There’s an economic example often used to illustrate, among
other things, how government spending affects the economy. [See here and here.]
From Greg Mankiw's blog |
In short, if a vandal breaks the glass display window of a
bakery, it stimulates the economy: a glazier gets, say, $500 for the work and
materials to replace the window. But what we don’t see is where that $500 would
have been spent if the window had remained intact. Maybe the baker could have
bought a new suit, and/or hired another worker in his shop. The suit tailor
and/or the new employee are out that amount of money.
There is the seen and the unseen.
So, in the aftermath of Hurricane Harvey, here in Houston,
we’re looking at an estimated $30-40 billion in metaphorical broken glass, or
property damage. What is going to happen next? A lot of renovation and
rebuilding. In fact, it will be a boom town for renovators. If they’re mobile
enough, it would be prudent for such workers to move to Houston and set up shop
for the next year or so. The same is true for drywall and flooring suppliers.
And furniture sales. There’s $30-40 billion here, above and beyond what the
economy needed before the storm.
Jobs galore! Isn’t this great?
Ask one of those families how they feel about it. Are they
better off economically by spending money on flooring, drywall, and furniture
replacement—after possibly spending money on hotels or apartment rent during
the rebuild, along with clothing replacement and the expense of eating out—or would
they have preferred to use their money in ways they had intended before the
storm? Things like a new car, education, retirement savings, a vacation?
Even those with insurance are likely to prefer their own
plans for their money, rather than the storm-caused new plans.
People who are charitably giving sense this. They wish to
mitigate the damage by volunteering labor, materials, money, or other help so
that the cost to the storm victims is less severe.
Let’s take a look at the volunteer labor. The professional
cost for mucking out a house—removing flooring, drywall, ruined furniture, and
other debris, and then cleaning, drying, and preparing the walls and floor for
rebuilding—before any rebuilding is begun, so, separate from those costs—is an
estimated $16,000 per house.
Does that charitable giving deprive the economy of money? Technically,
it would deprive those particular professionals of money they might have made.
But there is a time issue involved. Suddenly there is a shortage of companies
that do this service, since in non-storm times such needs are limited to broken
pipes or other hit-and-miss personal disasters. And it’s assumed that a home
needs to be cleared and aired out as quickly as possible. Any home that remains
waterlogged and growing mold for 30 days is likely to be a total loss.
We’re at day 19 today. Some houses are still underwater. But
this time issue is why, anywhere the water has receded enough for homeowners to
return, you see the debris piles along the streets. They want to give their
home the best chance possible for a successful rebuild.
Volunteers are spending their time. But we’re assuming they’re
spending out of their surplus. So they’re not short-changing the economy by
failing to earn during those volunteer hours. Anyone who would prevent the
volunteer neighbor-helping-neighbor work would be doing nothing for the
available workers in that field, since they have more work than they can do already.
But they would be condemning those homeowners to total loss.
So I think we can agree volunteer work after a disaster is a
community good.
While we’re talking about giving, there are plenty of places
to give to charity, for anyone who wishes to alleviate some of the pain. Among those
that send all donations directly to those in need:
·
J. J. Watt Foundation, which has raised $33.5 million,
but will be ending fundraising Friday, September 15, at 5:00 PM.
·
LDS Humanitarian Services, which has already provided 22
truckloads of supplies in Houston, including equipment for all those Mormon
Helping Hands to use. (We are still housing the generator they provided during
Hurricane Ike, for use in our congregation. We shared it with neighbors on both
sides during the eight days we were without power.)
Additionally, a number of people have set up GoFundMe sites,
to raise money for specific people. In this kind of grassroots arrangement, you
know the money you send goes directly to those who need it. I know the people
involved in these two:
I’ve mentioned Derrick’s story and shared his photos in the
past couple of weeks. He lives not far from me. Here'e Derrick talking about coming to be willing to accept this help:
The Tidwells live in Port
Arthur. I’ve been friends of their extended family since my first year of
college. Both families ended up being rescued by boat and face a long recovery.
There are going to be many many others in similar situations. But I know any
donation you can afford would be well spent on these families.
Back to our economic discussion. One of the reasons central
planning is always a bad idea for economics is that the central planners can’t
know what the needs of the individual are. They can’t make better decisions
than the people earning the money and deciding how to spend it. They can’t see
the unseen—the economic choices that are lost when one choice is made rather
than another.
Government has its role: protection of life, liberty, and
property. But its economic role is mainly to get out of the way. If only!
One way the private sector has managed disaster recovery in
the past is insurance. I read this helpful note earlier today:
Most of the money from previous Texas hurricanes has come
from private insurance. And, in some ways, this process of rebuilding restores
a balance in the economy. For the past couple of decades, almost all homeowners
have paid for insurance but few people make a claim. Most of that money sits on
the balance sheet of big insurance companies to pay out future claims, and
those companies often invest those dollars on Wall Street and real estate.
That’s all fine—good, healthy commerce.
Now the time has come for the flow to go the other way. Big
insurance companies will be paying out money to settle insurance claims, and
most of that will go to working class Americans who will rebuild damaged
property. Demand for labor will rise, as will wages, as the money starts to
flow. The tilting of the economy away from physical labor toward the financial
sector will reverse – maybe only temporarily, but it will still reverse.
In other words, insurance money has been in the economy all
along; this disaster just changes where it is put to work for a while. It has
given many homeowners and businesses a chance to get back to their previous
economic track more quickly than if they hadn’t been putting money toward
insurance all along.
What about government money? If it’s there, we’ll take it.
But this same author says something that maybe ought to be obvious but isn’t:
Of course, if the federal government decides to give away
money, I suppose people will sign up for it. But this madness eventually needs
to end. The federal government is broke, and insisting that folks in Kansas or
Vermont pay for a hurricane in Houston is silly on the face of it. This is not
an invading army we’re talking about here. It’s a really bad storm. The
Constitution doesn’t contain the words “storm,” “weather,” or “insurance.” Why
are we continuing to twist its meaning to make Congress and the President look
like heroes? If they want to help, let them help with their own time, talent,
and treasure. Like the rest of us.
But we also don’t want to be suckers. If Washington DC
decides not to help Houston, they should end it for everyone in the future.
Which they should, in my opinion.
I’ve had good things to say about Houston Mayor Sylvester
Turner during the past few weeks. But earlier this week, he kind of wiped out
all that good will. He decided that now
is a good time to add an 8.9% property tax hike to all Houston property owners.
Rates will be charged at pre-storm property values—even though those values may
have plummeted because of storm damage. Why? Because, to a Democrat, paying for
government is paramount.
What will the citizens get for this? Not protection from
this storm or future storms. Not greater fire and police protection. Not better
roads or infrastructure. Nothing but the dubious satisfaction of getting city
government fully funded before they even get back into their own damaged homes.
Was there a cost to the city caused by the storm? Yes. It
was far less than it would have been without good engineering and planning,
based on past storms. But shouldn’t the city economize, as the citizens have
to, rather than burdening people who are already suffering financially?
Again, it’s that short-sighted economic view that sees only
a chosen segment of society—in this case, city government. If we can get
Houston back on its feet, and rebuilt, and economically humming along in its
normal healthy way, wouldn’t that benefit the city well enough?
I’ll note that Harris County, a government entity that is
larger than any local government entity in the US except possibly the City of
Los Angeles, has decided to economize, rather than burden the people.
Fortunately, the mayor must go through the city council,
with a final vote in mid-October. It may be that the people can be vocal enough
to convince the city that now is not the time to force storm-weary citizens to
cough up an additional $100 million in taxes.
So, when there’s proverbial broken glass, that temporarily
helps the window repairman. That’s the seen
benefit. But unseen are all the lost
uses for that money. I hope we can soon get back to letting the people who
earned it decide how to spend it.
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