Sunday, August 28, 2011

"There is no profit in Destruction"---See how my beach house in North Carolina was affected by the Hurricane...

"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...
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