That Which is Seen, and That Which is Not Seen” with a parable about a broken window. It goes like this:
Boy clumsily breaks a shopkeepers window. Passersby lament the destruction and the boy’s carelessness. Some “wise” person pipes up to correct the feeling of the crowd and says something like: “Why, if windows never broke, what would become of glaziers? This “accident” boosts the local economy as the shopkeeper pays the glazier 6 francs, who now has money to spend with other merchants in town for various things. Money flows, everybody wins.”
That’s what’s “seen”. What is “unseen” is what the shopkeeper would have spent that 6 francs on if his window were never broken. Perhaps buy a suit, or add inventory to his shop, or go out to dinner with his family. Those things would stimulate the economy too, but they never happen, because he used the 6 francs on the window.
It’s a simple piece of truth, but one that a lot of people just can’t get. 1850 was a long time ago, but I have seen this argument countless times in my life: “At least this tragedy will boost the economy!”
It’s so dumb. We never get richer when things we value are destroyed. That’s not a thing. Yeah, sure, some particular industry gets new business in the repair or replacement of the destroyed thing, but that’s not the end of the story.
Human wants are endless. If we didn’t have to spend money replacing what’s lost, we’d spend it on something else of value. In the example above, the shopkeeper would have an unbroken window and a new suit after spending 6 francs, rather than just an unbroken window.
The seen/unseen principle is so important to economic thinking that Henry Hazlitt famously made it the centerpiece of his book Economics in One Lesson. That’s the one lesson, applied in case after case after case where the public (and silly intellectuals) gets things wrong.
So, yay! I couldn’t find anyone saying this stupid thing about the LA fires. I hope I didn’t just jinx us.
Naturally,
Adam
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