What George Orwell Knew

The mainstream media coverage of the economic impact of hurricanes Harvey and Irma has been very good. There is generally an acknowledgment of the individual human pain and suffering that comes from catastrophic natural disasters. The loss of human life is incalculable from an economic perspective. Upwards of 70 people have died because of hurricane Harvey and it is certainly possible that some people in the United States will lose their lives because of hurricane Irma. The human and economic losses from Irma in the Caribbean are devastating. All of the reports talk about the short term economic problems that occur because of a natural disaster. Businesses are closed temporarily. People are unable to work. Prices rise in the short run.

But then, the discussion occasionally drifts in a myopic bent only an economist could love. In an interview on CNBC New York Fed President William Dudley said: “The long-run effect of these disasters unfortunately is it actually lifts economic activity because you have to rebuild all the things that have been damaged by the storms.” In the months in years following the hurricane we must rebuild the destruction wrought by nature. Surely this has a beneficial effect on the economy? People who are out of work are able to use their gifts to replace what was destroyed. They create wealth in the process. Free market economists often point to Frédéric Bastiat’s essay That Which is Seen, and That Which is Not Seen to counter these arguments. Bastiat argues that the money we use to spend rebuilding would have been used to create new additional wealth.

Bastiat is correct. When we rebuild after a hurricane we are only replacing that which was destroyed. Something of value was taken (a devastating loss to the person / a small aggregate loss to society); rebuilding merely replaces something of value that already existed. The only way you can think this is positive is to think in the narrow way of economists discussing the growth of GDP. Yes, the growth rate of GDP will be higher because of the construction, but it is misplaced and callous (Dudley’s verbiage indicates that he understands this tension) to believe that this is a good thing for our society. George Orwell understood this. In this passage from 1984 Orwell is talking about war, but the ideas are analogous to the distraction that is caused by hurricane.

The essential act of war is destruction, not necessarily of human lives, but of the products of human labor. War is a way of shattering to pieces, or pouring into the stratosphere, or sinking in the depths of the sea, materials which might otherwise be used to make the masses too comfortable, and hence in the long run, too intelligent.

This quote is taken from chapter IX of 1984. Winston is reading The Theory and Practice of Oligarchical Collectivism by Emmanuel Goldstein. The passage is taken from chapter 3 “War is Peace”. Goldstein is explaining the role of war in the Party’s subjugation of the masses.

51 thoughts on “What George Orwell Knew”

  1. Several people have asserted that transgenderism is wrong or sinful. So here’s the question. Why? Where does God say it’s wrong for a man to embrace feminity or go by a different pronoun?

    Gender is a social construct, there are people that don’t conform to the gender of their sex. That’s undeniable. Whether you call a masculine female a tomboy or a boy, is there a moral difference?

  2. So if I am understand this correctly, it sounds as though the news is covering only short term losses and effects of all the hurricanes and storms and that rebuilding will take months if not years. Because of this the economy will be negatively affected long term due to lack of that money going towards something else. Am I understanding the argument correctly?

    If so, I have a question: is this distinction about the economy has a whole or just specific segments of the economy? I guess I’m not understanding what the negative affect is. People pay construction companies to come and rebuild, but the construction workers still need food, shelter, etc., so the money should still be there shouldn’t it? Wouldn’t it just have an extra stop on the way to what is was originally intended to be used for:

    1. The problem comes from the fact that rebuilding creates no real growth. If someone lived in the path of the hurricane and had money saved up to purchase a new boat for example. He now needs to dedicate resources to repairing his home, and the new boat is never produced. This individual is now back exactly where he started, but he no longer has the money he saved. The economy has gained nothing, merely replacing parts of this man’s house, and it has lost the production of a new boat.

    2. Donald,
      Carter’s comment explains what I was attempting to say very well. Sometimes economists are so myotic that we only see part of the picture.We think that when GDP increases that it must be unambiguously good. What we are missing, is that there is destruction that occurs from the hurricane. That distraction in itself is very counter productive economically. When the construction companies re-build we see that that adds to GDP, but forget that we lost something in the first place.

      Thanks for the comment, Carter.

  3. “Bastiat argues that the money we use to spend rebuilding would have been used to create new additional wealth.”

    I remember as a freshman in Dr. Monroe’s class reading about the broken window fallacy. It made sense back when I was young, but it makes less sense now than it used to.

    First, if that is what Bastiat said (I know Haslitt took the broken window chapter from Bastiat), then he was begging a question. We DON’T KNOW if the money would have been used to create any additional wealth. Perhaps it would, perhaps it wouldn’t. The money misers hide under the mattress might mean additional wealth in the future, but then again it might not. It completely depends upon how the money is being spent!

    If Bastiat was right, then Keynes’s ideas would have been completely without merit; and that is certainly not true. Much of Keynes is counterintuitive, and much of Bastiat is intuitive. But intuition can be fallacious.

    1. Hi Jeff,

      Bastiat’s Essay is part of the public domain. Here is one link: http://www.econlib.org/library/Bastiat/basEss1.html).

      “If Bastiat was right, then Keynes’s ideas would have been completely without merit; and that is certainly not true. Much of Keynes is counterintuitive, and much of Bastiat is intuitive. But intuition can be fallacious.”

      I think this statement is too strong. In my mind, much of what Keynes said is much more straightforward than what Bastiat said. Keynes’s ideas are not completely without merit. What you’re saying is that the individual might not spend money on something else if he didn’t replace the broken window – that person could save rather than spending the money on something to enhance the business. Of course in this concrete example that is very possible. In fact, the business might not replace the window at all.

      The point I was trying to make is that contemporary economists sometimes talk about the positive affect of rebuilding on our economy, while ignoring the negative effect that the national weather catastrophe has. If you say, “Look GDP is higher because of rebuilding”, but ignore the fact you are replacing previously created wealth and ignore the opportunity cost of the funds you’re using to rebuild, – you’re missing important elements.

      A Keynesian might say that if there are unemployed resources the rebuilding can happen without significant opportunity costs.

      1. “The point I was trying to make is that contemporary economists sometimes talk about the positive affect of rebuilding on our economy, while ignoring the negative effect that the national weather catastrophe has.”

        I agree.

  4. I have been one of the many people persuaded by the broken window fallacy. I now have a very clear take on why wars and disasters which cause a lot of destruction are not beneficial to the economy. Although it may make the growth rate of GDP rise, the GDP as a whole isn’t increasing because people are only rebuilding what was already present.

  5. Dr. Wheeler,

    Do you think there are any broader or larger consequences for the distance between popular ideas and economic realities that your discussion indicates? When macroeconomic measures like GDP growth do not necessarily mirror the on-the-ground, broken window realities people face, do they lose confidence in economics as a science? Does it hurt the reigning economic system (free-ish markets) to be seen as inconsistent/incoherent?

    1. Hi Stanley,

      If you are talking about an individual being unemployed when GDP is growing above trend and the unemployment rate is low, Yes I think it may cause distrust and a type of alienation from the “system” (economic and otherwise). I am not all that certain that it hurts free markets, unless the individual connects their trouble with free markets.

      Did I understand your question correctly?

      1. Yes, that definitely answers the question. I think there may be a greater likelihood of individuals connecting their suffering with “the system” when the market is free because of competition and the lack of a powerful authority to appeal to for help. In a mixed or authoritarian economy, the government’s help for the suffering just hasn’t happened yet, but in the market, the alienated can’t necessarily expect relief that meets their expectations and flows from the system. Even though reality may be that the free market yields shorter or less intense periods of suffering, I think the perception of helplessness will be stronger and more aimed at institutions.

  6. This article reminds me of the broken window fallacy. When it is used in a real life situation, it makes a lot more sense than when you learn it in a classroom. The cost that it will take to renew what was lost of buy new things for the people that were affected is just taking the wealth away from those people. Therefore, they will not be able to spend it on other things that they would’ve before this happened. This is only helping a group of people directly and not other groups as it may have before.

  7. I think the point made here is very accurate. The train of thought that this will be an overall good is called the broken-window-fallacy and is something that has been prevalent for a while now. The idea that the destruction of something that needs to be rebuilt is good fails to recognize that the rebuilding process takes away resources from things that could have been bought with the same money. Instead of buying a new car, now people will have to rebuild homes. The fallacy assumes that the money spent to rebuild would have been saved instead of spent on other goods.

    1. The fallacy of those who use the broken window fallacy is the unwarranted assumption that if money is spent in the future and not now, it will be spent more wisely and in a way that would improve the economy.

      The economy is not that simplistic as Bastiat thought it was.

      1. Jeff,
        I would agree that we do not build an entire economic theory off of the idea of the “broken window.” But, Bastiat understanding of the economy was not simple. Bastiat’s understanding may have had more in common with Smith and Marx than Keynes, however, it would be a mistake to call it simple.

        This is a good beginning piece for reading Bastiat: http://bastiat.org/en/the_law.html

  8. Orwell definitely understood that some form of mass destruction causes the existing livelihood of many people to be shattered. Mass destruction, whether in the form of a war or a hurricane, requires previously existing buildings and establishments to be rebuilt. In an essence, mass destruction, is something that causes the comfortable state that many people live in to be replaced with chaos and rebuilding.

  9. Frédéric Bastiat’s essay “That Which is Seen, and That Which is Not Seen” is just like the Broken Glass Theory I learned in class a couple of weeks ago.

  10. I can see where a person would think that these hurricanes benefit the economy long-term, but I’m not so convinced. Yes, the economy will definitely be boosted as people have jobs with rebuilding efforts. However, any money being spent on the rebuilding is money now FORCED to go into rebuilding. Before the hurricane, the money going into reconstruction could have gone into other areas. Furthermore, every life that these disasters take costs the economy a laborer, which takes away future wealth gains. So, yeah, we might gain a few extra jobs in rebuilding, but those are offset by the jobs that we lose from the lives that these storms take. It’s true that disasters create new jobs and generate some new income in the rebuild process, but the tradeoff (loss of life/jobs and money being forced to be spent on a specific area) costs the economy more. That’s my opinion.

  11. It appears that Dudley is guilty of using the broken window fallacy. Just because money is going to be put into rebuilding the areas affected by the hurricanes doesn’t mean that the economy is going to boost significantly. Yes, there will probably be a small increase in the economy at first with all the new jobs, but the affects won’t last too long. The money and resources spent rebuilding the damages would have been used for something else anyway.

  12. The broken window fallacy is a perfect example for this instance; the economy is not at a halt, rather, resources and workers are shifting their work, resources, and wealth somewhere else. I do see how the economy can be boosted through a natural disaster by employment of the unemployed, however, several buildings and homes are putting others out of their job. The construction industry will be booming in the next several years but there is also a lot of damage elsewhere. This hurricane will be a setback for many.

  13. While the devastation caused by these hurricanes is terrible, it has been incredible to see how normal people are coming together to help one another. Perhaps in this time of unrest politically, old fashioned brotherly love will bring people together for more than just cleaning up from a hurricane.

  14. I believe that it is easy to look at the GDP rising but not actually look at the effects behind it. Even though people are rebuilding they are only replacing not creating. This provides jobs for the otherwise unemployed which does help the economy, but again it goes back to the reason that they are once again employed. This article was helpful in light of recent events to see how our economy is effected after such a catastrophic event.

  15. I found this article very helpful in terms of how the economy is changing and how it will change in light of the recent events on the southern coast. I believe it is a so easy to look at the way the GDP is rising and falling in times of trial in our country and completely miss the effects behind it. Although unemployment may go down due to the need for newer jobs of rebuilding what was destroyed by a catastrophe, this is simply rebuilding the things which would’ve already been there. The money used to rebuild could have been used for further growth. In terms of unemployment, what happens to those jobs created by the overwhelming need for help during the phase of rebuilding?

  16. This article gives good insight into the economic side of natural disasters. I agree that it is easy to look at the GDP and find excitement that at least something good is coming out of the disaster, but that isn’t necessarily true either. Although it might not actually help the economy in the bigger picture, it is awesome seeing people from around the country come together and help out those who are in need right now.

  17. Ah, the good ‘ole broken window theory. I can’t believe that people still can sit around thinking things like this will help. Yes it helps the local construction agencies but what about the Baker who is to busy rebuilding his house and shop and using money on that instead of buying a new oven to produce bread either better of faster reducing the price allowing for more people to buy.
    It is true that they will be able to bounce back from this fine but people don’t look at the long term effects of some of these things. Most of New Orleans was able to rebuild and experience a renaissance after Katrina, but not all of it did. The Lower 9th ward was the hardest hit and least financially ready for this. I went to New Orleans about 4 years ago and there were just a bunch of empty and overgrown lots sitting around awaiting this economic miracle to kick in.

  18. Upon reading this, I like many people automatically thought about the broken window fallacy too. I understand how the tragic events will, in the short run, boost the economy, but it’s effects do not create a lasting solution. As a christian, it is very encouraging to see people coming together to support one another in a tragedy like hurricane Harvey.

  19. I think of the broken window fallacy like you do. I can see how in the short run it can boast the economy but I was wondering what you thought about people jacking up prices in situations like hurricanes and natural disasters? Do you think its ethical?

  20. Apparently, someone needs to have most news anchors take an economics class. You know it’s bad when they literally have a name for the fallacy.

  21. Hurricanes and other disasters always disrupt economic progress. Rather than allowing an area to continue growing, they force it to restart. Granted, the physical growth is faster and better planned than before, but it still a process that has already occurred once. Rather than allowing an area to keep elevating itself, it must instead use its wealth to return to the point they were at prior to the disaster. It may help GDP, but in the long run it harms the individuals within the affected communities.

  22. It is very interesting how many people seem to fall into the trap of the broken window fallacy. In the very short run these disasters may have created jobs but it certainly will not boost the economy in the long run. I find it interesting that this has been a truth in economics for decades, yet a misconception that many still fall for. Above all, I do find it encouraging to see the unity of so many individuals coming together to help one another.

  23. I think when I first look at this event, I myself am prone to think that natural disasters will stimulate the economy, but as I read this article and understand the broken window fallacy, I realize that it is not helpful for the economy. Events like hurricanes are hard to avoid though, and I think that what can best be done in response is to work to minimize the extent of the destruction.

  24. I would simply add that Hazlitt only identified one condition in which something destructive like a hurricane would actually be a benefit, that is if the individual was planning on tearing down an obsolete building anyway. In that case, you could technically just have the hurricane do the work for you. But, are we to believe that a sizable chunk of Floridians have all at once decided that at this very moment it was just about high time to tear down their homes and start anew? I doubt it. Rarely, if ever, is such thinking aligned on such a scale.

  25. I think that this is a great example of seeing God’s blessings and gifts come in the wake of tragedy and hard times, more often than not. Yes the broken window fallacy is a very real thing, but the economic growth that will come from it cannot be overlooked. Beyond economic growth, the opportunity for volunteers with heart’s for the Lord to share the gospel is wide open, and that, is no fallacy, nor can there be a price tag put on it

  26. This is just like the Broken Window Fallacy. Like you said, just because people have to spend their money to replace all that they have lost, that doesn’t mean that it is good for the economy. Those people could have spent their money on so many other things that could have stimulated the economy the same way. It’s probably a good idea to look for a silver lining in situations like this, but this is not the way to do that.

  27. I was hoping you would have touched on the broken window fallacy. But, it would’ve been short anyway.

    It was interesting to hear Orwell speak of war and disaster as a way to distract the masses from issues, like the Gladiator games of old.

  28. George Orwell is a very fascinating author. He dives into social issues that are not often thought about, or at the very least issues that are before his time.

  29. This is an excellent example of the Broken Window Fallacy. For most of my life, I believed that these natural disasters were good for the economy as they increased the GDP. I know understand that the money goes just to rebuild what was lost, and not on other goods which would have been bought if the natural disaster had never happened.

  30. When natural disasters happen, we must take time away from work to rebuild. So, while we do buy more from the marketplace, our workplaces often suffer because we have to take time off work. On paper, it looks like the economy grows, but only looking at the numbers proves there’s more to the story.

  31. This is an interesting idea that I have been told many times in my microeconomics class…shout out Jeff Haymond. It makes complete sense why this does not actually overall help our economy. It is actually hurting it because suddenly people lose all sorts of money, and now businesses have to get going again to be producing a helpful product. I do not understand how some economists can believe that this could be good for economic growth.

  32. Even with these harsh realities of a hurricane destroying everything in its path, economics still has a major role to play in the rebuilding process. I have heard many people on the news say that the economy will take steps forward because of the hurricane and that is just not true. The broken window fallacy counteracts this point of though. The money used to rebuild would have been used on other things that would have enhanced the economy. Until very recently I didn’t know better, but now that I know the basics of microeconomics it is clear what the correct answer is.

  33. Yes, we gain growth from construction and work after a natural disaster. Yes, we lose out on growth and progress because of the natural disaster. We also need to remember that during these events, production and other forms of work come to a complete stop. We not only lose all of this growth, but we also have to restart and spend money to begin what was lost.

  34. Thank you for posting this, very good read. I’ve gone over and over this in classroom discussions and talks with my family and friends. There is no economical benefit to destruction what-so-ever! Resources are finite and are just allocated elsewhere. Money that was meant to be saved and spent in the future is used to repair damages in the short term. While it looks good on paper, I certainly agree with Orwell – destruction is frowned upon for a reason. Anyone knowing anything about economics would agree!

  35. It is sad to see that this is such a common thing people are confused about. Until recently I too once thought, and tried to comfort myself with the idea that even though these disasters happen that some good comes out of them. Sadly I now know that this idea is erroneous, and that I have tried to seek some solace in a lie. That said I am grateful that I know now about the lack of any economic benefit when disaster strikes.

  36. It’s kind of weird that someone in his position would believe in the broken window theory. Hasn’t the broken window theory been proven to be in error on countless occasions? In the short term a lot of money will need to be used to fix the areas affected which will create a lot of opportunities, but in the long run, a lot of what the areas affected will cause a net loss. I guess it all depends if he is talking about short or long-term

  37. Reading this brings to my attention the fact that disaster creates both a one-sided and a two-sided argument. For the two-sided argument, the disasters bring pain and possible death, but there is also the possibility of economic growth. As the article explains, though, the economic growth that occurs, is really not a growth at all, but is instead just a replacement, replacing what has been damaged and destroyed. This economic growth does not lead to expansion or true wealth; instead, this growth is only trying to get a community back to where they were previously.

  38. I originally believed that when there is destruction that the rebuilding effect would be better for the economy as a whole. This represents the broken window fallacy. I now see that this is simply not true. Although more jobs are created in the wake of destruction, the resources that are used to pay new workers could have been better used to grow wealth instead of rebuilding.

  39. I think that this article brings a valid point in that often times people use the Broken Window Fallacy, in which a natural (or unnatural) emergency appears and they seem to think that this is somehow going to raise the GDP. It will, however, the fallacy in this belief is that the money spent rebuilding would have been better spent towards creating better things for the community. I now can understand the broken window fallacy better after seeing an example of it in use today.

  40. This topic definitely raised my eyebrows. The fact that one could be so foolish as to think that a hurricane or natural disaster that ruins lives and businesses could be economically beneficial is utterly astounding. It is just straight up ludicrous. I mean first of all they are discounting the personal and emotional cost and trauma. But how can one earn a profit when one has to start at square one all over again?? I am all for people trying to find the silver lining of a situation, but this is not a realistic positive spin on the issue.

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