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Thursday, September 08, 2005

 

Hurricane Damage & Economic Lunacy

Walter Williams:
"According to a couple of poorly trained economists, there's a bright side to Hurricane Katrina's destruction. J.P. Morgan senior economist Anthony Chan believes hurricanes tend to stimulate overall growth. As reported in 'Gas Crisis Looms' (Aug. 31, 2005), written by CNN/Money staff writer Parija Bhatnagar, Mr. Chan said, 'Preliminary estimates indicate 60 percent damage to downtown New Orleans. Plenty of cleanup work and rebuilding will follow in all the areas. That means over the next 12 months, there will be lots of job creation which is good for the economy.'

Professor Doug Woodward, of the business school at the University of South Carolina, has the same vision. Professor Woodward said, 'On a personal level, the loss of life is tragic. But looking at the economic impact, our research shows that hurricanes tend to become god-given work projects.' Within six months, Professor Woodward 'expects to see a construction boom and job creation offset the short-term negatives such as loss of business activity, loss of wealth in the form of housing, infrastructure, agriculture and tourism revenue in the Gulf Coast states.'

Let's ask a few smell-test questions about these claims of beneficial aspects of hurricane destruction. Would there have been even greater economic growth and job creation for our nation had Hurricane Katrina not only destroyed New Orleans, Mobile and Gulfport, but other major metropolitan areas along its path, like Cincinnati and Pittsburgh, as well? Would we consider it a godsend, in terms of jobs and economic growth, if a few more category 4 hurricanes hit our shores? Only a lunatic would answer these questions in the affirmative."
Right on Walter. The hurricane destroyed an enormous quantity of wealth and assets, not even mentioning the loss of life which also means a loss of productive resources. Re-creating the wealth and the assets is simply replacing what people in the economy already had achieved through their own productivity.

Comments:
Granted, I've only been studying economics for a couple of years now, but it seems to me that the economy doesn't strive to create jobs, but to create wealth and to 'make people better off'. Considering the total destruction that Katrina created, it certainly can't make anyone better off when those communities and the federal government now need to funnel money into reclaimation and rebuilding - money that would have been used for other purposes before this phenomenal need.

This line of thinking is not only strange, implying that in times of economic crisis we should hope for some cataclysmic event, but seems to also rely on pork-barrel spending. Where will private and business spending kick in? If people can't afford to rebuild and move back there, is it really economically efficient that the government rebuild in this (obviously) problematic place? If it wasn't the federal government that started the cities, should the federal government rebuild them?
 
I like meshell's second paragraph.

With respect to the first paragraph I have a comment about:

". . . it seems to me that the economy doesn't strive to create jobs, but to create wealth and to 'make people better off'."

I don't think the economy "strives" for anything. People can strive, economies can't. I'm afraid our language can sometimes lead us to some odd conclusions, and talking about "economies striving," or "society's benefits," or "society's interest," are common illustrations.

People strive to attain goals of their own choosing, of their own "design." In an important way, we should think of the economy as the interactions of all those people striving to attain their own personal goals.
 
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