Keynesians can celebrate: Hurricane Matthew is expected to cost $10 billion as it impacted, impaired or destroyed more than one million structures from Florida to North Carolina.
Despite inflicting far less damage than initially expected, Hurricane Matthew has created a long lasting impact for jurisdictions in the southeast part of the United States. Homeowners, business owners, restaurants and so many others were significantly affected by the hurricane.
According to an estimate from Goldman Sachs, Hurricane Matthew will likely have caused $10 billion in damages. It’s believed that insurance companies will be liable for between $4 billion to $6 billion. It does suggest, however, that Hurricane Matthew’s impact on the national economy will be rather minimal.
In fact, Hurricane Matthew will go down as the 22nd-worst storm since the Second World War. Hurricane Sandy from a few years ago is considered to be the second-worst storm as it caused as much as $60 billion in damages. Insurance companies were on the hook for as much as $20 billion.
Natural disasters can oftentimes leave local and regional economies in ruins because businesses have to shut down and consumers spend fewer dollars as they attempt to recover from losing their homes and properties. However, Keynesians see the positive in this because this stimulates the economy, particularly in the construction and rebuilding sector.
The only problem right now is that there is a labor shortage going on, which may make any recovery slow.
“My expectation is that we’re going to see some major labor bottlenecks,” Brad Hunter, chief economist at HomeAdvisor, told Bloomberg. “We were already seeing labor shortages before the storm, and when there’s a spike in demand, labor becomes a bigger problem.”
Nevertheless, this is the same Broken Window Fallacy explained by legendary economist Fredric Bastiat. Bastiat wrote about a shopkeeper, who has his window broken by some hooligan. Because of the damage, he now must hire someone to repair or replace the window. The local townspeople are distraught by the news, but they argue that this will benefit the economy because he must hire the window repairman. Of course, as Bastiat wrote in “That Which is Seen, and That Which is Not Seen,” this money could have been allocated to something else entirely.
Keynesians adore the idea of breaking everyone’s windows in order to spur growth. This is why World War II is falsely championed as ending the Great Depression, why Paul Krugman wants space alien invasions and why financial outlets always report about an expanding GDP following a natural disaster.
Here is what Krugman opined shortly after the “Fukushima nightmare”:
Life and business go on; so I guess we have to talk about the economic impact of the Fukushima nightmare.
One set of impacts involves disruption of supply chains.…
But what I’m hearing a lot is worries about financial impacts. Japan will clearly have to spend hundreds of billions (dollars, not yen) on damage control and recovery, even as revenue falls thanks to the direct economic impact. So Japan will become less of a capital exporter, maybe even a capital importer, for a while. And this, so the story goes, will lead to soaring interest rates.
What’s going on? The story about rising interest rates would be right in normal times. But we’re not in normal times: we’re — still — in a liquidity trap, with short-term rates up against the zero lower bound.…
So government borrowing doesn’t have to come at the expense of private investment, driving up interest rates; instead, it just mobilizes some of those desired but unrealized savings.
And yes, this does mean that the nuclear catastrophe could end up being expansionary, if not for Japan then at least for the world as a whole. If this sounds crazy, well, liquidity-trap economics is like that — remember, World War II ended the Great Depression.
If Keynesians had their way, they would want to eviscerate society to create any kind of economic expansion.
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