Just In Case You Were Wondering

If you are tempted to conclude that because of Hurricane Sandy, the affected regional economies will be better off because of the spending that needs to take place to restore them back to pre-Sandy conditions…don’t.

Prosperity comes with greater goods at lower real prices over time. Wealth is ‘stuff’. More stuff and/or better services over time raises your standard of living.

If someone were to destroy all of your stuff, you would not be better off. If you were to buy brand new goods to replace the ones that were destroyed, then that producer would be better off, but at the expense of the other producer who would have gotten your money if your goods were not destroyed. There is a net loss to the community of producers and consumers when your stuff is destroyed. That is pretty much indisputable.

The same goes for whole economies. When a hurricane strikes a region and levels the buildings and structures, they call it a catastrophe for a reason. It is bad.

But in addition, the spending and energy and time that is necessary to restore the region to pre-catastrophe condition could have been used to add to the wealth of the region. Now, instead, it must be used to restore it back to its previous condition – back to step 1, so to speak. There is no way that it could be better off, speaking in terms of standard of living.

If destruction were the key to prosperity, then why wouldn’t we spend all of our time destroying things?

Steven

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