Here it is, Pierre.
--
Prof. Bryan Caplan
Department of Economics George Mason University
http://www.bcaplan.com [EMAIL PROTECTED]
"Familiar as the voice of the mind is to each, the highest merit we
ascribe to Moses, Plato, and Milton is, that they set at naught
books and traditions, and spoke not what men but what *they*
thought. A man should learn to detect and watch that gleam of
light which flashes across his mind from within, more than the
lustre of the firmament of bards and sages."
--Ralph Waldo Emerson, "Self-Reliance"
Bryan,
Just as you think Paul Krugman can't get worse, he does. In today's
(Friday's) NY Times, he commits the broken-window fallacy, magnified
220-fold.
Don
SEP 14, 2001
After the Horror
By PAUL KRUGMAN
It seems almost in bad taste to talk about dollars and cents after an
act of mass murder. Nonetheless, we must ask about the economic
aftershocks
from Tuesday's horror.
These aftershocks need not be major. 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. But
there are already ominous indications that some will see this tragedy
not as an occasion for true national unity, but as an opportunity for
political profiteering.
About the direct economic impact: The nation's productive base has not
been seriously damaged. Our economy is so huge that the scenes of
destruction, awesome as they are, are only a pinprick. The World Trade
Center contained 12 million square feet of office space; that's out of
375 million square feet in Manhattan alone, and 3.5 billion in the
United States as a whole. Nobody has a dollar figure for the damage yet,
but I would be surprised if the loss is more than 0.1 percent of U.S.
wealth - comparable to the material effects of a major earthquake or
hurricane.
The wild card here is confidence. But the confidence that matters in
this case has little to do with general peace of mind. If people rush
out to buy bottled water and canned goods, that will actually boost the
economy. For a few weeks horrified Americans may be in no mood to buy
anything but necessities. But once the shock has passed it's hard to
believe that consumer spending will be much affected.
Will investors flee stocks and corporate bonds for safer assets? Such a
reaction wouldn't make much sense - after all, terrorists are not going
to blow up the S.&P. 500. True, markets do sometimes react irrationally,
and some foreign markets plunged after the attack. Since then, however,
they have stabilized. On the whole it's just as well that our own
markets have stayed closed for a few days, giving investors time to calm
down; the administration was wrong to put pressure on stock markets to
reopen right away. By the time the markets do reopen, the worst panic
will probably be behind us.
So the direct economic impact of the attacks will probably not be that
bad. And there will, potentially, be two favorable effects.
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.
Second, the attack opens the door to some sensible recession-fighting
measures. For the last few weeks there has been a heated debate among
liberals over whether to advocate the classic Keynesian response to
economic slowdown, a temporary burst of public spending. There were
plausible economic arguments in favor of such a move, but it was
questionable whether Congress could agree on how to spend the money in
time to be of any use - and there was also the certainty that
conservatives would refuse to accept any such move unless it were tied
to another round of irresponsible long- term tax cuts. Now it seems that
we will indeed get a quick burst of public spending, however tragic the
reasons.
Now for the bad news. After the attacks, I found myself wondering
whether some politicians would try to exploit the horror to push their
usual partisan agendas. Then I chided myself for such an uncharitable
thought. But it seems you can't be too cynical; sure enough, the push is
already on to sell tax breaks for corporations and a cut in the capital
gains tax as a response to terrorism.
One hopes that the White House will distance itself from this
disgraceful opportunism, that it will deliver the bipartisanship it
originally promised. But initial indications are not good: the
administration developed its request for emergency funding in
consultation with Congressional Republicans - full stop. A Democratic
contact says that his party received "no consultation, no collaboration,
virtually no information."
I didn't want to mention this, but now is the time to draw the line.
This tragedy will only be magnified if it is exploited for political
gain. Politicians who wrap themselves in the flag while relentlessly
pursuing their usual partisan agenda are not true patriots, and history
will not forgive them.
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