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Monday 21 Aug 2017 | 05:12 | SYDNEY
Monday 21 Aug 2017 | 05:12 | SYDNEY

The economics of disasters



8 July 2008 14:48

A couple of weeks ago I made fun of a Financial Times article that claimed China's earthquake, far from being an economic disaster, would end up boosting growth. If disasters are such good news, I asked, 'why doesn't the Chinese Government just nuke one half of the country so that the other half can "benefit" from the economic activity created by the subsequent reconstruction?'

Turns out that, my dry wit and devastating mockery notwithstanding, there's a whole sub-discipline within economics devoted to the study of disasters as economic goods. Here's an article about it, which argues that 'calamities are simply pushing societies to make the sort of sound economic decisions that inertia or fear or bureaucratic sclerosis prevents them from otherwise making.'

That makes sense, with an obvious example being World War II, which forced large numbers of women into the American workforce, thus changing the face of the US economy for ever.

I'm relieved to relate, however, that the article does reinforce my point about the broken windows fallacy. Donald Boudreaux, an economics professor at George Mason University, is quoted as saying:  

"...over any reasonably relevant period of time, society is not made wealthier by destroying resources"... If it were, "Beirut should be one of the wealthiest places in the world."

Quite so.

Photo of Beirut by Flickr user benfromissaquah, used under a Creative Commons license.

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