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Comment by gchamonlive | Hacker News Reader

If wealth is not destroyed but transferred, where does it go after an earthquake?

I said losing money doesn't destroy wealth. Destroying a city absolutely does.

I was talking about catastrophic events and how it can make you lose money without necessarily transfering it. In the case of wework, the catastrophe is the rapid decline in inflated prices, which makes the assets lose value without a real transfer in wealth.

> the catastrophe is the rapid decline in inflated prices

Using the word "catastrophe" to describe a financial process not going in one's favor doesn't actually turn it into a natural disaster that physically destroys objects.

Construction companies?

'The parable of the broken window was introduced by French economist Frédéric Bastiat in his 1850 essay "That Which We See and That Which We Do Not See" ("Ce qu'on voit et ce qu'on ne voit pas") to illustrate why destruction, and the money spent to recover from destruction, is not actually a net benefit to society.'

https://en.m.wikipedia.org/wiki/Parable_of_the_broken_window

Five years in University and never heard of this essay, not even in passing! Thanks for sharing.

What if there is no reconstruction? Not every catastrophe is a catalyst for reconstruction.

If a house is destroyed in a fire, it loses its value as a house. Now you have the value of the land, which will be offset by the cost of clearing it. So the value of the land is below market. The asset has depreciated.

Large scale construction tends to be very good for the economy because it both increases economic activity (construction is expensive, and a lot of people get paid to do a lot of labor in the whole chain, from lamps to concrete to engineers to meal makers), and sets infrastructure that will be used by highly productive companies (white collar offices) to make a lot of money.

But there is no value transfer from rubble to construction companies. That asset owner took a hit.

Surely some of these costs / economic activities are just like the parable of the broken window? For example, the meal makers. Construction works buy their lunches from shops nearby - that's great for those shops. But how is this improving the economy? Those workers would have needed lunches anyway. If they weren't working, they could have made their lunches at home, and not had to eat out. It would have (probably) been cheaper for them than buying lunches from the local shops.

So maybe the workers spent more money buying their lunches, but that's just extra inefficiency, and not extra economic acitivity. Just like the broken window, the workers spend more in one area and so have less money to spend elsewhere.

> But how is this improving the economy? Those workers would have needed lunches anyway.

In economics this is called hedonic adjustment. The economy is improved because the workers value purchasing a lunch more than making their own.

It's cheaper to listen to the radio, or even buy a CD, than to go to a concert. Going to a concert is not seen as economically inefficient.

9 foot ceilings are not seen as economically inefficient compared to 8 foot ceilings. The additional foot is seen as value.

A house made of bricks is valued more than a house made of straw, despite them both functioning equally as well as long as a huffing and puffing wolf isn't around.

Etcetera.

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