This blog contains posts and comments written by students in Dr. Tufte's economics classes at Southern Utah University.
10/21/2005
The Economy Works in Strange Ways
It is really fascinating to watch the economy work. Hurricanes Katrina and Rita have put 478,000 people out of work! That is an enormous amount of unemployed people just from two natural disasters! However, many individuals will eventually get rich from the disasters! Think about it, will the entire city of New Orleans have to be rebuilt? Of course it will, and who will do it? Private contractors, masons, concrete companies, sanitation companies, architects, engineers, business men, insurance companies, etc. Can you imagine the amount of work that will be required to put that city back together? Not all of the 478,000 people currently unemployed will get a job with one of these companies coming into New Orleans to rebuild it, but many will. The economy will rebound, unemployment will fall, and New Orleans will be a beautiful city again!
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All of this is an example of Basquiat's Broken Window Fallacy.
Basquiat noted in the mid 19th century that many people think that it is worthwhile if a vandal breaks a window because it provides work for the window glazier and the glass companies. This is clearly wrong, which is why we don't employ people to break things.
So, with Katrina, the people who will get work in the clean up would have gotten work elsewhere otherwise. That work is now going undone.
People fall for this fallacy because it will be easy to spot the rebuilding in New Orleans, but more difficult to spot the undone jobs all across the country.
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