REBUILDING IN JAPAN

KEYNESIAN TSUNAMI

Peter Foster

The National Post, March 25, 2011

It is disturbing to see the Broken Window fallacy being regurgitated so often in the wake of the Japanese earthquake/tsunami/nuclear disaster. The fallacy, coined by the great French satirical economic journalist Frederic Bastiat, refers to the boneheaded notion that a broken window is an economic boon since it provides work for the Acme Glass Company. This ignores the cost to the owner of the window, who now has to pay again for something he already had. Similarly, numerous pundits have declared that the destruction in Japan -which is estimated at between US$200-billion and US$300-billion -has a "silver lining" since it requires massive amounts of rebuilding. This, they claim, will provide a "stimulus" to the Japanese economy, and spillover benefits to other countries.

Rebuilding will indeed boost demand for all sorts of products and services, and some individual companies will undoubtedly benefit from new orders related to the disaster. However, the notion that there might be a net economic benefit represents economic illiteracy of the highest order. It is analogous to suggesting that Libyans should rejoice at the potential economic boost from their country being bombed. Such illiteracy has a name. It is called Keynesianism.

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