Written By: William Mellor, Vice President at AngelouEconomics | What is the Economic Impact of Natural Disasters?
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Do natural disasters cause or create economic growth?
Take a look at what’s happening to right now to Kīlauea in Hawaii. In the same way, remember what happened in 2017 when hurricanes Irma and Harvey devastated some states in the country, particularly.
More often than not, heightened economic activity is what usually happens after a natural disaster. As an economist, what should be the view about it? Is it good, bad, or somewhere in between?
Let’s take Texas for example. When the final GDP numbers came out for the 4th quarter of 2017, Texas, among other states, has achieved the highest GDP growth of 5.2%. Given that Houston was hit so hard by hurricane Harvey, how did Texas do so well and come out on top?
As Texas rebuilt, there were several industries (mostly construction industry) that increased production. Construction is the second highest performing economic sector after oil and gas industry. Thus, it is reasonable to say that construction industry brought about economic growth that led Texas to lead the nation in terms of GDP growth.
On one hand, that’s great. One the other hand, it’s not.
Let’s remember that GDP growth coming from a natural disaster is not, and should not be treated the same way as GDP growth that comes about from other means such as commercial and technological advancements. Increased economic activity prior to disaster doesn’t really push the economy forward; it only gets us back to where we were and where we started. Economist Donald Boudreaux of George Mason University said it best in an article to the New York Times in 2008 that “…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.”
Let’s face it – we can never stop natural disasters from happening. But how should the government prepare for it? It’s bye creating infrastructures from the newest technological methods. Technologically-advanced infrastructures will further prevent natural disasters from damaging properties. It means that if there are lesser things to rebuild from disasters, government funds can be re-allocated to other income-generating programs and projects that will further the economic growth. As society, how can we help? It’s as simple as taking care of the environment. Mother Earth will take care of us in return if we take care of her.
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