We're predators. Our eyes filter out things that aren't moving and focus on things that are. We're alert for injured, vulnerable things, that are moving in unnatural ways.
When we look at Florida after a hurricane we see all the frenetic emergency relief activity and the reconstruction. We don't see the unemployment and lost income. And for some reason we refuse to identify the lost wealth in the destruction we see (maybe because it's the result of past, and no longer obvious, activity).
This past hurricane season in Florida stimulated news stories on how a natural disaster can actually benefit the economy. The reporters focus on what is obvious to them. They may also be intrigued by the apparant paradox of the idea that a disaster can have net economic benefits. There is probably also a very human and understandable desire to see the cloud's silver lining.
On September 26, USA Today published a story on the economic consequences of the recent hurricanes: "Economic growth from hurricanes could outweigh costs".
"Although natural disasters spread destruction and economic pain to a wide variety of businesses, for some, it can mean a burst in activity and revenue.
For that reason, economists tallying the numbers expect the hurricanes will be neutral in their effect on the U.S. economy, or may even give it a slight boost, particularly because of an expected reconstruction boom in the already red-hot construction industry..."
This led to a number of blog posts. Tyler Cowen led off the next day:"Bombing Iraq to Prosperity".
"I would not have dared this [the story in USA Today - Ben] as satire. Nor is it presented as a sophisticated critique of national income accounting, which in fact does treat such expenditures as productive. Will it next be suggested that excess productivity is our main economic problem?
Other posts referenced Cowen's post in the next few days. These may be found listed at the end of his post.
"The parable describes a shopkeeper whose window is broken by a little boy. Everyone sympathizes with the man whose window was broken, but pretty soon they start to suggest that the broken window makes work for the glazier, who will then buy bread, benefitting the baker, who will then buy shoes, benefitting the cobbler, etc. Finally, the onlookers conclude that the little boy was not guilty of vandalism; instead he was a public benefactor, creating economic benefits for everyone in town.
The fallacy of the onlookers' argument is that they considered the positive benefits of purchasing a new window, but they ignored the hidden costs to the shopkeeper and others. He was forced to spend his money on a new window, and therefore could not have spent it on something else. Perhaps he was going to buy bread, benefitting the baker, who would then have bought shoes, etc., but instead he was forced to buy a window. Instead of a window and bread, he had only a window. Or perhaps he would have bought a new shirt, benefitting the tailor; in that case the glazier's gain was the tailor's loss, and again the shopkeeper has only a window instead of a window and a shirt. The child did not bring any net benefit to the town. Instead, he made the town poorer by the value of one window."
Bastiat presented this parable in his essay, "What Is Seen and What Is Not Seen". The broken window, and the efforts to repair it, are what is seen. The hidden costs are what is not seen.
Two of the best posts were those by Lynne Kiesling ( "Bastiat's Broken Window Fallacy"), and Mike Giberson ( "Hurricane of Fortune? Unemployment Claims Up") both at Knowledge Problem. Kiesling linked to interesting essays on Bastiat. Giberson provided citations and abstracts of two recent two journal articles on the economic impacts of disasters. Paulo Guimaraes et al. examined the impact of Hurrican Hugo on South Carolina and,
"...found that the income gains were neutral overall, despite a major surge in some sectors. Even in these sectors, the economic gain remained below the unreimbursed wealth loss. Thus, the catastrophe had a net negative economic effect."
Mark Skidmore and Hideki Toya took a long-run perspective, and found that:
"The cross-country empirical analysis demonstrates that higher frequencies of climatic disasters are correlated with higher rates of human capital accumulation, increases in total factor productivity, and economic growth."
This conclusion stood out from much of the rest of the material in the blog postings.
This is a second post on economic themes in this season's hurricane commentary. On August 17 I posted on hurricane related discussions of price gouging: "Price Gouging".