A friend just sent me the news that the message about Frederic Bastiat’s ‘broken window fallacy’ is finally getting through.
Contrary to popular perception, the Canterbury earthquakes have not had a pronounced short-term effect on New Zealand’s economy, Victoria University research shows.
This lack of macroeconomic impact to date is not entirely surprising, given that previous research on large disasters in high-income countries has reached similar conclusions,” say the researchers, Professor Ilan Noy and Ms Lisa Doyle, from Victoria’s School of Economics and Finance…
The increased economic activity is due to the need to replace assets New Zealand had before. This is not very different from the ‘broken windows fallacy’ identified two centuries ago by a French economist, Frédéric Bastiat, who pointed out that breaking a window will lead to increased production and income for the glassmakers and installers who receive their payments, but does not lead to any increase in welfare or wellbeing.
Congratulations Ms Doyle and Professor Noy. Good to hear more explicit recognition of Bastiat in the academies.
[Hat tip Callum McP]