Jeff Jacoby has a column disputing that disaster relief and rebuilding has any stimulus for the economy. He notes Bastiat's parable of the broken window. As Jacoby tell it:
A boy breaks a shopkeeper’s window, and everyone who sees it deplores the pointless destruction. Then someone insists that the damage is actually for the good: The six francs it will cost the shopkeeper to replace his window will benefit the glazier, who will then have more money to spend on something else. Those six francs will circulate, and the economy will grow.I'm with this so far. But then Jacoby concludes:
The fatal flaw in that thinking, Bastiat wrote, is that it concentrates only on “what is seen’’ - the glazier being paid to make a new window. What it ignores is “what is not seen’’ - that the shopkeeper, forced to spend six francs on that, has lost the opportunity to spend them on better shoes, a new book, or some other addition to his standard of living.
The glazier may be better off, but the shopkeeper isn’t - and neither is society as a whole.Here's where I am puzzled -- why isn't society as a whole better-off? Or, at least, equally as well-off? It's true the shopkeeper isn't better-off and the glazier is. Why is this a bad thing, from a macroeconomic point of view?
My only guess is that shopkeeper is forced to spend money he might have used 'more wisely' (my quotes) -- to expand his business, or buy his wife some earrings, or buy stock in a business so they can built a new product. But then, the glazier is still worse-off and doesn't get to spend that money. If the shopkeeper buys stock the jeweler doesn't sell the earrings and he doesn't pay the earring maker, who then doesn't buy her kid a new pair of shoes. So what's the difference?
This is essentially the same question (isn't it?) of whether it's better for government to tax and then spend money, or not tax and let the citizens spend it himself. Which is better, macroeconomically? And why? Do citizens really make better economic decisions than does the government? If so, in what way?