I know this is a serious and sensitive topic to some people so I don’t mean to suggest that the hurricane is a good thing, because it is obviously not. My parents are located a good 50 feet north of the mandatory evacuation line on Long Island and there will likely be some flooding damage to my house. I only mean to think about some of the positives it may bring rather than focus only on the bad…
Many reports estimate the damage to the storm to be somewhere from 5-10 billion dollars if it is as bad as it looks. You also must consider the loss in business and production from having many people unable to get to work for a few days to a week in cities like New York when thinking about the bad.
But, if there is a great deal of damage to buildings and infrastructure, this will all need to be repaired. This could lead to a temporary uptick in employment in states across the northeast as the need for construction workers, utility workers, and contractors will likely be heavy over the next few weeks or months. I was driving back to Lexington from New York this Sunday and it seemed like a good 25% of the traffic heading north on 81 was utility workers, tree cutting workers, and ambulances coming from states in the south and west. The total value of the repairs would boost GDP for the 4th quarter since the damages would not be subtracted from GDP. At least on paper, Sandy would help GDP and unemployment temporarily.
Someone will also have to pay for the repairs. Insurance companies and governments will probably end up being hit the hardest. So even though Sandy may have a positive impact on paper, the storm will hurt the balance sheets of governments and could increase the total debt burden due in the future. On net, I think the storm is obviously not a good thing, but it could have some short term positive economic impacts if the value of repairs and increase in temporary employment outweighs the loss in production from people missing work considering that the damages from the storm will not be counted against GDP.
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As to how to pay, obviously some people with inadequate insurance take a hit to their wealth; if insurance companies are doing their actuarial homeowork correctly, they’ve already planned for such losses “on average.” If it hits profits, it is then one of timing, not the expected net present value of profits. Right now the government can borrow at 0%, so having FEMA supplement private insurance is a boon for taxpayers, better than going to the bank to borrow for repairs. So so what if debt goes up? — the increase represents a net gain to society. And, as you note, it may provide an indirect stimulus that our current Congress would not otherwise fund.
Nevertheless damage is real; disasters are never a positive, they are just less negative than headlines suggest.
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