The Keynesian mindset has poisoned the thinking of a few generations of economists. Nowhere is this convoluted thinking more apparent than the common violation of “The Broken Window Fallacy.”
Frederic Bastiat wrote the parable about the broken window almost 100 years before John Maynard Keynes published his General Theory and more than 150 years ago. Keynes did not understand the fallacy and based an entire economic system on it. His current day disciples are just as ignorant of the principle.
Gardels is almost a parody of the broken window fallacy:
But if one can look past the devastation, there is a silver lining. The need to rebuild a large swath of Japan will create huge opportunities for domestic economic growth, particularly in energy-efficient technologies, while also stimulating global demand and hastening the integration of East Asia.
Japan has been wallowing in stagnation for years despite massive government stimulus programs and zero-interest rates because, simply put, in such an advanced, mature economy there was too little demand to generate sufficient returns to attract private investment. Thus the famous “bridges to nowhere” and other projects that amounted to pushing a string.
By taking Japan’s mature economy down a notch, Mother Nature has accomplished what fiscal policy and the central bank could not. Now there are more bridges to somewhere to be built than one can count. Entire cities and regions need to be reconstructed in toto, from housing and commercial buildings to roads, rail lines, information networks, the energy grid and even the tsunami warning system that must be digitally revamped. Twitter- and Facebook-like platforms will need to be integrated into a system reliant on old technologies like warning sirens and radio or TV broadcasts. (It was reported that at one point on the day of the quake, 20 tweets a second were coming out of Tokyo.)
The result of all the new wealth creation will be money in the pockets of Japanese to buy global goods and services.
This newly created demand will surely attract the piles of cash out there looking for investment opportunities, from global private equity pools to American banks and China’s sovereign funds.
Of course if you want real parody, you might check out “The Parable of the Sooty Window.”