Two lines from today’s CNBC.com article The Softer Side to Sandy’s Economic Hit:

“But as the money flows into the regional economy, it will create a significant economic stimulus.”

“The upshot is that, when we consider the cleanup activity, the overall impact on GDP growth could even be positive.”

This was the only article I chose to pull up on the subject—and I found precisely what I expected.

I am forever fascinated at how the broken window fallacy as taught by Frederic Bastiat, some 160+ years ago, survives, time and again, in the face of commonsense.

So, “as the money flows into the regional economy it will create a significant economic stimulus”. Really? But what of the places where this money was headed before the storm? What of the economies in those areas? Is Peter not robbed of “significant economic stimulus” as we pay Paul?

Of course you can push back by saying that much of the money will come from insurance company reserves—idled money essentially. Now without getting into how the banks that hold insurance company reserves would allocate those dollars, let’s just say that depleted reserves will indeed need replenishing (same goes for victims’ personal savings). Meaning dollars that would have gone elsewhere, perhaps toward the purchase of securities, property, etc., within insurers’ investment portfolios will now have to be rerouted into those low-yielding reserve accounts. Not to mention the unavoidable increase in all policyholders’ future premiums—again, diverting recourses that would have been allocated elsewhere.

And before you start thinking that Federal assistance comes at no economic cost, let me halt that thought process with a reminder that you and I, the private sector that is, pay for everything the federal government does. Which of course includes future taxation as we pay on that ever-growing mountain of debt.

Another argument might be that to the extent reconstruction leads to better buildings, better infrastructure, etc., that we will indeed realize a net gain to the economy when it’s all said and done. Of all the arguments this one’s probably the best—however, this would assume that destruction-induced modernization trumps the economic benefit from the activities that will be sacrificed as resources are diverted. And if that were indeed the case, don’t you suppose that the market would have rerouted resources toward the demolishing of those out-dated facilities the moment it determined that there was a better use for those resources?

So please, let’s not pretend there lies an economic silver lining in the midst of a natural disaster. If you’re looking for something good, look no further than to the sheer tenacity of the human spirit, and to the outpouring of warmth from the human heart.