Has Katrina wrecked economic thought at the Economist ?

Chitah soulignait récemment la piètre qualité des rédacteurs de The Economist, dont les connaissances en économie semblent se réduire comme peau de chagrin à chaque nouvelle parution. Cette semaine, dans l'éditorial de couverture, toutes les bornes de la stupidité ont été dépassées. J'ai donc envoyé un courrier à la rédaction du magazine "The Economist".


Reading my copy of the Economist while enjoying a nice breakfast and a cup of colombian coffee, I was shocked by the economic nonsense featured in this week's leader ("A city silenced") :

"History suggests that the hurricane will have little effect on the national economy. Despite all the pictures of sinking hotels and flooded convention centres, the overall impact of natural disasters is often close to neutral : lost output (which will be large) is then compensated for by a surge in reconstruction and public spending (also large). That may be a scant comfort to individual hoteliers, residents and insurers, but on a national level the economic damage will be real but limited."

The first issue of the Economist was published in 1843. In 1850, Frédéric Bastiat's "Ce qu'on voit et ce qu'on ne voit pas" came out of the printworks. That this book somehow failed to attract the attention of your columnists for the last 155 years is indeed a remarkable feat, but unfortunately it is a very discomforting one.

Bastiat wrote a little story in the chapter "La vitre brisée", to illustrate a point which perfectly fits the hurricane situation. I sincerely hope that this piece of classical economic litterature will be passed on to the ignoramus who wrote the column.

The story is about a storekeeper whose boy, a naughty little brat, has managed to break the window of his shop. The passers-by try to comfort him by explaining him that the money spent on repairing the window will provide a boost to the local economy, and so that his loss is actually compensated by a corresponding gain made by the glazier. Bastiat then proceeds to explain how nonsensical this reasoning is : although the glazier indeeds makes a profit, provides work to his aides and is able to pay them a salary, the shop owner himself has been deprived of a sum of money. This sum could have been invested for instance in buying new shoes. The broken window diverts money from its intended use to another use. There are two consequences :

- first, the money indeed makes the glazier and his aides richer, but it also deprives the bookkeeper of an additional income. The richer glazier is what we see. The not-richer bookkeeper is what we don't see. Of course, you could argue that so far we are, on the whole, in a zero-sum game.

- But add to that the fact that, instead of enjoying both a window and a book, the shopkeeper now only enjoys a window. He is less satisfied than he could be had the window not be broken. The shopkeeper being a member of society, this means that there is indeed a loss for the society, which is the value of this broken window.

As Bastiat puts it "destruction n'est pas profit".

The huge sums of money that will be used for the reconstruction of the damages caused by hurricane Katrina are diverted from another more productive use, whether they are private (i.e. insurance companies) or "public" (taxes or public borrowing), and are spent just to restore economic potential, not to buy additionnal potential. The "opportunity cost" of the hurricane is huge. I am surprised that your columnists are not aware of this simple economic fact.

To help you enlighten them, I have pasted below the original text by Bastiat. I hope this will help your publication to straighten up its economic standards, which are currently far too shabby to justify the very name "The Economist".

Sincerely yours,

Constantin H.

3 commentaires

Blogger RonnieHayek a écrit...
Bravo,Constantin ! Mais c'est Chitah qui avait posté un article critiquant "The Economist". ;-)
à 6:07 PM
Blogger Constantin a écrit...
Oups !

Voilà qui est réparé.
à 7:38 PM
Blogger jomama a écrit...
Hardly anyone knows who Bastiat is let alone what this fine thinker wrote.
à 4:13 PM

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