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Three Reflections on Hurricane Irene

One would hope that when a natural disaster strikes and people are killed and property damaged, it would lead to sobriety and care. At least in the public discourse, I’m discouraged that it hasn’t.

Three things have leapt out to me in the discussion that I want to point out as worthy of reflection and un-hasty answers.

First, the destruction. Thank God it wasn’t worse. But it was still bad and for some people it was mortal. That means that we should pray for those who have suffered and whether we can offer help.

Second, the economic reaction. There were people who think it could help the economy because it will create jobs. I think this is called “the broken window fallacy.” Economists and/or people with common sense, help me with this one. Here’s how it appears to me.

The argument is, since buildings were destroyed, they will have to be rebuilt. That will create jobs. Well, not so fast. Yes, it is true that since a building was destroyed (i.e. wealth was destroyed) it will need to be rebuilt. And it is also true that someone will have to rebuild it. That will certainly help the contractors, carpenters, etc. who have to build it and who might otherwise not have had work.

But where does the money to pay them come from? It seems to me that it can only come, ultimately, from a fund that would have been spent on something else.

Put it on a small scale: a farmer’s barn is destroyed (I won’t even deal with the irreplaceable elements, such as the years invested in that barn, the livestock, etc.). He has saved money over the years so he can afford to rebuild it. Great! Now that money that was sitting in a bank “doing nothing” is put into circulation. He withdraws it and hires a contractor to rebuild his barn. The contractor and his crew have been out of work for two weeks. A win for the local economy, right?

Only, that money wasn’t in the bank doing nothing. First and most obviously, it can’t be used to rebuild his next barn that burns down or to get through his next drought or to help someone else when he needs it. It wasn’t doing nothing: it was standing ready. And as John Milton so wisely said, “They also serve who only stand and wait.”

But in addition, the bank had leant that money to Joe’s Buckle Shop. What happens to him? Of course, we use banks to spread risks and to invest them with intelligence, so this part is more complicated. But the basic point is that the money used to rebuild the barn, that had already been there before the disaster, cannot now be used for something else that would have actually added wealth to the economy.

In the case of rebuilding the barn, money is simply taken from one fund and moved to another. NO NEW WEALTH has been created.

In the case of the money being used to build something new, NEW WEALTH would be created.

In the case of Hurricane Irene (or Hugo, Andrew, or any other), there is nothing economic to celebrate. Something like 1.5 billion dollars of wealth was destroyed. Money can now be drawn from savings funds (mostly set up by the government for such occasions), and some of that wealth will be restored. Some people will get jobs rebuilding.

But the new wealth that could have been built with that money will now go uncreated.

Someone might argue that the money was not in circulation anyway, so Hurricane Irene took it out of “storage” and made it active. I’ll grant that for the sake of the argument and I also recognize that how fast money moves around has a lot to do with how fast wealth is created (it’s easier to get rich if you can move money from here to Singapore overnight instead of over the course of two risky years at sea). But the fact remains that money that had been available for wealth creation has now been made unavailable because it was used for wealth recreation.

In other words, we should not look at the destruction of wealth/property as an economic boon. The best it can is relocate wealth. But it will certainly destroy some. It does not create any.

The third argument I’ve seen is that somehow the response to Hurricane Irene defends “big government.” In fact, what it defends is defined government. I’m not sure any conservative conservative (as opposed to libertarian conservative) ever has been opposed to a government organizing efforts and resources to handle a calamity. That isn’t what we’re opposed to. We’re opposed to government that has no defined limits on its role. We’re opposed to governments that create calamities and then present the government as the only solution. Take education, for example.

That’s why we like our constitution. In the end, it’s what defines the role of the federal government. It’s a job description. I can assure you, I don’t let my employees define their job descriptions as a living document. Why would I let my representatives?

Hurricane Irene did not show the value of big government. It’s too early to draw conclusions about performance, but if in fact the government did a good job on Irene (a better job than local governments and private citizens could have done), that’s great. That hardly suggests that they should use the tax code and health care to develop a centrally planned economy or that they are capable of running our schools.

A hurricane is a pretty predictable event compared to the American economy. Let the federal government develop its weather tracking systems if it can’t be done better by private citizens or local governments. Fine. But it hasn’t done very well tracking the economy, has it?

So what, so far, does Irene mean?

How can we know yet? But one thing it certainly means is that we cannot end suffering, no matter who we choose to blame for it. Secondly, it means that one form of suffering is the loss of wealth and property and that economic fantasies won’t alter that. And third, it means that a well organized, sharply defined, strictly limited (focused) government activity can benefit those who suffer – sometimes. Fail to organize it well, define it sharply, and limit it strictly and you’ve got New Orleans after Hurricane Katrina. Fail to give it a sunset clause and the sun might not rise again.

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