Tuesday, June 15, 2010

A broken pipe and the broken window fallacy

The bursting of the BP oil pipe in the Gulf of Mexico, which is gushing millions of barrels of petrol into the ocean, despoiling hundreds of miles of valuable beach-front, needlessly killing legions of animals, and diverting thousands of Americans from productive pursuits to the cleanup of perhaps the greatest environmental disaster in history, is going to be a positive for US GDP. So sayeth analysts at J.P Morgan:
Still, cleaning up the spill will likely be enough to slightly offset the negative impact of all this on GDP, J.P. Morgan said. The bank cites estimates of 4,000 unemployed people hired for the cleanup efforts, which some reports have said could be worth between $3 and $6 billion.

“If realized, this would likely mean a near- to medium-term boost to activity that might offset the drags,” Feroli said.

Lord Keynes himself would have been proud of such shoddy economic "analysis", which nowadays passes as wisdom. In his magnum opus The General Theory of Employment, Interest and Money, Keynes wrote:
If the Treasury were to fill old bottles with bank notes, bury them at suitable depths in disused coal mines which are then filled up with town rubbish, and leave them to private enterprise on the well-tried principles of laissez faire to dig them up again… there need be no more unemployment and, with the help of the repercussions, the real income of the community and its capital wealth also would probably become a great deal greater than it actually is.