An ill wind?

It was, i think, during my O-level year that my then History teacher, Charles Blount (pronounced “blunt”, and therefore for fairly obvious schoolboy reasons, nicknamed “the count”) introduced me to the notion that the Second World War hadn’t been all bad – at least not economically.

I have to confess to not really being sufficiently qualified to tell whether he was talking any sense or whether his views on WWII, as those on Marx and Marxism, were in any way insightful – or but the ramblings of a reactionary historian forever frustrated that his own literary output had been trumped by the likes of A J P Taylor and Corelli Barnett.

Still, the nub of his argument was that in 1939, Europe and much of the world was still struggling to extract itself from the long-term effects of the depression: and that by blowing up a large part of its capital base, Europe then laid the ground for subsequent pump-priming and capital injection that bore fruits in the 50’s and 60’s. Nothing, i guess, like the long view of history.

Though i have encountered echoes of this very point elsewhere in the economy. It was a standard plaint of Young Liberal Conferences of the 70’s that the way we measured growth was laden with negative values. That road accidents were, in theory, good for gdp, since ploughing your new car into the back of someone else’s new car would generate demand for two replacement vehicles, plus demand for ambulance services, hospital services and probably a host of other add-on services as well.

Because gdp measured economic activity irrespective, destroying things could sometimes have a positive knock-on effect.

Which brings us neatly to last night’s orgy of mindless (?) violence. Putting aside the emotional trauma (which may nonetheless stimulate the therapy sector and create additional demand for counselling and psych services) just how bad, economically, is some of the destruction?

Take the Croydon furniture sellers, who have been on the news pretty much since midnight, bemoaning the way in which a business built up over five generations has been torched. Assuming they are insured – even at simple replacement value – they have just turned over their entire stock in one fell swoop. They have converted uncertain stock assets into cash assets at a point in the economic cycle when cash might be a safer commodity to be holding. And they have received the most incredible public exposure which may yet convert into future business.

Heartless? Ye-es. But the question i am asking…am intrigued by, actually, is how events like last night are likely to play in the wider economy.

Utterly tragic, of course, if your private home has been burnt down: and there is, of course, no real trade-off between personal fear and economic advantage.

But how much damage have the riots done really? To the communities within which they took place? And to the wider economy?

jane
xx

6 Responses so far »

  1. 1

    Whilst I don’t wish to cast aspersions upon anyone in particular (seriously), it would surprise me if nobody has taken advantage of the situation to set a little fire in their own business. It’s the perfect cover for insurance fraud at a time when many businesses are facing a desperate struggle to stay afloat.

  2. 2

    aerynne said,

    A friend who owns a business says that her insurance has ‘rioting’ under one of the lists of things they won’t pay out for…

    But yeah, you have to wonder, all these inner city hell-holes that have been trashed, well, they’re going to have to be re-built and regenerated in a way that’ll probably end up making them a bit less horrible… not to mention the amount of building jobs that’ll suddenly appear…!

  3. 3

    katrina2 said,

    Indeed, how Britain prosperd, and was rejuvenated, for a while after the war. You may be right in what you say Jennie, for I have often expressed the fact, that without crime, apart from murder and other heinous doings, our economy, would collapse, so would the rest of the world. Crime does pay, for those who know how to make it.

  4. 4

    Sabine said,

    Broken windows fallacy – look it up.

    • 5

      janefae said,

      ye-es…i wasn’t entirely unaware to start with. 🙂

      However, if you wish to be literal and to engage with the entirety of Bastiat’s argument, then maybe this situation is different. We are not necessarily talking about a situation in which “the money would have been spent on something anyway”: but rather, we are talking about an economic situation in which government has decreed that spend may be up to a certain point, but no further – and in such instance, criminal activity might be viewed as forcibly unlocking funds that government would otherwise have refused to release.

      And yes: well aware that the insurance company is NOT an arm of government. However, the net effect of such activity may yet be to release more funds to the economy in general than would have been released had no such window-breaking taken place.

      jane
      xx

  5. 6

    katrina2 said,

    Sabine. point taken. In the purist sense no one *should* win, but in todays struggle to stay financialy bouyant, large companies factor in a loss cost, ie for theft, they can protect them selves with insurance, if the culprit is caught, sentanced, fined, imprisoned, we the ordinary people, that have nothing to do with the processing of guilty people, loose out to those who earn a salary, most probably from taxes payed by us. So, someone is making a profit, albeit at the exspense of others. I do sense tho’ the way the world is going, the battle for I want I get anyway I can attitude, will prevail, will the ordinary person, pay, for protection, when their is no work. Will the rich retreat behind high wall. Will ever a time come, when all who don’t conform, are simply cut loose, and left to fend as best they can. These riots, could well be a fortaste, of what could be. Result, windows broken, not to be replaced, window boarded up, ready for the next money maker.


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