Science progresses one funeral at a time. Companies tend to do much better after they're forced to do layoffs. People who flip a coin and decide to make a major life change based on the flip rather than via careful deliberation end up happier on average. Etc.
Inertia is a bitch, and it congeals around everything that involves people, viciously if there are no counterbalancing forces. If catastrophe can help things get better in the long run it usually just means that the current processes suck and need fixing. Not super surprising, but worth paying attention to.
I think what's missing from some of the samples (e.g. Hurricane Katrina) is that much of the improvement is coming from gentrification, which often entails a wealthier population that has moved in from somewhere else. So the externality of reduced income and affluence has to be factored in
That's one way to look at the data. At least among the two first examples - in both cases there was very valuable land with very not valuable buildings and other stuff on top of it. In the third case, which was also sort of about land and the stuff on top of it, but "invaded by Napoleon" is so broad I'm not sure that tells us anything real.
Anyway, when something happened that swept the buildings away - not strictly speaking all the people, just some, but all the buildings - a lot of good things happened.
"Broken windows Bastiat" is kind of reductive because houses are depreciating, a house destroys itself without any intervention. There is a slow moving window breaking in every house. It is always declining in value. A house is a way to use land but it's not the thing that's valuable. It is the land that is appreciating. You could call "land getting more valuable" gentrification, but I think that's missing the point.
If you wanted to advocate for a positive intervention in the face of disasters, provide displaced homeowners a temporary place to live so that they can keep their land. People aren't sophisticated, they don't realize the destroyed house on top of their land was actually decreasing the real value of what they had, but they are also desperate, they need to live somewhere. Without such a plan in place ahead of time, all it will take is that Cascadia earthquake to wildly reconfigure home ownership in California, because a ton of people thinking they are sitting on million dollar homes assessed at a tenth of their value will all be selling at the bottom at once, because they will need a place to live. Gentrification has nothing to do with it.
Perhaps there something better to call it. But when Katrina comes and wipes the euphemistic slate clean, the poorer people that used to live in those houses aren't coming back to inhabit the same land, they go elsewhere. And the middle-class people that move to the new properties often leave somewhere behind too. It's possible that in the macro, it's just migration patterns, but in the micro there's been a rise in tax revenue, land value etc. in New Orleans.
At best this boils down to the idea that people don’t always know what’s best for them and a disaster is necessary to move things forward. Occasionally maybe that’s the case but it’s pure luck when it happens. It’s the same as saying that energy efficient modern windows are more efficient in the long term so if someone doesn’t want to replace their old aluminum window, breaking it will actually be good for them. Maybe, but it’s not something that required the accidental destruction...
I guess I just dislike this notion that getting lucky somehow disproves the fallacy. Fallacies are about errors of reasoning, not about conclusions or outcomes.
> At best this boils down to the idea that people don’t always know what’s best for them [...]
It doesn't simmer down to quite such a small volume. The problem is that even if everyone knew what was better for them, they might still not be able to coordinate on getting there.
The phenomenon described in the linked article is mostly about coordination problems. Not so much about decisions that individuals could make.
Indeed, even when everyone has perfect knowledge of their best life and everyone else's you can still get deadlocked due to (lack of) coordination and trust. One could argue that all of the truly interesting problems in economics are about coordination.
> At best this boils down to the idea that people don’t always know what’s best for them and a disaster is necessary to move things forward.
That doesn’t sound right — this is more like the collective benefits at the cost of the individual. It’s very likely that those who lived in the now-destroyed areas are worse off than they had been — though their children may now have better prospects.
The same with the window: having energy efficient windows doesn’t cover the damage of the lost window — but it improves the quality of life for people going forward.
I think they key is that the improvements are inefficient to implement, but if it’s inevitable (the broken window is already broken; the fire can’t be stopped; they’re a sunk cost) the improvements suddenly become viable.
That is, the improved option has to significantly superior to the current situation, because it has to be better than the object in question and the cost to replace. Once the window is broken, it simply needs to be better.
The fact that the article is not interested, does not mean that we should not be. The article argues for large scale destruction looking only at certain consequences of it and not accounting for all of them. Such approach might be contrary to the initial goals of the project.
The terms the two of you are looking for in your discussion here are Pareto efficiency, and Kaldor-Hicks efficiency.
Your point is that not everyone is better off, so destruction is not a pareto improvement. Their point is that on net, value is increased, so in theory the ones who are worse off could be made whole through a wealth transfer, and there'd still be a surplus, a Kaldor-Hicks improvement.
You raise an important distinction, but one thing I've always found to be troublesome with K-H is that I've never seen a discussion of whether the winners would have undertaken their profitable behavior but-for the high level of profit. Perhaps if the gentrifiers (as just one example) faced a gentrification tax to fund the lives of people displaced they would not have considered the deal good enough to gentrify in the first place.
I'm not saying this is necessarily true, but it seems like a major problem with K-H as a concept that I personally don't see discussed (I imagine it is discussed in academic journals somewhere).
I understand the article to be reporting on some interesting economic papers with counterintuitive results. Of course, those always come with huge caveats, that the article also mentioned.
I don't see any outright arguing for destruction.
See especially the section 'Wait a minute, this is completely insane!'
> If you accept that (and you should), the only question left is whether the benefits actually exceed the costs. Now we're just haggling over the price, as Churchill said.
The author tries to appear neutral, but their preference is obvious for me.
I think this could very easily be demonstrated with the opposite outcome, but I think I just grow increasing tired over time of economic monetary benefit being the judge of positive outcome as an 'average,' rather than wider health and value with a measure of opportunity.
I also get a sense of trickle-down economics threaded through this piece.
The piece is steeped in a conventional understanding of economics as eg taught in universities. That might be what you are detecting? Economics is one of those subjects where the most basic, orthodox positions are some of the most controversial in 'polite conversation'.
Trickle-down economics is the mistaken idea that giving money to the wealthiest individuals/companies helps the entire economy, as those individuals/companies are the best able to leverage each dollar to produce value for everyone else ('the money put in to the top trickles down to everyone even at the bottom').
It has definitely been used to push such policy decisions. Whether it was honestly held by those pushing it on TV, or by those who voted for them, is hard to discern.
> “Years ago, this column challenged anybody to quote any economist outside of an insane asylum who had ever advocated this ‘trickle-down’ theory. Some readers said that somebody said that somebody else had advocated a ‘trickle-down’ policy. But they could never name that somebody else and quote them.”
> Further, Sowell notes: “The ‘trickle-down’ theory cannot be found in even the most voluminous scholarly studies of economic theories — including J.A. Schumpeter’s monumental History of Economic Analysis, more than a thousand pages long and printed in very small type.”
No judgement implied on the economic matters at hand. Just on the matter that 'trickle down economics' is not a position actually held by anyone as far as I can tell.
The Reagan, Bush and Trump era tax cuts make no sense of we assume the government has any responsibility to common people, unless you invoke 'Trickle-down economics', the disparaging term for 'supply-side economics'.
> 1. Let’s start with the personal income tax reforms. There is some simplification, as many more taxpayers will be able to use the standard deduction. On the other hand, there’s some added complexity in the new deduction for “pass through” businesses. On net I am slightly encouraged by the bill, as I see it as a first step toward eliminating deductions from the tax code. But we still have a long way to go.
> The distributional consequences of the tax cut are not very important. The top rate comes down a bit, but that’s offset by the fact that state and local taxes can no longer be deducted. Some of the tax cuts benefiting lower income people are scheduled to expire, but almost no one thinks that will happen.
> 2. The estate tax exemption was doubled, but this threshold has been rising very rapidly for many decades. It’s a change, but hardly revolutionary. Recall that the House bill called for its elimination.
> 3. The big corporate income tax cut is the single most significant provision. But even President Obama favored a rate cut to 28%. This excellent WSJ article shows that even after the federal corporate tax rate is reduced to 21%, the total corporate tax rate (including state taxes) is in the middle of the pack for developed countries. It was inevitable that the US would eventually move the rate down to meet global competition—hardly a revolutionary change.
Technically trickle-down economics is a myth that is being propagated to support supply side economics. There is nothing wrong with supply side economics if your economy has supply side problems.
If your economy has demand side problems then supply side economics will do absolutely nothing.
The GDP graphs that are used to show faster growth after WW2 actually contradict their theory. The graphs show the previous big dips for WW1, yet while GDP rapidly shot up after that war ended, it soon reverted to the original trend line. So why was one war ‘good’ for the economy, yet the previous war bad?
Interesting post, but it can't quite decide what it wants to be. First it lures you in by sounding approachable for non-economists, then it hits you on the head with sentences like "there's path dependency that locks economic activity into suboptimal equilibria"...
They lost me on the headline! Then I went down a rabbit-hole trying to grok the phrase "opportunity cost" - still none the wiser. Then had to bail after a short while.
Economics has never been my strong point. (see my bank account for proof)
- breaking a window for no reason costs money, so it's economically bad
- but actually it generates labour and might be economically good?
- no, that's a fallacy, you've made the room unusable and reduced its economic worth + wasted labour on a useless repair task instead of improving the system.
The rest of the article says that it might not be a fallacy if you break a significant part of the system and not just a window.
Disclaimer: I don't fully understand the rest of the propositions in the article.
'Opportunity cost' is a relatively simple concept, and one of the few in economics that is not completely trivial but still truly makes sense.
The idea is that the real cost of any choice is the value of the other choices you could have made. That is, if you have 100$ and can buy either a farm or a factory with them, the cost of the farm is not 100$, it is the wealth that you could have gained if you had bought the factory instead (over some time horizon). Of course, in many real-world situations this is not a computable value, as the alternatives are far too open-ended, but still it's a useful way to model certain problems.
>Economics has never been my strong point. (see my bank account for proof)
Microeconomics and macroeconomics aren't the same thing. Just because markets are going up doesn't mean you actually own enough resources to benefit from it.
It has been guiding principle of revolutions or as they sing in the Russian version of the "Internationale" - "we'll demolish completely the old world, and then we'll build our new world". The results have been mixed to say the least.
The intuitive notion of "creative destruction" has of course been around for a long time, but here the author seems to be floating a proposal for intentional, controlled, and large-scale demolition of specific physical and/or institutional economic infrastructure.
Of course economic systems generally meet some notion of antifragility, at least to the extent that they are distributed. The question is how big of a wound can one inflict before compromising the ability of the system to restore and strengthen itself.
> Prior to the fire, negative externalities from other, low-quality, buildings prevented high-quality development; the coordination problems were too difficult to overcome. Mass destruction and rebuilding let the areas settle at a higher equilibrium.
This thinking doesn't seem novel. It's pretty much what drives gentrification and eminent domain. Poor and vulnerable people aren't sufficiently profitable to Gov budgets and shareholders.
This reminds me of high-level equilibrium traps[0], a concept used to explain China's historical economic stagnation. Without market inefficiencies, there are no incentives to invest in improvements.
In other words, when things are good the way they are, why bother changing?
Coordination problems are a major issue for urban renewal. In Israel we have a methodology loosely translated as evacuation-construction, Where the city coordinates the rebuilding of a whole row of buildings. The apartment owners get new apartments in the new buildings and it is beneficial for them in the long run. The law has provisions for allowing the project to go forward even with approval of just 80% of owners, which prevents individuals from blocking the whole project. The new construction is done according to new building codes (like safety in case of earth quakes). The main losers are renters which have to move out and don't gain anything, but other than that it's considered beneficial. Seems like a reasonable way to solve the coordination problem.
Inertia is a bitch, and it congeals around everything that involves people, viciously if there are no counterbalancing forces. If catastrophe can help things get better in the long run it usually just means that the current processes suck and need fixing. Not super surprising, but worth paying attention to.