You hit a baseball and break your neighbor's window. Your neighbor hires someone to fix the window. Economic activity increases. So, breaking the window is good for the economy. Right? Wrong: the opportunity cost of the labor is high. It could have been pursuing more productive activities instead of fixing something broken.
The broken window fallacy is an argument frequently heard after natural disasters and other negative events "create jobs."
However, maybe in the long run a natural disaster leads to some sort of creative destruction where destroyed aging capital stock is replaced with newer technologies? On my reading list is a newly published paper that empirically examines this assertion:
JESÚS CRESPO CUARESMA, JAROSLAVA HLOUSKOVA, MICHAEL OBERSTEINER (2008) NATURAL DISASTERS AS CREATIVE DESTRUCTION? EVIDENCE FROM DEVELOPING COUNTRIES, Economic Inquiry 46 (2), 214–226 http://www.blackwell-synergy.com/doi/abs/10.1111/j.1465-7295.2007.00063.x
I'm applying this theory to the fire-damaged Boone Saloon. Maybe it will re-open with a reconfigured stage, no smoking after 10 pm, bands that start playing before 11 pm, and other desirable features aimed at the mid-40s demographic.
