"There is no profit in destruction"
No, I don't have a beach house in North Carolina. BUT in my dreams this is what would have happened as a result of hurricane Irene...Assume in January of this year I built a beach house on the coast of North Carolina at a cost of $200,000. Gross Domestic Product (GDP) would increase (assuming ALL the construction material came from the US) by $200,000.
The hurricane comes through and destroys my house. I receive my insurance settlement and rebuild my house, BUT now the cost of rebuilding the same house costs $210,000 (inflation, scarcity of building materials, increase in insurance, etc).
GDP increases by $210,000. So far I have contributed a total of $410,000 to GDP for the year 2011. This unfortunate event seems to have a silver lining, doesn't it?
The first week of school you were introduced to the the philosophy of Frederic Bastiat and the important concept of opportunity cost.
Using this new-found knowledge, list/discuss some of the problems or logical fallacies related to Bastiats way of thinking and/or opportunity costs of the above scenario.
Hint: there are LOTS of opportunity costs incurred in this situation, some obvious and not so obvious. Go crazy and find as many as you can...
Although destruction did encourage spending in this scenario and consequently contribute to the GDP, it can not be considered beneficial. For the price of two houses, only one is gained by society. The money spent in rebuilding could have been invested, spent in North Carolina's service industries, or used to purchase a beach house some where else.
ReplyDelete-Alex Williamson