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December 30, 2004
Broken windows
It didn't take long for the broken window fallacy to surface in relation to the tsunami tragedy.
In part:
The regions hurt most by the tsunami did not have much in the way of heavy industry, and many people there lived off the land as farmers and fishermen.
Still, while the cleanup from the devastation will be a daunting task, the resulting economic activity might actually be a boon for the region, said Kathy Bostjancic, a senior economist at Merrill Lynch. With the expected outpouring of economic aid for rebuilding, the economies of the affected countries could actually rise. From the Daily Breeze.
Dingel states that Bostjancic might really mean that it is the injection of foreign aid that is the benefit. That is really giving the benefit of the doubt. We've seen these comments too many times before. I would add that if Bostjancic meant it is the foreign aid that is the "boon," then she should at least say so.
Still...
The injection of foreign aid will not bring about any long term growth to the poverty stricken regions affected by the tsunami. At best it will provide a short term demand stimulus, no supply stimulus whatsoever. Any positive effect on the national economies from the aid will likely be offset by the devastating loss in tourism dollars.
Expect more of this in the days to come. It's sad because some people who read things like that will actually believe it.
Posted by William Polley at December 30, 2004 01:16 AM
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