Fires and the Broken Windows Fallacy

[RottedOak]

I’ve seen people here and elsewhere suggest that the current fires may end up benefiting the economy. I wanted to point out that this is a classic example of the broken window fallacy. The upshot of that fallacy is that disasters really are disasters, not benefits. The result of fires might be positive for some very narrow areas of the economy, such as better rental rates for landlords and more work for construction companies (although the latter will be delayed for quite a while as people wade through the red tape of insurance payouts and building approvals). But any money spent in those areas will be money that could have gone somewhere else if the fires hadn’t happened. The overall impact of reduced spending in other areas, job interruptions, medical problems, etc., will be very negative.

For the local housing market in particular, I expect the disruption will significantly lower sales transactions for October and November. For example, insurers won’t write new homeowner policies in disaster areas until they know a particular property isn’t affected. That will delay some established escrows from closing, which in some cases may mean the deal falls through. Also consider all the properties for sale in the evacuation areas — I don’t expect many open houses there this weekend! For a few owners, the additional delays in selling will be the straw that breaks their back, even if their house isn’t damaged.

In the aftermath, owners and banks will have to deal with all the properties that were damaged and destroyed, which will have ripple effects throughout the area. Think you can get your short sale approved? Sorry, the staff that would have reviewed it are busy sorting out whether that house they were foreclosing in RB still exists. Etc.

In short, speculations that the fires will help prop up the local housing market are wishful thinking at best.

[betting on fall]

And don’t forget that everyone’s fire insurance rates will probably be going up. Just like Florida homeowners policies after multiple hurricanes there.

[betting on fall]

And don’t forget that everyone’s fire insurance rates will probably be going up. Just like Florida homeowners policies after multiple hurricanes there.

[betting on fall]

And don’t forget that everyone’s fire insurance rates will probably be going up. Just like Florida homeowners policies after multiple hurricanes there.

[meadandale]

It’s funny. I was recently talking to a friend of mine, who is a General Contractor, about the price that people were charging to come and do minor remodeling work.

He said, ‘wait a few months and people will be begging for work. Everything is drying up’.

Not a week later and over a thousand homes burn down opening up work for contractors everywhere.

I’m not a conspiracy nut but it sure seems to be ‘good timing’ for keeping these people employed as the housing market and the affiliated work was becoming a memory.

[meadandale]

It’s funny. I was recently talking to a friend of mine, who is a General Contractor, about the price that people were charging to come and do minor remodeling work.

He said, ‘wait a few months and people will be begging for work. Everything is drying up’.

Not a week later and over a thousand homes burn down opening up work for contractors everywhere.

I’m not a conspiracy nut but it sure seems to be ‘good timing’ for keeping these people employed as the housing market and the affiliated work was becoming a memory.

[meadandale]

It’s funny. I was recently talking to a friend of mine, who is a General Contractor, about the price that people were charging to come and do minor remodeling work.

He said, ‘wait a few months and people will be begging for work. Everything is drying up’.

Not a week later and over a thousand homes burn down opening up work for contractors everywhere.

I’m not a conspiracy nut but it sure seems to be ‘good timing’ for keeping these people employed as the housing market and the affiliated work was becoming a memory.

[Duck]

You state that the money would have gone elsewhere. That’s not true. The money will come from insurance companies, none of which are located in San Diego. The insurance companies will in turn raise rates all over the country not just in SD.

[Duck]

You state that the money would have gone elsewhere. That’s not true. The money will come from insurance companies, none of which are located in San Diego. The insurance companies will in turn raise rates all over the country not just in SD.

[Duck]

You state that the money would have gone elsewhere. That’s not true. The money will come from insurance companies, none of which are located in San Diego. The insurance companies will in turn raise rates all over the country not just in SD.

[(former)FormerSanDiegan]

Duck is correct. There will be an influx of dollars from insurance companies that was formerly going to buy bonds and other securities. In the short run this includes funds for temporary housing, as well as goods lost in the fires. Later on this will be funds for construction. This will be far greater than the temporary interruptions to businesses that are occuring this week.

So, although you are correct that it is a net loss globally, it’s a net plus for the region.

[(former)FormerSanDiegan]

Duck is correct. There will be an influx of dollars from insurance companies that was formerly going to buy bonds and other securities. In the short run this includes funds for temporary housing, as well as goods lost in the fires. Later on this will be funds for construction. This will be far greater than the temporary interruptions to businesses that are occuring this week.

So, although you are correct that it is a net loss globally, it’s a net plus for the region.

[(former)FormerSanDiegan]

Duck is correct. There will be an influx of dollars from insurance companies that was formerly going to buy bonds and other securities. In the short run this includes funds for temporary housing, as well as goods lost in the fires. Later on this will be funds for construction. This will be far greater than the temporary interruptions to businesses that are occuring this week.

So, although you are correct that it is a net loss globally, it’s a net plus for the region.

[RottedOak]

You are correct that insurance companies will pull most of their payout funds from other areas (definitely a net loss globally). However, not all losses are insured, and not all insurance funds will be spent locally. Some of the insured will take the money and leave. And the insurers will make up for their payouts with rate increases that will drain money from the area. Nor is the economic disruption limited to “this week.” All of the effort that goes into rebuilding over the next several years — the arguing with insurance companies, the permit processes, hiring contractors, etc. — is a diversion for the homeowners. Some of that (all the overhead for dealing with insurers and government) is pure loss with no net production. If you focus narrowly enough, you can find “winners,” but even with a temporary inflow of insurance money, I doubt the long-term result will be a net gain for the region.

[RottedOak]

You are correct that insurance companies will pull most of their payout funds from other areas (definitely a net loss globally). However, not all losses are insured, and not all insurance funds will be spent locally. Some of the insured will take the money and leave. And the insurers will make up for their payouts with rate increases that will drain money from the area. Nor is the economic disruption limited to “this week.” All of the effort that goes into rebuilding over the next several years — the arguing with insurance companies, the permit processes, hiring contractors, etc. — is a diversion for the homeowners. Some of that (all the overhead for dealing with insurers and government) is pure loss with no net production. If you focus narrowly enough, you can find “winners,” but even with a temporary inflow of insurance money, I doubt the long-term result will be a net gain for the region.

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