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Why Hurricane Sandy May Not Be All That Stimulating

Invariably, every major disaster comes with the pundits who promise it brings a silver lining.

With a price tag of $50 to $70 billion, some economic forecasters are already rejoicing about the economic "stimulus" that rebuilding from Sandy will bring. If only it were so.

In fact, this paradox is well worn since it involves one of the central conflicts of economics itself. You may recognize it as a battle between Maynard Keynes vs. Frederic Bastiat.

It involves Bastiat's famous "Parable of the Broken Window".

You see, according to Bastiat (1801-50), the glazier who fixes the broken shop window earns money from it, and so he regards the broken window as economically beneficial. However, that's only half of the story.

It doesn't take into account what the shopkeeper might have done with the money he used to pay the glazier to fix the broken window.

As Bastiat points out there is a "hidden cost" within the broken window itself. The broken window made the shopkeeper that much poorer.

What's more, if the glazier secretly paid the boy who broke the window to generate the "new" business, he would be effectively engaging in theft from all the town's shopkeepers.

On a net basis, it's a no win ballgame.

Yet that is the effect of such misguided policies like the "cash for clunkers" scheme of 2009, which paid consumers to junk their still-usable automobiles long before their time.

Likewise, it's found in the same line of argument that somehow World War II rescued the United States from the Great Depression because it fails to properly account for the immense destruction of wealth (admittedly, mostly outside the U.S.) the war caused.

It seems easy enough---unless you're a Keynesian economist.

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Hurricane Investing: Is it Wise to Search for Profits from Sandy?

Every time a huge weather system affects large parts of the country, investors hunt for related profit opportunities - and in the case of Sandy, that means "hurricane investing."

With airline flights being cancelled across the country and businesses closing down due to Hurricane Sandy, the short-term economic impact is immediately obvious. Estimates for the total costs of the storm damage range up to $20 billion, with New York and New Jersey absorbing the bulk.

As a result, the traditional sector groups will be immediately punished: insurers, airlines, retailers and refiners. Insurers are expecting losses of up to $5 billion due to the damage to automobiles, homes and businesses on the East Coast.

But even with this estimate, it is not so clear if there are any surefire investment opportunities resulting from Hurricane Sandy.

That's why Money Morning Chief Investment Strategist Keith Fitz-Gerald explained yesterday it's often best to let go of those opportunities, and remain focused on your long-term investment goals.

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