Diane Swonk’s broken window fallacy

Marketwatch picked up Diane Swonk’s twitter feeAn “economist”, Swonk says that Hurricane Sandy will lead to “perverse stimulus”, ironically even mentioning the replacement of broken windows.  Evidently, Bastiat and Hazlett are not on her reading list.  Here is why economist like Swonk, who follows in line with the even greater idiot-economist, Dr. Paul Krugman, are perpetuating a fallacy:


The ironic thing is that Zerohedge pointed to this video yesterday for those who would talk about all the jobs that Sandy will create.

In the case of the aftermath of Hurricane Sandy, we can be sure that the Federal government will “stimulate” by borrowing money.  But since the government is already over-leveraged, the Federal Reserve’s Bernanke (also an PhD economist) will provide quantitative easing and create these repair dollars out of nothing, which will in turn result in devaluation of the currency. Is Hurricane Sandy the straw which will break the hyperinflation back, sending the US into uncontrollable currency debasement?  This remains to be seen.  It does not bode well in my view.

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