There is an economic theory called the “broken glass” theory where if some prankster threw a rock an broke a merchants window that replacing that window would result in an economic benefit. The concept is based upon a principle of economics called the “velocity of money.” For every dollar that is spent in the economy $8-$10 are generated as that dollar changes hands. A dollar is given for baby- sitting services, that dollar is spent again for dinner, that dollar is spent again by the restaurant to buy food, that dollar is spent again by the farmer for seed, etc.
Some economists believe that when natural disaster occurs like from a hurricane, the economic impact from rebuilding helps the economy. When Hurricane Irene found its way into the US, the cost to rebuild was $20 billion and some believe that actually $36 billion was generated in benefits to the community because those who rebuilt stores and homes rebuilt a larger square footage than what was destroyed.
Other economists argue that this is not true that instead of spending the money on rebuilding, that this money could have been spent on something else of equal or greater benefit and value; of course, benefit and value are relative terms and have different definitions to different people. However, what neither side is considering is the rise in premiums from the insurance companies. So, in reality, there is really no such concept as a “free lunch,” because someone has to pay.
2 comments:
Some day someone is going to hae to educate each and every single American as to the difference between wealth and money.
Creation of money does not create wealth. Some examples of creating wealth: Investment in the future including education, creating efficiencies to minimize consumption of resources, development of resources, goods or services that others need or want, and the ability to preserve and save our wealth (which could include cash savings).
Disasters do have the ability to create wealth when they force us to tear down the inefficent past and rebuild something better.
Along the same line of thought and perhaps you do a blog on this subject; regardless of how much you accuse them of greed....THE BANKS DO NOT WANT MORE MONEY! They have too much money right now, and don't know where to invest it. However the banks must still make a profit (even if it translates to more cash). There is a difference between profit and cash as well, and we are seeing proff right now. They don't want cash but they have to have those profits. Why? Because the stockholders demand that as well as "short term" performance. Then there are those ever hungry execs whose bonuses depend on success measured by profit. (not all... some get the bonus regardless)
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