I'LL NEVER LACK FOR WORK.  A National Public Radio report on the Japanese earthquake begins with a reasonable observation.

The earthquake and tsunami that struck Japan on Friday forced multinational companies to close factories, fight fires and move workers, inflicting at least short-term damage on the Japan's fragile economy.

Assessing the full economic impact was impossible in the hours after the quake. But traffic clogged streets, trains stopped, flights were grounded and phone service was disrupted or cut off.

Read on, though, and the broken window fallacy emerges.

And in the long run, the disaster could help the Japanese economy as reconstruction projects put people back to work.

Natural disasters "do eventually boost output," said David Hensley, an economist at JPMorgan Chase. The 1989 San Francisco earthquake and the 1994 Northridge quake outside Los Angeles, for example, ultimately helped the local California economies, he said.

Takuji Okubo, an analyst at French bank Societe Generale, said Japan's economy will probably take a hit in March and then rebound strongly. Japanese consumers will need to replace lost cars and appliances, and reconstruction will start.

That's pretty sloppy reporting, particularly for a network that claims to appeal to an intelligent and sophisticated audience.

Prior to the earthquake, Japanese consumers had the option to purchase other goods rather than replace their cars or appliances.  The earthquake puts those consumers in a position of having to replace those goods, which kills those options.  We will see cars and appliances being built, but we will not see the purchases consumers would have made had the earthquake not destroyed the option value in those existing cars.  We won't see the purchases of the dead, and we won't see the goods and services the dead would otherwise have produced, but for the earthquake.

The Japanese deserve better than to have their economic success explained by the destruction of property: the earthquake this time, World War II in one potted explanation of Japan's industrial success.  The United States has enjoyed the opportunity to destroy its industrial capacity, without having to pattern-bomb it first.  By the logic of the broken window fallacy, Detroit is the most promising place in the country to jump-start the economy.

RUNNING EXTRA.  According to Knowledge Problem, the Great and Powerful Larry Summers saw the upside of breaking windows.

TRIFECTA. Trent at Catallarchy observes that, after a natural disaster, well-meaning people will see reason for price controls on relief supplies, see price gouging, and revisit the broken window fallacy. They're all out there.

Don at Cafe Hayek disposes of the high-prices-have-a-disparate-impact-on-the-poor argument.

But if regulation keeps price from rising, some method other than higher prices must be used to determine which of the many demanders of lumber get the relatively few supplies of lumber.

What are these other methods? They include principally queuing, black-market transactions, and use of political or commercial connections. They might include even violence.

An inevitable consequence of price caps, therefore, is to raise the value of the skills and other assets useful in carrying out these other methods of rationing – skills at queuing; skills at successfully conducting black-market exchanges; skills at manipulating personal and political connections.

Even if you’re concerned only with ‘the poor,’ therefore, the correct question is not "are the poor less able to pay higher prices than lower prices for staple goods?’ The answer to this question is all too obvious: yes.

The relevant question instead is "are the poor less able to pay higher market prices than they are able to pay to take advantage of the other methods of rationing that necessarily replace higher prices?"

I'd add something further. "To each according to his need" requires a measuring stick for neediness. Is a disaster area really the best place to set up the studio for Queen for a Day? (That was a proto-reality show of the early 1960s in which women would tell their tales of woe and the most successful of the three, as measured by audience applause, would get goods provided by manufacturers who offered a promotional consideration to the show.)

Market Power has noted the broken window argument. He has also suffered a real loss. Send your condolences.

And yes, somebody in the main press did offer the broken window argument. Exploit the Worker caught it.

OPPORTUNITY COSTS. Reason's Steve Chapman urges restraint on replacing Cole Hall.

There are lessons there for any institution that goes through a similar tragedy: Be strong. Hold to your own purposes. Understand that this will pass. Don't let a psychopath govern you from the grave.

But none of these was offered by the governor of Illinois or the administration of Northern Illinois University in the aftermath of the Valentine's Day slaughter in a lecture hall on the DeKalb campus. In what must come as a shock not only to the people of the state but the rest of the country, they propose to bulldoze the building and replace it with a new one, at a cost of $40 million.

If the facility were an ancient firetrap, this might be the right moment to do the inevitable. But Cole Hall is a perfectly functional building that, having been built in 1968, is younger than your average tenured professor.

Cole is not "perfectly functional" where handicapped access and the latest instructional bells and whistles are concerned, although the university's renovation plan has several other projects, most notably a renovation of the adjacent and slightly older Stevens Building, ahead of a replacement for Cole. The discussion of what to do with the building, which is also home to the anime society, offers an instructive manifestation of the broken window fallacy, and its more plausible-sounding but more pernicious relative, the bombed factory fallacy. (That's the one that attributes Japanese industrial success relative to the United States to its new factories.) It's clear from the discussion about what to do with Cole Hall that removing it could involve the sacrifice of an opportunity to build something else. That would be equally true if it had been demolished by a tornado or damaged by a bombing, both events that have occurred on midwestern campuses. To take it down and replace it cannot be viewed as economic stimulus for DeKalb. The anime society, by the way, has left a memorial sign at the rear entrance that expresses a wish to keep their screening room.

YOU CAN INSTALL A BETTER WINDOW. A Mises Economics Blog post (via The American Mind) calls out a Boston Globe article that appears to rehabilitate the broken window fallacy.

"When something is destroyed you don't necessarily rebuild the same thing that you had. You might use updated technology, you might do things more efficiently. It bumps you up," says Mark Skidmore, an economics professor at Michigan State University. "Disasters help people think about things differently."

The Mises Blog rebuttal raises the usual objection.

As J. Henderson has remarked:, "Using this logic, the federal government should spur greater growth and technological development by regularly and frequently bulldozing random homes and businesses across the country."

That's not quite what the Globe article, or the research itself, suggests.

Studies have found that earthquakes in California and Alaska helped stir economic activity there, and that countries with more hurricanes and storms tend to see higher rates of growth. Some of the most recent work has found a link between disasters and subsequent innovation.

The study of the economics of disasters remains a small field, with few major papers. And skeptics charge disaster economists with oversimplifying enormously complex economic systems and seeing illusory effects that stem only from the crudeness of the available economic measuring tools.

Further into the article come the clarifications.

To critics of this line of thinking, the problem is that it is, at best, a partial picture. It ignores, they argue, the fact that the money and labor that go into post-disaster rebuilding are simply being redirected from other productive uses.

"If you're a carpenter, a trash remover, a physician, you may be made better off, but the things that those producers would have otherwise produced are not going to be produced," says Donald Boudreaux, an economics professor at George Mason University. "Over any reasonably relevant period of time, society is not made wealthier by destroying resources," he adds. If it were, "Beirut should be one of the wealthiest places in the world."

The research on longer-run effects, its supporters argue, is less vulnerable to this criticism, because the key factor is not merely new stuff but better stuff. In this model, disasters perform the economic service of clearing out outdated infrastructure to make way for more efficient replacements - Mother Nature's contribution to what the Austrian economist Joseph Schumpeter famously called capitalism's "creative destruction." The economy, as it recovers, actually becomes more productive than it was before, and some economists argue that the effect can be seen decades after the disaster.

Sometimes, the replacement work simply replaces recently-done work. We saw that in Love's Park, where a tavernkeeper who recently bought a new floor has to buy another new floor. The longer-term effects are more difficult to analyze. Absent a disaster, there are two forces always at work: the option value in continuing to use existing technology, and the gain from replacing it with the newest technology. (The option value is one explanation for a business continuing to use a depreciated asset despite the availability of better replacements. It's a manifestation of economic hysteresis, a macroeconomic term of art that has since been applied to microeconomic phenomena.) During the early 1980s, a simple form of that argument offered the simplest explanation for U.S. heavy industry not replacing its factories after World War II. Thus the Japanese and the Germans had state-of-the art heavy industry courtesy of the Marshall Plan. But there had to be easier ways to replace an old factory than to pattern-bomb it.

The Skidmore and Toya article highlighted in the Globe's coverage is behind the JSTOR wall at Economic Inquiry. Here's the abstract.

In this article, we investigate the long-run relationships among disasters, capital accumulation, total factor productivity, and economic growth. The cross-country empirical analysis demonstrates that higher frequencies of climatic disasters are correlated with higher rates of human capital accumulation, increases in total factor productivity, and economic growth. Though disaster risk reduces the expected rate of return to physical capital, risk also serves to increase the relative return to human capital. Thus, physical capital investment may fall, but there is also a substitution toward human capital investment. Disasters also provide the impetus to update the capital stock and adopt new technologies, leading to improvements in total factor productivity. Copyright 2002, Oxford University Press.

No mention of economic hysteresis, and incomplete analysis of regression to the mean. Developing countries are likely to grow more rapidly than developed countries, disasters or not, because they have been spared much of the cost of identifying the proper first-generation technologies.

UNEXPECTEDLY.

That was the frequent, ironic, Pajamas Media post title when Hope and Change manifested itself as bad news.

But there might be something to the snark. Consumer Sentiment in U.S. Unexpectedly Surges to 13-Year High.

The jump in sentiment, which was greater than any analyst had projected, may reflect several trends: falling gasoline prices following a hurricane-related spike; repeated record highs for the stock market; a 16-year low in unemployment; and post-storm recovery efforts driving a rebound in economic growth.

The advance in the main gauge spanned age and income subgroups as well as partisan views, according to the report. Almost six out of every 10 consumers thought the economy had recently improved in early October, the university said.

One of these years, we might have business and economic reporting that fights shy of the broken window fallacy.

I'M GLAD SOMEBODY CAUGHT THIS. I was away at the National Council on Economic Education's annual conference, this year in Little Rock, Arkansas. The host hotel kindly provided a USA Today to me, and on the letters page one day I found reference to the "broken window" fallacy of economic growth in response to a previous article expecting the hurricane cleanup to stimulate the local economy.

Fortunately, Michael at Knowledge Problem has provided the necessary corrective, and a followup.