Via OpenMarket, here comes “Broken Window Fallacy: Hurricane Irene Edition”. Politico quotes Peter Morici of the University of Maryland:

Morici said there could be some economic growth at the end of this year and the beginning of next year, because with the rebuilding, “largely what we’re going to get is a private-sector stimulus package.”

No, largely what you’re going to get is a repairman and window installer stimulus package. The private sector overall won’t see stimulation.

Morici subscribes to the broken window fallacy: The idea that a child who broke a shopkeeper’s window actually did a favor for the economy because that repair will help the window repairman and those who built the new window.

Those who subscribe to this theory look through a very narrow window. They only see those who will make money on the transaction. They don’t see those who lost money or opportunity thanks to the repair costs.

The money to repair that window doesn’t appear out of thin air. The shopkeeper has to scrape it together, which means taking money he would otherwise have spent on inventory or salaries and giving it to someone else. The shopkeeper was almost certainly going to spend or invest that money already, likely to acquire something new for the business. Now he’s just giving it to repairman in order to acquire something he already had.

Now, could GDP improve slightly thanks to Hurricane Irene? Sure. But GDP doesn’t measure wealth — it measures economic activity. An area may see uptick in economic activity but simultaneously loose wealth and be left worse off than before. Areas devastated by Hurricane Irene may see heightened economic activity, but are they wealthier than before? Very unlikely.