Monday, October 29, 2012

Destructive Storms and Economics

A question that gets asked once in a while is how destructive storms affect the economy - could they possibly be a good thing?  After all, there are a lot of businesses that stand to benefit from the related clean-up and reconstruction activities.  The answer is yes and no.  The yes part comes from the same old fiscal stimulus idea - spending money causes it to circulate, multiplier effects, yadda, yadda yadda...

But this is a minor consideration - mostly destructive storms destroy value and this makes us poorer as a society.  Loosing ones house, car, etc. to a storm does not do anything but take away or diminish the value of a valuable and productive asset.  So, sure the money you spend to have the house fixed, for example, might give a little boost to the local economy but it will make you less well off - it is money that, prior to the storm, you didn't have to part with to have your asset be at full value.  

Just a thought I have on the day Sandy makes landfall.  It is also a day in which I awoke to find a big giant tree branch fallen in my driveway.  Nice to provide work to aborists and all that, but the few hundred dollars it will probably cost me is not fun to part with.

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