In the aftermath of Hurricane Irene about a week ago, I went online to check the news about the disaster. The first article I clicked on actually made me laugh out loud. Believe it or not, the title of the article ran along the lines of this: "Could hurricane Irene help the economy? Rebuilding as Stimulus". The very thought that a disaster could supposedly "stimulate" the economy seemed preposterous to me. If this logic were correct wouldn't it make sense to destroy all the great things humanity has ever created just so we could rebuild? Of course not. Unfortunately, this is a common fallacy in today's economic thinking.
Let's say somebody throws a rock at a store's window and shatters the glass. The store owner is now forced to waste his savings on replacing the window. He pays the window company, which in turn makes the window company more profitable.
Is this an economic stimulus?
The obvious answers is no. Many people tend to look at one end of the puzzle instead of looking at the whole thing. By using up his savings, the store owner lost capitol that could have been used for things that would actually advance society - for example, he could have used that money to create a service or product that people actually wanted to buy. But instead, he payed the window replacement company, and no new wealth was created. This is important to note: although the window company may have gotten more money and hired more people, no new wealth was ultimately created.
Now, let's expand this logic to Hurricane Irene. Sure, construction companies will get a short term boost, but other companies and industries will suffer tremendously. In fact, a whole lot of small businesses could be wiped out altogether. And in the end, a whole lot of savings will have been spent on helping companies that offer no new wealth to society.
And this brings us to my final point. Many people these days have the flawed belief that the ultimate goal of an economy is to get as many people working as possible. But these same people fail to recognize that jobs are just a means to the end - the real purpose of an economy is to create wealth, and jobs are just the medium through which this happens. Would an economy really benefit if we had people digging holes in the ground just for the sake of employment?
I totally agree with that last point you made. Employment for the sake of taking up space is unproductive, if not counterproductive. Unfortunately, many people who lead this country (President Obama included) feel that creating pointless jobs will boost our economy and help us avoid yet another recession. If you look at the programs that President Obama is trying to create with this new "Jobs Bill", you can see that he is throwing money around and hoping that something good comes of it. Little does he know (due to his lack of experience in the private sector) that spending cannot dig us out of a hole that, ironically, too much spending got us into. For example, Democrats have said that the new plan will cost around 300 billion dollars. Yes, it will include construction of roads, highways and infrastructure. But why can't such projects be run by state officials? Does the Federal Government really need to have that much impact on such local affairs? Although 300 billion dollars is a small fraction of the country's GDP, all these big plans add up. Let's not forget the huge price tags that Obamacare and the Stimulus package alone carried.
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