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Destruction Is Creation – Not

Posted By Don Boudreaux On August 31, 2011 @ 2:57 pm In Myths and Fallacies,Seen and Unseen,State of Macro | Comments Disabled

Here’s a letter to the Programming Director of Washington, DC’s, WTOP Radio:

Enough with reports (heard in today’s 1pm hour) that natural disasters can be good for the economy.  The vulgar Keynesian economics upon which such reports are based is hopelessly confused on the issue.

According to Keynesians, recessions result from people feeling pessimistic about the future – a pessimism conjured by what Keynesians regard as wary “animal spirits.”  This pessimism prompts people to save too much and spend too little.

But even if we accept these Keynesian notions, is it likely that the optimism necessary to improve the economy will be sparked by destroying people’s homes and businesses?  How plausible is it that people – who before being hammered by the likes of a hurricane felt that their savings were too low – will go on sustained spending binges because natural disasters oblige them to dip into the very savings that they were previously trying to increase?  By what logic are “animal spirits” buoyed with confidence by tragedies that make people poorer?  On what theory do consumers or investors become more hopeful about the future while standing in the rubble left by natural disasters?

Please, no more such absurd reports.

Donald J. Boudreaux

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