Wednesday, 30 March 2011

The economics of natural disaster

From the Economist magazine,
Now, I believe the [broken window] fallacy is indeed a fallacy, and I find the idea that Japan might somehow gain from this bout of terrifying havoc and mass death both ridiculous and disgustingly Panglossian. But, really, this isn't about us, and I've grown weary of playing a part in the rote broken-windows Punch and Judy show. Much more pertinent and interesting is the fascinating, lively, empirically-informed academic literature on the economic effects of disasters, which I was reading up on last night. Alas, the New York Times' Binyamin Appelbaum beat me to the punch, providing a short overview of some recent research that finds that disasters have no long-term affect on GDP. This excellent 2008 Boston Globe article by Drake Bennett offers a more comprehensive summary.
So an earthquake in either Japan or Christchurch will do nothing to improve economic performance in either place.

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