The Broken Window Is Not the Only Fallacy Being Applied to Japan Right Now

by Christopher Westley, Mises Economics Blog
Mar. 14, 2011

First the great Larry Summers pronounced that the earthquake and tsunami will bring positive economic benefits to Japan. Now this morning’s New York Times greets us with the headline, “Japan's Strict Building Codes Saved Lives”. Not property rights and the desire of property owners to protect the value of their property. Not institutions that awarded wealth creation over time — wealth that enabled the Japanese to make the trade-offs between safer construction and other goods they valued. Just better building codes. It’s as if the Times trumpeted food sales because of laws requiring people to buy food, or education because of laws requiring school-attendance, or any activity people do anyway — especially activities people tend to do more of when per-capita incomes rise.

One anticipates the economics papers coming out on Japan, similar to the many that followed Katrina in New Orleans, suggesting state regulations and codes had the effect of making the region less prepared for a disaster like this, if only due to the moral hazard created when the state ensures a minimum level of safety and promises to socialize losses in the event of a catastrophic event.