In a response to this Russ Roberts post, Tim Worstall argues:
“My eleven year-old understands that spending on rebuilding means less spending on something else.”
Now introduce savings into your 11 year old’s model. Either that people will do less saving because they are rebuilding or that they will draw down their savings to rebuild.
We now have more economic activity *now* than we would have done without the rebuilding. Thus the rebuilding activity is stimulative. Because we have more economic activity now.
To which seriously wonder: suppose the spending on rebuilding (after the tsunami) did come out of saving, just as Tim indicates could result in moving consumption forward. But savings do not just sit around. They are invested. And the investment is nothing other than consumption of different lived goods than consumers generally consume. But I simply do not see how businesses building factories and relationships and the like is any less “economy activity” than a consumer rebuilding a home or office.
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