|WRECKS-TO-RICHES AN EXCITING NEW CURE FOR
ECONOMIC STAGNATION by Andrew Bard Schmookler
It is an ill wind that blows nobody good, as they say, and the recent devastating earthquake in Japan is no exception. From a remark made about the quake by an expert from Merrill Lynch, I believe I have discovered how to keep the American economy healthy and growing. The quake, says the wise man from Merrill Lynch, will not do damage to the Japanese economy. In fact, the disaster should give Japan a definite economic boost. All the reconstruction work will provide a stimulus to economic activity. The implications of this for America's economic challenges are obvious. And this breakthrough remedy for economic doldrums could hardly come at a better moment in history, for there has been a vacancy for some time now in our theoretical armamentarium against economic stagnation. For two generations, the theories of John Maynard Keynes seemed to offer a solution. In the midst of the Great Depression, Keynes realized that the government could jump-start a depressed economy by jacking up its own spending. The government was to lean against the economic cycle-- spending itself into debt during lean times, tightening its belt when overall economic activity was strong. Now Keynesianism is in disrepute, though not necessarily due to any deficiency in the theory. Governments proved to be a good deal more attentive to the indulgent half of the theory than to its disciplined half, and pretty soon they were running up deficits in good times as well as bad. In the United States, the huge government deficits run up during a prolonged period of economic expansion in the 1980s left the country with such an immense debt that the Keynesian tool is no longer available even if we wanted to use it. Enter now the Insight from the Great Quake. If the destruction of a large industrial city in Japan's heartland can give a boost to that country's lagging economy, a new tool is at hand: When economic times are hard, the destruction of our wealth can open the road to economic progress and prosperity. In Japan's case, it was nature that delivered the requisite stroke. But in the future, we will not have to wait so passively for our deliverance. What the motion of tectonic plates brought to Japan at a random moment, we can administer to ourselves, precisely when needed, with explosives and bulldozers. I'll leave it to the policy-makers to work out whether we should level entire cities in particular regions or demolish only parts of cities around the country. And then there is the question of how we can assure that rural areas and small towns, whose infrastructure is less concentrated and harder to ravage, will receive their fair share of the destruction. There is always the danger that, as with military contracts and bases during the cold war, this wrecks-to-riches approach will get caught up in pork-barrel politics. Of course, leveling buildings and bridges and highways is not the only possible way to increase our national wealth. One recalls those who declared that the Exxon Valdez spill bolstered our gross domestic product, since the cost of cleaning up the oil was greater than the oil's pre-spill market value. We'll need some sound economic studies to compare the value of a simulated earthquake or flood with, say, the creation and clean-up of toxic messes along the lines of an Exxon Valdez or a Rocky Flats. A number of details will have to be worked out, but the fundamental principle seems established: destruction can serve as the foundation for our enduring prosperity.
Andrew Bard Schmookler is the author of The Illusion of Choice: How the Market Economy Shapes Our Destiny.