Acton Institute Powerblog

No, hurricanes and other natural disasters are not economically beneficial

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Hurricanes like Harvey almost always leave two things in their aftermath: broken windows and articles advocating the broken window fallacy.

Unfortunately, while we can’t stop hurricanes from occurring we should be able to put an end to bizarre idea that natural disasters that destroy property are beneficial to our economy. For after 6,712 cyclones, typhoons, and hurricanes the evidence is clear: Bastiat was right all along.

In 1850, the economic journalist Frédéric Bastiat introduced the parable of the broken window to illustrate why destruction, and the money spent to recover from destruction, is not actually a net benefit to society (see the video at the end of this post for an explanation of the broken window fallacy). For most people the idea that destruction doesn’t help society would seem too obvious to warrant mentioning. But some liberal economists argue that destruction can lead to an economic boom, mainly because it provides the government with an opportunity to spend more money.

If the liberal economists are right, then we should find that destructive storms lead to economic growth. But a pair of researchers, Solomon M. Hsiang and Amir S. Jina, published a study that shows the exact opposite. Using meteorological data, they reconstructed every country’s exposure to the 6,712 cyclones, typhoons, and hurricanes that occurred during 1950-2008 and then measured the long-term growth:

The data reject hypotheses that disasters stimulate growth or that short-run losses disappear following migrations or transfers of wealth. Instead, we find robust evidence that national incomes decline, relative to their pre-disaster trend, and do not recover within twenty years. Both rich and poor countries exhibit this response, with losses magnified in countries with less historical cyclone experience. Income losses arise from a small but persistent suppression of annual growth rates spread across the fifteen years following disaster, generating large and significant cumulative effects: a 90th percentile event reduces per capita incomes by 7.4% two decades later, effectively undoing 3.7 years of average development. The gradual nature of these losses render them inconspicuous to a casual observer, however simulations indicate that they have dramatic influence over the long-run development of countries that are endowed with regular or continuous exposure to disaster.

“There is no creative destruction,” Jina told The Atlantic. “These disasters hit us and [their effects] sit around for a couple of decades.” He added, “Just demonstrating that that was true was probably the most interesting aspect for me to start with.” Additionally the researchers found,

A cyclone of a magnitude that a country would expect to see once every few years can slow down an economy on par with “a tax increase equal to one percent of GDP, a currency crisis, or a political crisis in which executive constraints are weakened.” For a really bad storm (a magnitude you’d expect to see around the world only once every 10 years), the damage will be similar “to losses from a banking crisis.”

Unfortunately, the researchers tie this to the dubious conclusion that the effect of climate change on cyclones will be “roughly $9.7 trillion larger than previously thought.” That could happen. Or it could be the case that climate change reduces the cost of destructive storms in some areas by keeping them from hitting populated areas. We don’t really know what the effect will be, so we shouldn’t be basing trillion dollar public policy decisions on unreliable climate change models.

But despite their disputable conclusion, the researchers have done an invaluable job of providing support for what Christians should know: wanton destruction is not a net benefit to mankind.

Addendum:

To restate the Christian case against the broken window fallacy: “God has not just called us to preserve what he has given us, but to increase and grow it,” says Anne Bradley. She explains that our job description as given in Genesis 2 is to:

• Be fruitful and multiply.
• Create rather than destroy.
• Use our ingenuity and talent to increase the sum of flourishing, not just preserve existing levels.

The Christian approach to economic growth—which tends to lead to increased human flourishing—is to be innovative, productive, creative, and responsible stewards of resources. Everyone understands this intuitively, of course, which is why we don’t cheer about how economically fortunate we are to be hit by a hurricane.

As for the parable of the broken window, economist Art Carden explains Bastiat’s reasoning in this video:

Business for the Glory of God: The Bible's Teaching on the Moral Goodness of Business

Business for the Glory of God: The Bible's Teaching on the Moral Goodness of Business

Wayne Grudem believes that by engaging in work and business we glorify God because we are emulating God's creative work.

Joe Carter Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).

Comments

  • Steve Vinzinski

    An storm similar to this or any storm is destructive and hurtful. Not to the same extent by no means a few weeks ago struck our house.I did not report the matter to homeowners insurance because of the $1000.00 self insurance.Two bolts of lightning hit our house one the well the other the cable.We lost a brand new Television,computer and and some severe damage for the cable company and the well company.Again that is nothing compared to Harvey maybe $4000.00 to $4 trillion when this is over.I do have some comments concerning the article.An natural destructive act like this is not in the range of a terror attack even if the terror attack is much worst.One can buy insurance for an hurricane they must be careful.Always look for an educated agent.Always have replacement value,continuation of business insurance that continues to pay you and your bills.Remember three types of flood insurance.Flood itself similar to a dam giving way that means you must be adjacent to a body of water.There is run off insurance which is good for an down pour from a thunder storm that does damage.The most important with Harvey surge insurance.I wanted to point out rarely does an carrier write terror insurance it is sold by a few companies.To discuss government spending money I would try to limit that by letting private insurance cover these areas.We must be reasonable an accept the fact that most people do not carry all the insurance they need.This storm is so intense and the suffering so awful the government can take the wall money and restore or at least attempt to restore the area affected.I see one in four Texans have been hurt.Yes there will be plenty of work around for literally a decade or two from Harvey.Just pray for these people God always has a purpose some day we will find out.I will say this FEEMA director is A+.The President did pick a good one here.Very well qualified and has absolute support of everyone.