Wednesday, October 24, 2007

Looking a little too hard 

Lew Rockwell thinks he's found an economist who succumbs to the broken window fallacy. But look what the economist says:
"In the odd nature of economic accounting, this will probably be a stimulus. ... There will be a huge amount of rebuilding in the next couple of years, financed by insurance payments."
The emphasis is mine. If you inserted the word "regional" in front of "economic accounting", it would be clearer. Much of the money that covers the insurance claims comes from outside the region. The premiums of all homeowners who buy fire insurance rise; they are the ones who buy less of other things to pay for the insurance (or go without.) Now certainly some construction workers are going to move into San Diego to take up those jobs, but it's not entirely clear that the economist is wrong from an economic accounting point of view, and no reason to excoriate the economist as if he did not know the broken window fallacy.

UPDATE: James Hamilton at UCSD checks in that he's fine, and then tells us about the fires.