Like Paul Krugman, writing in the wake of the September 11 attacks, I too reel in horror as I witness London come under the weight of such senseless, irrational, and hysteria-driven anarchy. Like HuffPo’s Nathan Gardels, contemplating the aftermath of the massively destructive earthquake in Japan, my heart goes out to the victims of this sorrowful and devastating series of events.
But also, like Krugman and Gardels, I think one must always look on the bright side of life. The recent riots in the United Kingdom are no different.
The UK, much like the rest of Europe, is experiencing some rather unwelcome economic developments. Despite the government’s efforts to improve the UK’s economic outlook, unemployment has now ticked back upwards to 7.7%, and GDP has only experienced a minute increase of 0.2%.
Enter the riots.
Though the riots have admittedly brought about an awful lot of destruction and chaos, they will also likely improve the UK’s economic situation by helping to raise the UK’s general level of spending.
As the prophetic economist John Maynard Keynes held, recessions occur because of a fall in a nation’s aggregate demand, composed of consumption, investment, government spending, and its net exports. When “animal spirits” drive consumers and investors to hoard their money, the demand for goods and services decreases, causing a deflationary spiral. Because wages are sticky, and thus do not adjust as quickly to the falling prices, workers are laid off and unemployment rises. The falling incomes of the unemployed triggers yet another cycle of falling aggregate demand, and so on. The economy needs something – nay, anything – to tug prices upwards and encourage more spending. An unintended consequence of the rampant destruction the riots leave in their wake is that it will spur a new wave of spending, as people who have lost business inventories, stores, or even entire homes to the hooligans will suddenly have to work harder and spend more money to restore their former living standards.
A tragedy for some, undoubtedly. But undoubtedly, also, an economic victory for all.
Indeed, Prime Minister David Cameron has once more stooped so low as to exploit the situation for his own nakedly partisan political gain, joining forces with his Tea Party cousins across the pond and shamelessly catapulting his country further down the road to the economic stone age. Surely Cameron knows better.
In fact, if he were actually interested in raising the total level of aggregate spending, he would dispense with all of his tough-on-crime talk. This would not help the UK economy. Cameron must realize that the problem is not the sin itself, but merely the sinners. A true statesman would evacuate the affected areas of innocent bystanders, and then direct the Met officers to join the looters in their frenzy, thus ensuring that for the next few weeks (or, God-willing, months) the UK has enough things to spend money cleaning up. One eliminates the humanitarian toll carelessly imposed by rioters, and yet acknowledges the harsh reality that this is the kind of medicine an economically-ill country needs: not austerity, by any means; more spending. That is the only way to truly exit the crisis. It’s a win-win, if you think about it.
Also, the destruction of some residential areas might signal it’s a good time for a housing bubble.
Radical? Perhaps. But such thinking seemed radical even to the master himself, until he realized the error of his former economic ways.
In bad taste? Hardly. As Paul Krugman himself wrote, three days after the September 11 attacks, “Nonetheless, we must ask about the economic aftershocks from Tuesday’s horror.” The harsh yet encouraging reality is that there is a silver lining, as we witness the wonderful paradox that destruction of wealth in fact generates it. Kinda karmic, really. Someone get me a sledgehammer. I want me a flat screen.
Still not convinced? I mean, what are you, a hack Tea Party racist?
Photo credits: Wikipedia & Mises Academy