How can rebuilding a city/large area be considered an economic boost?
"You are not wrong. This is called the ""Broken Window"" fallacy in economics. Imagine if 20% of a population was employed to go around breaking windows.  This would stimulate the economy as many people would have to be employed to make new windows, repair the broken windows, etc..  The problem is that everyone would have been better off if they didn't have to spend their valuable resources on repairing a perfectly functioning window. Although many people will be employed to rebuild Japan, this doesn't improve the standard of living for the folks in Japan." "You're entirely correct.  It's one of those ""broken window"" fallacies.   Have you ever witnessed the anger of   the good shopkeeper, James B., when   his careless son happened to break a   square of glass? If you have been   present at such a scene, you will most   assuredly bear witness to the fact,   that every one of the spectators, were   there even thirty of them, by common   consent apparently, offered the   unfortunate owner this invariable   consolation - ""It is an ill wind that   blows nobody good. Everybody must   live, and what would become of the   glaziers if panes of glass were never   broken?"" Frederic Bastiat's 1850 essay, ""That which is seen and that which is not seen"" is still the best and most beautifully-written of such explanations.   As you point out, a gain for the construction companies is more than offset by the loss of life and financial expenditure of the insurance companies.  Plus, it is never possible to quantify the entirety of the loss in terms of opportunities foregone (""that which is not seen"").  People who were about to do incredible things but now gone.  Property, of any nature, no longer of use to build on or perform service. Any replacement comes at the expense of other opportunities." The problem here is that the metrics that are used to track the economy are looking for things like growth and change. In a perfect world, everyone would have exactly what they need and there would no need for economists because the economy would be static. It will have some positives, and some negatives. The hardest hit will be the insurance agencies, as well as banks. Manufacturing will also take a short term hit. When insurance payments come out, then there will be a boom in construction, consumer goods, industrial goods, etc. Companies will upgrade their equipment whereas before they might have let it run for another 10-20 years or longer. After all, if you are going to buy something, you aren't going to get it used, you'll get something more modern. Of course, Japan already was one of the most modern countries in the world, so they likely won't see as many gains as other countries, but this would hold more true in a less technologically advanced society. Long term, 10-20 years down the line, when everything is rebuilt, it might have a slight positive increase in productivity, but this will be somewhat offset because Japan already is such a technological powerhouse, and on the cutting edge in many technologies. But I agree, it's quite foolish to say that it'll improve the economy of Japan, some clarification should be done to clear that one up... "The people who benefit are large engineering and construction companies, manufacturers of construction equipment, bankers and lawyers.  So in the world of realpolitik that we live in, the misery of millions of ""other people"" is spun as a net benefit, because ""we"" benefit from that misery." It certainly creates an opportunity for the re-distribution of wealth.  Money will be transferred from insurance companies to construction companies.  Businesses that go under will be replaced by ones that survived. Some companies will make a profit out of this, but as you have already figured out, no new wealth is created by the disaster.  (Although lots has been destroyed, so we are looking at a net loss.) Wikipedia's article on the Parable of the broken window mentions that Keynesians would argue that broken windows can be useful in depressed economies. I think Japan's economy was somewhat depressed, so if it applies anywhere, it'd apply in this scenario.
"I work in analyzing economic development projects in the Midwest like this, and one of the most frustrating aspects of my job is when people try to distill and simplify complex financing structures for the sake of misleading others and furthering an agenda. It's not uncommon that I see small local blogs write articles saying something to the effect of ""Major Development Project Skips Paying the Taxes it Rightfully Owes!"" completely disregarding the fact that in most cases the local government's options are to either give the developer an incentive and make some additional money, or offer nothing and watch the developer walk away from the table for a different site the next county over. Most governments, given the choice, would take lowered tax payments and more jobs over no tax payments and no jobs.  Since I was curious, I decided to do a quick back-of-the-envelope calculation of this project using a common economic impact model. I used a conservative assumption of 3,000 new jobs (the minimum Foxconn expects to have by 2020, and well below the maximum capacity of the factory) in the Audio and Video Equipment Manufacturing (6-digit NAICS code of 334310) industry, using the entire State of Wisconsin as a geography. This industry has average annual earnings in Wisconsin of $56,000, so I subtracted out $3,000 per job to make it in line with the article. I also used the liberal assumption that 100% of these jobs will be considered ""net new"" or that they won't be replacing or destroying any existing jobs within the state.   The results:   - Salaries alone will amount to about $160 million per year, assuming all workers receive the same salary of $53,000.   - Indirect effects (basically new jobs and spending for other industries used to support and maintain the factory, that aren't directly employed by the factory itself) will add an additional $20 million in earnings annually.    - Finally, induced effects (the economic impact of new employees spending their salaries within the economy) will add an additional $80 million.   - Total change in jobs (including factory workers, maintenance and utility workers, and new workers in supply chain industries) is estimated as just north of 5,000.   This adds up to $260 million in additional annual earnings within the Wisconsin economy. There is a lot more to be considered when looking at a project like this, and there are **a lot** of ways Wisconsin or Foxconn can fuck this all up, but it isn't out of the realm of possibility that attracting this new plant will end up being a worthwhile plan for Wisconsin.   Also, this quote:  &gt;“We are calling this development ‘Wisconn Valley,’ ” he said, speaking from the East Room of the White House, “because we believe this will have a transformational effect on Wisconsin just as Silicon Valley transformed the San Francisco Bay area.”  Sounds like bullshit. Silicon Valley is largely research and development, not manufacturing. Saying that you'll replicate the success of software engineers earning $120k a year by bringing in more $50k a year manufacturing jobs is misleading at best." not sure if you are serious. golf courses require a large number of people working on it. jobs created.   property development (including building of the golf course) creates a large number of temporary jobs, and long term jobs (upkeep services), and the opportunity for new local businesses to open. The rich folk moving in will probably want to keep their house clean (housekeep services), their yard kept (landscaping service), their cars maintained (auto shop / services), their dogs/pets cared for (pet care services), their organic food (food markets), etc. In addition, by having the rich folks there, the 'mid to luxury' store front brands might decide to open up locations in the area - a smart developer would build a small open air mall to complement their housing. This creates jobs. It might not seem like much, but when your family is barely making ends meet, a few extra hundred dollars each week can make a huge difference.   In addition, the new business generates taxes for the city. "Here are some important things to think about.  Alan and Denise Fields discuss them in more detail in Your New House. Permanent work.  Where do you want to live?  Are there suitable jobs nearby?  How much do they pay? Emergency fund.  Banks care that you have ""reserves"" (and/or an unsecured line of credit) in case you have a run of bad luck.  This also helps with float the large expenses when closing a loan. Personal line of credit. Who are you building for?  If you are not married, then you should consider whether building a home makes that easier, or harder.  If you hope to have kids, you should consider whether your home will make it easier to have kids, or harder.  If you are married (or seriously considering it), make sure that your spouse helps with the shopping, and is in agreement on the priorities and choices.  If you are not married, then what will you do if/when you get married?  Will you sell?  expand?  build another house on the same lot?  rent the home out? Total budget.  How much can the lot, utilities, permits, taxes, financing charges, building costs, and contingency allowance come to?  Talk with a banker about how much you can afford.  Talk with a build-on-your-lot builder about how much house you can get for that budget.  Consider a new mobile or manufactured home.  But if you do choose one, ask your banker how that affects what you can borrow, and how it affects your rates and terms.  Talk with a good real estate agent about how much the resale value might be. Finished lot budget. How much can you budget for the lot, utilities, permits required to get zoning approval, fees, interest, and taxes before you start construction? Down payment.  It sounds like you have a plan for this. Loan underwriting.  Talk with a good bank loan officer about what their expectations are.  Ask about the ""front-end"" and ""back-end"" Debt-To-Income ratios.  In Oregon, I recommend Washington Federal for lot loans and construction loans.  They keep all of their loans, and service the loans themselves.  They use appraisers who are specially trained in evaluating new home construction.  Their appraisers tend to appraise a bit low, but not ridiculously low like the incompetent appraisers used by some other banks in the area.  (I know two banks with lots of Oregon branches that use an appraiser who ignores 40% of the finished, heated area of some to-be-built homes.)  Avoid any institution (including USAA and NavyFed) that outsources their lending to PHH. Lot loan.  In Oregon, Washington Federal offers lot loans with 30% down payments, 20-year amortization, and one point, on approved credit.  The interest rate can be a fixed rate, but is typically a few percentage points per year higher than for a mortgage secured by a permanent house.  If you have the financial wherewithal to start building within two years, Washington Federal also offers short-term lot loans.  Ask about the costs of appraisals, points, and recording fees. Rent.  How much will it cost to rent a place to live, between when you move back to Oregon, and when your new home is ready to move into? Commute.  How much time will it take to get from your new home to work?  How much will it cost?  (E.g., car ownership, depreciation, maintenance, insurance, taxes, fuel?  If public transportation is an option, how much will it cost?) Lot availability.  How many are there to choose from?  Can you talk a farmer into selling off a chunk of land?  Can you homestead government land?  How much does a lot cost?  Is it worth getting a double lot (or an extra large lot)? Utilities. Do you want to live off the grid?  Are you willing to make the choices needed to do that?  (E.g., well, generator, septic system, satellite TV and telephony, fuel storage)  If not, how much will it cost to connect to such systems?  (For practical purposes, subtract twice the value of these installation costs from the cost of a finished lot, when comparing lot deals.) Easements. These provide access to your property, access for others through your property, and affect your rights.  Utility companies often ask for far more rights than they need.  Until you sign on the dotted line, you can negotiate them down to just what they need.  Talk to a good real estate attorney. Zoning. How much will you be allowed to build?  (In terms of home square footage, garage square footage, roof area, and impermeable surfaces.)  How can the home be used?  (As a business, as a farm, how many unrelated people can live there, etc.)  What setbacks are required?  How tall can the building(s) be?  Are there setbacks from streams, swamps, ponds, wetlands, or steep slopes? Choosing a builder.  For construction loans, banks want builders who will build what is agreed upon, in a timely fashion.  If you want to build your own house, talk to your loan officer about what the bank expects in a builder. Plansets and permits.  The construction loan process. If you hire a general contractor, and if you have difficulties with the contractor, you might be forced to refuse to accept some work as being complete.  A good bank will back you up.  Ask about points, appraisal charges, and inspection fees. Insurance during construction.  Some companies have good plans -- if the construction takes 12 months or less.  Some (but not all) auto insurance companies also offer good homeowners' insurance for homes under construction.  Choose your auto insurance company accordingly. Property taxes. Don't forget to include them in your post-construction budget. Homeowners' insurance.  Avoid properties that need flood insurance.  Apply a sanity check to flood maps -- some of them are unrealistic.  Strongly consider earthquake insurance.  Don't forget to include these costs in your post-construction budget. Energy costs.  Some jurisdictions require you to calculate how large a heating system you need.  Do not trust their design temperatures -- they may not allow for enough heating during a cold snap, especially if you have a heat pump.  (Some heat pumps work at -10°F -- but most lose their effectiveness between 10°F and 25°F.)  You can use these calculations, in combination with the number of ""heating degree days"" and ""cooling degree days"" at your site, to accurately estimate your energy bills.  If you choose a mobile or manufactured home, calculate how much extra its energy bills will be. Home design.  Here are some good sources of ideas: A Pattern Language, by Christopher Alexander.  Alexander emphasizes building homes and neighborhoods that can grow, and that have niches within niches within niches. The Not-So-Big House, by Sarah Susanka.  This book applies many Alexander's design patterns to medium and large new houses. Before the Architect.  The late Ralph Pressel emphasized the importance of plywood sheathing, flashing, pocket doors, wide hallways, wide stairways, attic trusses, and open-truss or I-joist floor systems.  Lots of outlets and incandescent lighting are good too.  (It is possible to have too much detail in a house plan, and too much room in a house.  For examples, see any of his plans.) Tim Garrison, ""the builder's engineer"".  Since Oregon is in earthquake country -- and the building codes do not fully reflect that risk -- emphasize that you want a building that would meet San Jose, California's earthquake code." "There are more than a few different ways to consider why someone may have a transaction in the stock market: Employee stock options - If part of my compensation comes from having options that vest over time, I may well sell shares at various points because I don't want so much of my new worth tied up in one company stock. Thus, some transactions may happen from people cashing out stock options. Shorting stocks - This is where one would sell borrowed stock that then gets replaced later. Thus, one could reverse the traditional buy and sell order in which case the buy is done to close the position rather than open one. Convertible debt - Some companies may have debt that come with warrants or options that allow the holder to acquire shares at a specific price. This would be similar to 1 in some ways though the holder may be a mutual fund or company in some cases. There is also some people that may seek high-yield stocks and want an income stream from the stock while others may just want capital appreciation and like stocks that may not pay dividends(Berkshire Hathaway being the classic example here). Others may be traders believing the stock will move one way or another in the short-term and want to profit from that. So, thus the stock market isn't necessarily as simple as you state initially. A terrorist attack may impact stocks in a couple ways to consider: Liquidity - In the case of the attacks of 9/11, the stock market was closed for a number of days which meant people couldn't trade to convert shares to cash or cash to shares. Thus, some people may pull out of the market out of fear of their money being ""locked up"" when they need to access it. If someone is retired and expects to get $x/quarter from their stocks and it appears that that may be in jeopardy, it could cause one to shift their asset allocation. Future profits - Some companies may have costs to rebuild offices and other losses that could put a temporary dent in profits. If there is a company that makes widgets and the factory is attacked, the company may have to stop making widgets for a while which would impact earnings, no? There can also be the perception that an attack is ""just the beginning"" and one could extrapolate out more attacks that may affect broader areas. Sometimes what recently happens with the stock market is expected to continue that can be dangerous as some people may believe the market has to continue like the recent past as that is how they think the future will be." "&gt;Exactly right. ""Tax incentives"" do not mean that the state is giving Apple a trunk full of cash.  This is NOT strictly true.  If the area has (and I am fairly certain it does) [""tax incremental financing""](http://en.wikipedia.org/wiki/Tax_increment_financing) then a lot of the underlying costs of bringing facilities to an area -- costs associated with road construction, utility changes, etc -- are funded via municipal bonds and other taxpayer-based financing (which of course the companies that are part of these ""deals"" are given a multi-year pass on paying)." It isn't great news, but it is still slow improvement. Check the prime working age labor force participation rate, employment population ratio, average wage, or average hours worked. They all tell the same story. An economy that isn't recovering as fast as anyone would like, but one that is clearly recovering. The investment in the highway system in the USA, the MOST EXPENSIVE investment ever(!) done by the USA, and then people drive on them for FREE(!), had a proven idea behind it: it develops the country and promote the economy, trade, etc. Huge long term benefits in so many areas with huge benefits compared to the investment.  Same with space exploration! Absolutely ZERO return on investment, but wait for the future...   Investment in this factory will at least bring money back to the state. People will work instead of living off welfare.   But beyond that: if there's a factory, there need to be supplies, supplier, R&amp;D, sales, production management, and technology being used here in the USA that can be used for making other products.  Based on what you said, we should not have invested in the highway system or space program. "Your house doesn't need to multiply in order to earn a return. Your house can provide shelter. That is not money, but is an economic good and can also save you money (if you would otherwise pay rent). This is the primary form of return on the investment for many houses. It is similar for other large capital investments - like industrial robots, washing machines, or automobiles. The value of money depends on: As long as the size and velocity of the money supply changes about as much as the overall economic activity changes, everything is pretty much good. A little more and you will see the money lose value (inflation); a little less and the money will gain value (deflation).  As long as the value of inflation or deflation remains very low, the specifics matter relatively little. Prices (including wages, the price of work) do a good job of adjusting when there is inflation or deflation. The main problem is that people tend to use money as a unit of account, e.g. you owe $100,000 on your mortgage, I have $500 in the bank. Changing the value of those numbers makes it really hard to plan for the future! Imagine if prices and wages fell in half: it would be twice as hard to pay off your mortgage. Or if the bank expected massive inflation in the future: they would want to charge you a lot more interest! Presently, inflation is the norm because the government entities, who help adjust how much money there will be (through monetary policy - interest rates and the like - ask about it if you're interested), will generally gradually increase the supply of money a little bit more quickly than the economy in general. They may also be worried that outright deflation over the long term will lead to people postponing purchases (to get more for their money later), harming overall economic activity, so they tend to err on the slightly positive side. The value of money, however, has not really ""ordinarily decreased"" until the modern era (the 1930s or so). During much of history, a relatively low fixed amount of valuable commodities (gold) served as money. When the economy grew, and the same amount of money represented more economic activity, the money became more valuable, and deflation ensued. This could have the unfortunate effect of deterring investment, because rich jerks with lots of money could see their riches increase just by holding on to those riches instead of doing anything productive with them. And changes in the supply of gold wreaked havoc with the money supply whenever there was some event like a gold rush: Because precious metals were at the base of the monetary   system, rushes increased the money supply which resulted in inflation.   Soaring gold output from the California and Australia gold rushes is   linked with a thirty percent increase in wholesale prices between 1850   and 1855. Likewise, right at the end of the nineteenth century a surge   in gold production reversed a decades-long deflationary trend and is   often credited with aiding indebted farmers and helping to end the   Populist Party’s strength and its call for a bimetallic (gold and   silver) money standard. -- The California Gold Rush Today, there is way too little gold production to represent all the growth in world economic activity - but we don't have a gold standard anymore, so gold is valuable on its own merits, because people want to buy it using money, and its price is free to fluctuate. When it gets more valuable, and people pay more for it, mines will go through more effort to locate, extract and refine it because it will be more profitable. That's how most commodities work. For more information on these tidbits of history, some in-depth articles on:"