I don’t understand the logic

by Russ Roberts on March 11, 2011

in Stimulus

Larry Summers on the tragedy in Japan (HT: Craig Kohtz):

“If you look, this is clearly going to add complexity to Japan’s challenge of economic recovery,” Summers said. “It may lead to some temporary increments, ironically, to GDP, as a process of rebuilding takes place.”

After the Kobe earthquake in 1995 Japan actually gained some economic strength due to the process of reconstruction, he added.

I don’t get it. By this logic, Japan should have evacuated people from the buildings and triggered the earthquake and the tsunami sooner. By this logic, they should just blow up empty buildings randomly. By this logic, their $6.3 trillion stimulus spending of the past decades should have helped their economy. By this logic, they should rebuild the buildings with shovels rather than construction equipment. Or using spoons rather than shovels.

I don’t understand the logic.

Here is John Papola on Summers. He does a superb job gathering many of the Keynesian defenses of war and destruction including Keynes himself. He also does a great job explaining the illogic of the Keynesian logic. Don’t miss it.

And here is the original Bastiat article on the fallacy of the broken window.


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