Posted 8:38 pm Monday, November 05, 2012
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No silver lining in Hurricane Sandy
Estimates of the damage caused by Hurricane Sandy are still very preliminary. And they’re probably low. Yet some economists (and political candidates) are attempting to spin the great cyclone as an economic boon; it will surely provide jobs and consumer spending as people try to rebuild their lives.
That’s a very Keynesian way of looking at it; it ignores the massive wealth that was destroyed, the reduced standard of living many will now experience as their “new normal,” and the taxes and deficit spending surely coming our way.
A natural disaster is a natural disaster. We will recover, but at a cost. And that can’t be spun away.
“It’s hard to assess the economic damage of a storm that hasn’t yet passed,” the Wall Street Journal reported last week. “But some economists predicted Monday that, barring a catastrophic event, Hurricane Sandy would slow growth in the short term but have a negligible impact on, and possibly even boost, fourth-quarter growth.”
Wait. Hurricane Sandy was a catastrophic event. But the Journal quotes a Moody’s economist.
“While natural disasters take a large initial toll on the economy, they usually generate some extra activity afterward,” Moody’s economist Ryan Sweet wrote on the firm’s website Monday. “We expect any lost output this week from Hurricane Sandy will be made up in subsequent weeks, minimizing the effect on fourth quarter GDP.”
And CBS News is predicting job growth.
“Indeed, Sandy is already providing at least a temporary boost in employment,” CBS noted. “The advance warnings about the storm gave utility companies time to start hiring crews from subcontractors to help restore power and telephone service.”
That’s a very Keynesian way of looking at it; it ignores the massive wealth that was destroyed, the reduced standard of living many will now experience as their “new normal,” and the taxes and deficit spending surely coming our way.
A natural disaster is a natural disaster. We will recover, but at a cost. And that can’t be spun away.
“It’s hard to assess the economic damage of a storm that hasn’t yet passed,” the Wall Street Journal reported last week. “But some economists predicted Monday that, barring a catastrophic event, Hurricane Sandy would slow growth in the short term but have a negligible impact on, and possibly even boost, fourth-quarter growth.”
Wait. Hurricane Sandy was a catastrophic event. But the Journal quotes a Moody’s economist.
“While natural disasters take a large initial toll on the economy, they usually generate some extra activity afterward,” Moody’s economist Ryan Sweet wrote on the firm’s website Monday. “We expect any lost output this week from Hurricane Sandy will be made up in subsequent weeks, minimizing the effect on fourth quarter GDP.”
And CBS News is predicting job growth.
“Indeed, Sandy is already providing at least a temporary boost in employment,” CBS noted. “The advance warnings about the storm gave utility companies time to start hiring crews from subcontractors to help restore power and telephone service.”
Economist John Maynard Keynes would approve; his philosophy was that a job is a job; government investment is just as good (or better) than private investment, and economic activity of any kind is positive, even if it requires deficit spending.
His famous illustration was the government paying one man to dig a hole, and another man to fill it in. Two jobs are created, and that’s all that matters.
But it’s not.
What the economists and candidates trying to spin Sandy miss is that the hurricane destroyed so much accumulated wealth. Sure, many of the homes and businesses hit by the storm and flood waters were insured, but insurance is limited. And in the case of flooding, it’s often not purchased by the homeowners.
So millions of people will live with less than they had before.
And a job isn’t a job — there are kinds of employment, requiring different skills. The jobs created by Sandy will largely be skilled labor (construction, welding, plumbing, electrical) with some smaller demand for low-skilled helpers. But are the recent college graduates, half of whom can’t find jobs now, willing or qualified for these jobs? They’re also temporary, and limited geographically.
Finally, infrastructure damage isn’t insured; we’ll be fixing that with bonds, higher taxes, and deficit spending.
Economic growth occurs when we build our economy — not when we’re rebuilding what was destroyed in a natural disaster.
His famous illustration was the government paying one man to dig a hole, and another man to fill it in. Two jobs are created, and that’s all that matters.
But it’s not.
What the economists and candidates trying to spin Sandy miss is that the hurricane destroyed so much accumulated wealth. Sure, many of the homes and businesses hit by the storm and flood waters were insured, but insurance is limited. And in the case of flooding, it’s often not purchased by the homeowners.
So millions of people will live with less than they had before.
And a job isn’t a job — there are kinds of employment, requiring different skills. The jobs created by Sandy will largely be skilled labor (construction, welding, plumbing, electrical) with some smaller demand for low-skilled helpers. But are the recent college graduates, half of whom can’t find jobs now, willing or qualified for these jobs? They’re also temporary, and limited geographically.
Finally, infrastructure damage isn’t insured; we’ll be fixing that with bonds, higher taxes, and deficit spending.
Economic growth occurs when we build our economy — not when we’re rebuilding what was destroyed in a natural disaster.
