Earthquakes and Economic Development
January 21, 2010
William F. Shughart II
San Francisco Examiner, Middletown Press, Union Daily Times, Sun Herald, Wayne Independent
Every natural disaster, like the proverbial dark cloud, supposedly has a silver lining.
Images of the devastation visited on Haiti by the major earthquake that struck the island recently have prompted outpourings of heartfelt sympathy for the tens of thousands of people who lost their lives and promises of aid for those who miraculously survived.
But after grieving over the human toll, some commentators have pointed to the golden opportunity the tragedy supplies for jumpstarting economic development in the hemisphere’s poorest country.
Think of all the jobs that will be created in rebuilding Port-au-Prince’s presidential palace, its port facilities and other infrastructure destroyed by nature’s wrath! Money will pour in from the United States, China, and Western Europe to succor the earthquake’s victims and to finance repairs and new construction activity. Haiti will rise from the ashes and be lifted out of poverty. Or so the story goes.
Nothing could be further from the truth.
In a pamphlet titled “What Is Seen and What Is Not Seen,” published in 1850, Frederic Bastiat tells the story of a young man caught breaking a pane of glass at a local bakery. Seeing the shattered glass on the sidewalk, passersby are in agreement: “It’s an ill wind that blows no good. [But] such accidents keep industry going . . . What would become of glaziers if no one ever broke a window?”
A glazier is called to replace the pane for a fee of, say, $100, and goes home saying a silent prayer for juvenile delinquents. Seeing only this, the passersby are erroneously led to conclude that, because a job has been “created,” breaking the window wasn’t such a bad thing after all.
Yet what the passersby fail to see is that the baker has lost $100. Because he has been forced to replace the broken window, he will not be able to spend that sum on anything else, such as a new apron, the flour needed to bake more bread, or a promised bonus to his employees. The glazier is better off, but the baker is equally worse off. Before the boy appeared on the scene, the baker had both $100 in the bank and a serviceable window; afterwards he has only a window.
Bastiat’s story teaches that there is no benefit to society in general when property is destroyed, whether by young hooligans or by Mother Nature. Spending necessary to replace existing assets cannot be used to create new ones.
Its reconstruction financed largely by monies transferred from taxpayers living beyond the earthquake’s reach, Haiti, like the glazier, will receive an injection of wealth. But, concluding that the world as a whole is better off commits the fallacy of the broken window. On the contrary, like the baker, donor nations are made worse off. Before the earthquake struck, the United States had the $100 million it has committed to spend and Port-au-Prince was habitable; afterwards, we will have a rebuilt nation but not $100 million.
Massive injections of new monies earmarked for relief and reconstruction also predictably lead to corruption and waste. Donors therefore can expect fewer benefits for Haiti than they thought they were paying for.
It is absurd to say that the earthquake will be good for Haiti’s economy. If that were true, why did the world await natural disaster? If Haiti needed an economic boost, we should have carpet-bombed it years ago. The plain fact is that disasters make everyone permanently poorer by the values of the lives and property they destroy. Earthquakes have no silver linings.
William F. Shughart II is a Senior Fellow at The Independent Institute, Frederick A. P. Barnard Distinguished Professor of Economics at the University of Mississippi, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.