Vulture Economics
It’s been less than a week since the cataclysm in South Asia, and already the institutionalized economists have started to circle the scene like vultures. Roderick’s mostly-cheerful greeting to the New Year puts it in context:
On July 25, 1993, Lloyd Bentsen, President Clinton’s first Secretary of the Treasury, argued on Meet the Press that recent destructive flooding in the Midwest would stimulate the economy, because
lots of concrete will be poured …. You have to look at all the jobs that will be created to repair the damage.On September 14, 2001, three days after the destruction of the World Trade Towers, economist Paul Krugman wrote in the New York Times that
the terror attack could even do some economic good. Now, all of a sudden, we need some new office buildings. … Rebuilding will generate at least some increase in business spending.And now — on December 29, 2004 — C. Fred Bergsten of the Institute for Ienternational Economics has opined on NPR’s Morning Edition that the recent catastrophic tsunami in South Asia — which by the latest estimates has killed fifty times as many people as the 9/11 attacks — will bring economic benefits to the countries affected:
Like any disaster, you get negative effects through destroying existing property and people’s health, but you do get a burst of new economic activity to replace them, and on balance, that generally turns out to be quite positive.
Over time, properties that have been destroyed will be fully replaced, and probably by better and newer substitutes, so at the end of the reconstruction process, the countries will probably be wealthier.
The jaw simply drops.
Don’t get me wrong: this isn’t intended as a jeremiad against the construction industry or others who will be profiting from the rebuilding effort. Nor am I about to launch into calls for ill-conceived government price controls or anything of the sort. Whatever their motives, people involved in rebuilding (through charity and through business) are making an effort to help people get back homes and livelihoods after an unspeakable horror. Vultures play an important and health role in the ecosystem; what I object to is the Vulture Economists who fabricate reasons to claim that rebuilding somehow, inexplicably, makes for a net gain or a silver lining to this catastrophe. It’s not just that this looks like a lack of decent respect for the dead–although it is that, and especially when we are talking about the catastrophic loss of over 100,000 people. It’s also that it’s just a lie–a particularly atrocious example of the Broken Window Fallacy, uttered by comfortable professional economists who make it very clear what is seen and what is not seen from their comfortable leather chairs.
Roderick finds the spectacle of distinguished
appalling; I agree, but I can only add that we have all too much reason to have seen this coming. There’s good reason to think that there’s no catastrophe so hideous that someone won’t try to declare it a net economic good. After all, part of the historical education that we all seem to get–and I don’t doubt this includes the Krugmans and Bergstens of the world–routinely indulges in this sort of sophistry. As the Black Death of 1347 swept across Europe, about one third of the people on the continent died; in the countries worst affected (such as England) the death toll rose to as much as one half of the population. The nearness of death pervaded all life in the second half of the 14th century; entire towns were wiped out in weeks, processions of flagellants wandered from town to town crying out to God to forgive them their sins, and (as one German witness tells us) experts
happily swallow[ing] [The Broken Window Fallacy] in the blatant and naked form of that very absurdum to which Bastiat and Hazlitt sought to reduce the subtler versionsmen and women wandered around as if mad and let their cattle stray because no one had any inclination to concern themselves about the future.
Yet how many of us have had Western Civ textbooks confidently and drily report something like this on the alleged macroeconomic effects of the Death:
The declining population at the end of the 14th century had a number of important effects. Many people touched by the plague moved away from medieval cities and towns to unaffected areas. This was the negative impact. On the positive side, some landlords began to concentrate on improving the fertility of the soil. And back in the cities, the declining population of workers meant that masters sought out new ways to produce which required less manpower. That is, they began to construct labor saving machinery. In other words, an act of God produced a greater need for technological innovation.
Or:
The Black Death greatly helped accelerat social and economic change during the 14th and 15th centuries …. the great population reduction due to the plague brought cheaper land prices, more food for the average peasant, and a relatively large increase in per capita income among the peasantry.
Or:
The demand for people to work the land was so high that it threatened the manorial holdings. Serfs were no longer tied to one master; if one left the land, another lord would instantly hire them. The lords had to make changes in order to make the situation more profitable for the peasants and so keep them on their land. In general, wages outpaced prices and the standard of living was subsequently raised.
Or:
The plagues also brought economic changes. The death of so many people concentrated wealth in the hands of survivors. In many cases those workers who remained alive could earn up to five times what they had earned before the plague. In the towns, plague had the effect of consolidating wealth somewhat, especially among the middle class. As plague destroyed people and not possessions, the drop in population was accompanied by a corresponding rise in per capita wealth. Large increases in spending in the towns at this time are well documented.
Parallel remarks could be made, for example, on the (apparently ineradicable) textbook tale of wartime prosperity during the cataclysm of World War II. This is what happens when positivist pseudo-economists run the show: empty manipulation of econometric numbers takes the place of humane concern for the suffering and material conditions that real people face, and since economics is a science about human conditions, the result is not only ethically bankrupt but also bad economics. Écrasez la niaserie.
