November 2010

Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30        


MBM Principal Sources

Blog powered by Typepad

« Reflections on the '08 Financial Crisis | Main | When Popstars and Economists Collaborate... »

18 January 2010


Chris L

I'm not sure this is necessarily broken window fallacy.

Saying a disaster is an opportunity to rebuild with knowledge that is available now isn't wrong.

It would have been impossible to knock down buildings on purpose to make streets wider, but if they are knocked down by a disaster...that is a unique opportunity to readjust.


Thanks for your challenge Chris. You are certainly right about that - but I think there is a deeper misunderstanding... If it were such a good idea, why wait for an earthquake? Why not evacuate everyone and just start blowing everything up? Why stop with Haiti?

And who gets to decide whether the post-apocalyptic world is "better" than the pre? Who accounts for what was lost -- prior to the quake and all of the unseen possible futures, rather than what is seen later as technological or design improvements?

How many future great artists, scientists, and entrepreneurs have died in this tragedy? Could they have created value for society in excess of any design or technological improvements had the quake not taken their young lives? We'll never know. We're left left with what we can see. We can't compare to that which we cannot see.

Perhaps I am being melodramatic and reading more into the article than I should. I don't think so - but I'm open to the possibility.

Chris L

I don't think anyone "wants" disasters. I can't speak for the WSJ but I certainly don't and didn't mean to suggest otherwise.

My point is and was (even if it wasn't WSJ's) that disasters can be an opportunity to do things that are otherwise essentially impossible.

I can't imagine a situation where the cost/benefits are so clear that you could bulldoze blow up everything to expand a road.

But that isn't the choice when a disaster has struck. Once the the buildings are down it is a unique opportunity to do things differently.

Even that implies that there is something that bad to fix. Most things arent that broken and a disaster just ruins thing that were working ok. That's why they are disasters.

But if something is bad (by whatever standard is appropriate) and very hard to correct, an opportunity to rebuild could be a good thing.

Taking advantage of a situation that you can't change (like a disaster that has already occured) seems like a very entrepreneurial, market-based thing to do.

Not the same as hoping it happens or making efforts to make it happen.

June Arunga

Hi Ben,

I hear the nuance you are trying to clarify, and I agree that one has to be careful not to assume that when there is destruction, we start on a clean sheet, that we should empasize the sunny side, and not focus on the dark side. We have to appreciate the intangibles lost and try to salvage them.

The destruction of the institutions that take a very long time to mature and establish is the biggest loss I see. From the ghetto to the leafy suburbs, non-commercial and commercial relationships are enter twined. Within these relationships, born of physical or contractual proximity, lies critical information about various individuals' integrity, specialization, credit worthiness, history, and strategies that culminate in the birth of the differentiation stage, in the evolutionary equation of the markets and the social contracts of a society (The software). (differentiate, select, augment = creative destruction in free markets)

The above "software" is where the history of individual rights of the people in relation to the state, cultural norms and inter-personal relationships are held. It is within this software that negotiations for redress of injustices happen at the individual and corporate level happens... the true accountability machine.

Once there is a disaster like this, we see the evidence of the hardware damage and loss of life, but we are not able to see the software damage. Much of which is damaged especially if not codified (as is the case in most poor countries). To assume that outsiders can help rebuild, while ignoring the local software, causes further damage to the software, and open the door to less reliable accountability mechanisms that can disorient people and rob them of the environment they need in order to rebuild their lives.

An opportunity for progressing beyond gridlock for the better in many cases, but an opportunity for injustice, loss of property rights, loss of social infrastructure that transmitted reputation equity, and therefore a potential loss of much of the software development a society has done. This software evolves, It is never designed. Look at the wars Europe fought before determining their borders and political structures... Argentina has the exact constitution as the US, but very different animating software.

It is the broken window fallacy on a hardware and software level. Easy to fall prey to for expedience.


WSJ: "Natural disasters have been engines of development and economic growth throughout history."

Chris: "I'm not sure this is necessarily broken window fallacy."

By definition, the WSJ is falling for the broken window fallacy by claiming that a disaster spurs economic growth.

The broken window fallacy refers to a situation where property is destroyed, and then restored at some expense. The fallacy is that this expense spurs more economic growth than if the destruction never occurred. While some things in Haiti will certainly be rebuilt nicer than they were originally, we cannot mistake this for "more economic growth" than if the Earthquake had not occured. While money will be spent on restoration to the benefit of a construction worker who will spend his earnings to someone who will spend those earnings, we cannot say that this economic growth is any better than how the money would have been spent if the disaster hadn't happened. In fact, because the disaster destroyed incredible value before the first restoration dollar was spent - the disaster ultimately will create less economic growth than had it not occurred.

The comments to this entry are closed.