Tuesday, February 28, 2017

How The Avengers Didn't Stimulate the Economy

Or, alternatively, the parable of the broken window fallacy. 

This theory comes from French economist Frédéric Bastiat, and it is an explanation that “…destruction, and the money spent to recover from destruction, is not actually a net benefit to society.” As Bastiat explains, if a shopkeeper’s son breaks a pane of glass, the witnesses of the event may offer their sympathies, yet also ask “What would become of the glaziers if panes of glass were never broken?”

The statement is meant as a well-meaning condolence; even in your misfortune, there is still benefit, somewhere, for someone, to be had. Because Bastiat was an economist, he quantifies the fallacy. 

In keeping with Bastiat’s parable, if the shopkeeper pays a glazier to replace the glass, he has given the glazier business (or, circulated money) that the glazier would not have had otherwise. The flaw in this thinking is that the money spent fixing the window circulates in the economy. Bastiat explains that this money could have circulated in other, less destructive ways; the shopkeeper could buy new shoes, or a new book. The destruction of the window was not necessary to the economy.

Kinetic Analysis Corp., a prominent disaster-cost prediction and assessment firm, estimated that the Battle of New York, Avengers vs. Chitauri, from the 2012 blockbuster The Avengers, would have done $160 billion dollars worth of damage.

That’s billion. With a ‘B’. Theoretically, the cleanup creates thousands upon thousands of jobs- yay! Growth of a job market! Except, well, that’s not exactly how that works.

The financial damage would be greater than 9/11, Hurricane Katrina, and the tsunami that racked Japan. That 160 billion would be paid, but considering the net worth of the losses, the benefits don’t add up.

Bastiat looks further than the immediate destruction of the window, takes into account what the long term effects of the destruction add up to, and what he sees is the consequence not just for the shopkeeper, but for the shopkeeper’s village.

So, seeing that destruction will not, in fact, offer a net benefit to society, here’s hoping that aliens don’t come crashing out of a portal opened above any major metropolitan areas anytime soon.


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