08/31/2005: Broken window fallacy, Hurricane Katrina edition
J.P. Morgan senior economist Anthony Chan agrees that higher energy prices will curb both regional and national economic growth in the near-term.
"I think a 0.2 percent decline in economic growth due Katrina's impact on oil and the regional economy is a realistic assumption," Chan said. Longer-term, Chan believes hurricanes tend to stimulate overall growth.
Said Chan, "Preliminary estimates indicate 60 percent damage to downtown New Orleans. Plenty of cleanup work and rebuilding will follow in all the areas. That means over the next 12 months, there will be lots of job creation which is good for the economy."
Prof. Doug Woodward, with the Division of Research at the Moore School of Business at the University of South Carolina, has researched the economic impact of hurricanes.
"On a personal level, the loss of life is tragic. But looking at the economic impact, our research shows that hurricanes tend to become god-given work projects," Woodward said.
Disasters are good for the economy, he said. Within six months, he expects to see a construction boom and job creation offset the short-term negatives such as loss of business activity, loss of wealth in the form of housing, infrastructure, agriculture and tourism revenue in the Gulf Coast states.
Brock on 08.31.05 @ 12:41 AM CST