Real Economic Effects of a Natural Disaster.

When economic “scholars and experts” praise damages caused by a natural disaster as a stimulus to the economy, we instinctively suspect something is amiss.  Are we being blindly misled or are these same economic “scholars and experts” consuming too many pharmacological innovations? We will never know.

What is readily apparent is that after decades of dealing with misallocation of capital through ever increasing role of governmental interventions created a seriously blurred picture of reality. Let’s try to focus the lens to see what’s the real “damage” inflicted on us is.

If we expand on the logic of “disaster is good for economy” just one logical step further … why not just randomly keep destroying some infrastructure around the country whenever our economy needs economic activity? Although any destruction does undoubtedly create some economic activity, it is not a desired economic activity. Restoration gets us to where we were before the destruction occurred. Moreover for a short period of time there will be a higher demand for something we really did not need before the damage occurred. That increased demand will disappear once the damages are repaired. The real “damage” however is the misallocated capital that was spent repairing damages instead of channeling the capital into a new wealth creation cycle. Do we drive our cars into trees just to have them repaired?

Do not let the economic “scholars and experts” sell you a bill of goods. The net effect on an already fragile economy is similar to having a fender bender on an already strained family budget. Any positive economic activity that is generated by any disaster will be negatively offset by capital misallocation. It is a net negative for the economy as a whole.

It is no wonder that our economy seems to be heading in the wrong direction. If the same economic “scholars and experts” are influencing Washington policy we can expect higher prescription drugs sales and increased traffic at the psychiatric offices.