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August 26, 2011

Stimulus: Stores Sell Out In Anticipation of ARRA Project "Irene"

If you saw it, someone spoofed Paul Krugman as saying a really big juicy hurricane would get this economy going again.

Spoof, but Krugman really is a big believer in the Broken Windows Fallacy the idea that wanton destruction of property is actually stimulative and hence good for the economy, as people have to go out and buy replacements for all they've lost.

This animates (partly) the idea that WWII was what got us out of the Depression.

Liberals keep arguing that it is literally true that a vandal going up and down a street shattering windows is doing a public service, for that vandalism of $1000 worth of windows will result in the spurring of $1500 of new economic activity.

The reason this is a fallacy is that while it may be true that $1000 may have to be spent on replacement windows, and that spending may spur $500 in additional, secondary-effect spending (the glazier can now buy a horse), it only seems so if you ignore the other parties, the hidden men, in this parable.

What about the tailor, who would have sold a $200 suit if his client had not needed to divert that $200 to buying new windows? And so on. The glazier is doing gangbusters business, but the butcher, baker, and candlestick maker now find their clients cutting back.

All that's really happened here is exactly what it intuitively seemed like was happening -- property was being destroyed, and hence, people were poorer. The attempt to be clever and see something counterintuitive fails; those who sought to look clever instead look dumb.

I busted on Matt Yglesias' chops on Twitter -- he was really pushing this nonsense -- and asked him, "If losing property leads to greater wealth, can I have all your shit? Win win, baby."

Thusfar my invitation to accept all of his shit, forcing him to buy new shit, and thus making him wealthier (?), has gone unaccepted.

Anyway, this article accidentally explains why that is a fallacy.

Hurricane Irene sent East Coast shoppers into stores to stock up on essentials this week, instead of the clothes, notebooks and other supplies that retailers were counting on selling as children get ready to go back to school.

Chains such as Home Depot Inc (HD.N) and Wal-Mart Stores Inc (WMT.N) were doing brisk business on Friday, selling water, flashlights, batteries and other goods in states standing in Irene's potential track from the Carolinas to Massachusetts.

"Most probably, the biggest demand right now is for generators, obviously," said Suzanne Roche, manager of a Sears (SHLD.O) store in Wilmington, North Carolina. "We have got customers calling nonstop."


Those who were not trying to squeeze in one last summer stay on the New Jersey shore or Long Island beaches may have been planning to go to shopping malls to buy clothes, shoes and other items for children who will soon head back to school. Now those plans will be on hold.

"Nobody is going to go to a mall to buy a pair of jeans," said Richard Hastings, consumer strategist at Global Hunter Securities.

Exactly, and that is why it is called Hurricane Irene, not Economic Miracle Irene.

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posted by Ace at 06:50 PM

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