This article originally appeared in the November 2001 issue of Ideas on Liberty, the monthly journal of the Foundation for Economic Education (FEE) in Irvington, New York, and was reprinted with permission in the winter 2002 issue of IMPACT!, the Mackinac Center's quarterly newsletter. 

We often see such comments after a hurricane, tornado, or earthquake.  I never expected to see it after the horrors of September 11.  But there was Paul Krugman, Ph.D. in economics and a New York Times columnist, writing it on September 14 for all the world to see:

Ghastly as it may seem to say this, the terror attack - like the original day of infamy, which brought an end to the Great Depression - could even do some economic good . . . .

First, the driving force behind the economic slowdown has been a plunge in business investment.  Now, all of a sudden, we need some new office buildings.  As I've already indicated, the destruction isn't big compared with the economy, but rebuilding will generate at least some increase in business spending.

There is Frederic Bastiat's "broken window" fallacy writ as large as it could possibly be written.  For just the sheer scale of Krugman's commission of the fallacy perhaps he should be asked to return his Ph.D.  It takes extraordinarily perverse vision to see a silver lining in the unfathomable destruction wreaked on New York that dark day.  Does Krugman know enough to even be embarrassed by his remark?

For those who are new to Bastiat, the great 19th-century French classical-liberal economist, the broken window was his way of teaching us that understanding economic phenomena demands a look at the less-obvious consequences of an action or policy.  He told the story of a shop window broken by a mischievous boy.  As the neighbors gather to lament the shopkeeper's loss, someone (a proto-Keynesian) points out that when the shopkeeper replaces the window, money will begin to circulate through the village.  The glazier will buy a hat.  The milliner will buy a shirt.  And so on.  The resulting economic activity will bestow benefits on the entire community.

Not so says Bastiat.  Had the window not been broken, the shopkeeper would have bought something he wanted and the money would have circulated anyway.  But instead of being able to improve his situation, now he must spend the money merely to regain the position he held when the sun rose that morning.  That is not a gain for him or the community.  It is a loss.

The horrendous destruction of life and property on September 11 is an utter loss.  Yes, billions of dollars will be spent to rebuild the lost assets.  Investments will be made; people will be employed; concrete will be poured.  But the tens of billions of dollars will be spent just to bring us back to where we were before, in material terms (the human capital is gone forever), when the sun rose on September 11.  Think how far ahead we'd be had those crimes never occurred.  In a world of scarcity, there are no silver linings in the destruction of wealth.

"It takes extraordinarily perverse vision to see a silver lining in the unfathomable destruction wreaked on New York that dark day."

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