It is nearly as predictable as death and taxes:  when a disaster of some sort occurs — e.g., Hurricane Katrina, Missouri River flooding, or earthquakes in China — after the dust settles and the rebuilding effort begins, some economist or pundit will bring up that ultimately, the disastrous event could spur some sort of economic stimulus.  As Chileans are sifting through the rubble in the aftermath of their recent earthquake, sure enough, the following headline appears on this article on Forbes.com:  "Chilean Earthquake May Boost Growth"; the first sentence in the subtitle:  "If country can maintain immediate disaster relief, reconstruction efforts could stimulate economic growth."

The theory is that the rebuilding of an area following a disaster brings in new construction, creating jobs, spurring investment, and creating demand for raw materials and other products.  Adding to the benefit, many times the buildings destroyed were older, less well-constructed, perhaps less energy-efficient, and often in the poorer areas of the afflicted area.  The reconstructed infrastructure is then more modern, built to stricter standards, more environmentally friendly, and perhaps even more aesthetically pleasing.  Sounds like a great deal, eh?

Unfortunately, such a thought process ignores a simple, fundamental aspect of economics:  resources have alternate uses.  In addition to the most tragic aspect of the earthquake, the loss of life, economically speaking the time, energy, effort, and money spent in rebuilding Chile (or Haiti, or New Orleans) could have been spent elsewhere — was being spent elsewhere (or planned to be) prior to the quake.  The economic activity from the reconstruction efforts in Chile we will see; however, the economic activity that won't occur elsewhere (both inside Chile and out) is unseen.  Every dollar — or Chilean peso — spent on replacing a building in Santiago that can't be spent on, say, a new factory, or on new copper mining equipment (Chile is a major producer of copper).

The aspect of the unseen economic impact was identified by 19th century economist Frederic Bastiat in his "Parable of the Broken Window".  In his story, a shopkeeper's window is broken by his young son.  The window must be replaced, which of course "stimulates the economy" for the glass maker employed to replace it (and of course for any involved on an ancillary basis — e.g., the labor involved in installation, the truck owner who transports the glass to the shop, etc.).  The impact on the local economy is seen.  But what isn't seen in this specific example is what the shopkeeper was going to do with the dollars — or francs — if he hadn't had to buy a new window.  Perhaps he needed a new heating and cooling system, or wanted to expand the size of the store to put in a sushi bar, or even was contributing to a college fund for his glass breaking son or to his own retirement fund.  Anyone of those activities could be better in the long run for the shopkeeper — and perhaps even for the entire economy at large (who couldn't use another sushi bar?).  That alternate activity and all the economic dominoes it might have toppled are gone, replaced by a smiling glass maker.

The same principle applies to government programs that incentivize particular economic behaviors.  "Cash for Clunkers", for example, distorted the economic incentives towards buying a car for many.  This was great news to auto dealers and manufacturers; however, what about the people for whom it really made more sense sans incentives to buy clothes, or health insurance, or braces for their children?  And what about the businesses negatively impacted — in an unseen way — by that government-funded anti-stimulus?  They will never know what hit them.  At least they have that new F-150 in the driveway.

I think, perhaps, the best way to combat this kind of short-sighted thinking is to bring the broken window parable to life in a very practical, hands-on way:  whenever someone mentions the "silver lining" of increased economic stimulus provided by a natural disaster, simply throw a brick through his window.  If he complains, tell him you're stimulating the economy.  Somewhere, perhaps a certain 19th century economist will be watching and smiling.