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Are Tsunamis Good for the Economy?

verfasst von - Elli -, 30.12.2004, 16:50

--><h3>Are Tsunamis Good for the Economy?</h3>
<h4 class="MsoBodyText">by Chris Westley</h4>
[Posted
December 30, 2004]

<img alt src="http://www.mises.org/images3/tsunami.jpg" align="right" border="0" width="219" height="152">I
didn't think anyone would dare to apply the Bastiat's Broken
Window fallacy to the human
tragedy that is still playing itself out along the rim of the Indian Ocean, but
sadly, faith in economic fallacies is even more common than deadly tsunamis.

That is why I
was surprised to hear the Institute for International Economics' C. Fred
Bergsten (<a id="OLE_LINK1" name="OLE_LINK1">known
affectionately as See Fred</a>)
this morning (December 29th) on National Public Radio's Morning Edition
explain how this crisis would actually provide long-term benefit to that region
of the world.

Bergsten
said,

<blockquote dir="ltr" style="MARGIN-RIGHT: 0px">
Like any
disaster, you get negative effects through destroying existing property and
people's health, but you do get a burst of new economic activity to replace
them, and on balance, that generally turns out to be quite positive.

Over time,
properties that have been destroyed will be fully replaced, and probably by
better and newer substitutes, so at the end of the reconstruction process, the
countries will probably be wealthier.

[/i]
To be fair, Bergsten
admitted this disaster is, above all, a human tragedy, but his comments ignore
other effects that will result when positive economic growth results from
any disaster, whether it occurs due to a matter of policy (wars) or to
unanticipated changes in the physical environment (tsunamis). These effects:

<ul>
~
<div class="MsoBodyText">
involve forced capital
consumption, shifting capital from other uses to those necessitated
by the disaster
</div>
~
<div class="MsoBodyText">
ignore the opportunity cost of
capital that is being transferred to the disaster sites (costs that should
be considered before assuring public radio listeners that the resulting
economic activity"generally turns out to be quite positive")  
</div>
~
<div class="MsoBodyText">
encourage construction in areas
that would likely be less inhabited if construction decisions were left to
market forces, which is the same thing that happens when the U.S. Federal
Emergency Management Agency continuously finances reconstruction
after reconstruction along coastal areas in the U.S. that are regular
targets of hurricanes     
</div>
~
<div class="MsoBodyText">
legitimize the fallacies that
disasters are good for economies, when in fact, while they allow
governments to take credit for measured increases in gross domestic
product, they reduce the quality of life to most everyone involved
</div>
</li>
</ul>
I say most
everyone because some groups in the economy clearly benefit, and often this
includes firms that depend on government contracts resulting from
emergency funding. Firms such as Halliburton or Bechtel may do great work in the
private sector, but absent government contracts, these firms would
play a much less notorious role in the society because their market power would
be based, not on the forced conscription of capital that is taxation,
but on voluntary exchanges between buyers and sellers. Politicians also benefit,
if only because of the publicity they receive when disbursing other people's
money to the disaster sites.

It doesn't have
to be this way. Natural disasters are a fact of life, but the evidence is clear
that they cause much less destruction than wars (and other fruits of the
nation-state). For instance, as horrific as the loss of human life resulting
from last week's tsunamis is, it doesn't come close to the loss of innocent
human life that has resulted from U.S. intervention in Iraq since the 2003
invasion.

According to a
study reported last fall in the British medical journal The Lancet,
this
number is already well over 100,000.
Compared to the innocent civilian deaths resulting from the wars of the 20th
century, it is clear that large, bureaucratic nation-states are a greater threat
to human life than occasional and inevitable natural disasters.

Indeed, wars are
synthetic natural disasters, writ large. As Ludwig von Mises pointed out in Human
Action: "Modern war is merciless, it does not spare pregnant
women or infants; it is indiscriminate killing and destroying. It does not
respect the rights of neutrals. Millions are killed, enslaved, or expelled from
the dwelling places in which their ancestors lived for centuries."

He could have
been describing much of what is occurring today both in Iraq and along the rim
of the Indian Ocean.

It is also clear
that the best protection against natural disasters is not an expansion if the
public sector on an international basis, but wealth creation. It is no mistake
that natural disasters, which are quite equitable in distribution between rich
and poor countries, are more devastating to the poor than the rich. The
establishment of a thriving private sector in Sri Lanka, India, and Indonesia is
crucial for a quality of life to develop there that can withstand earthquakes
and their aftermath as well as does the California coast.

But such
development will not occur from state-managed, broken-window-like economic
growth extolled by many mainstream economists. War and natural disasters are not
good for the economy. The evolution of property rights institutions and the
autonomy they engender, as well as free trade and the social cooperation it
engenders, are the human race's best long-term insurance against both.

__________________________

Christopher
Westley teaches economics at Jacksonville State University. See his Mises.org Daily
Articles Archive. Send him MAIL.
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Are Tsunamis Good for the Economy? - - Elli -, 30.12.2004, 16:50