Good news for the thousands of Iowans who lost vehicles, roofs or trees in last month’s destructive derecho — your loss could fuel a local economic boom. That’s probably not much consolation if you’re uninsured or still out of work because of the historic storm.
The vast majority of structures in Cedar Rapids and adjacent communities were affected by the Aug. 10 weather phenomenon. The city lost an estimated 65 percent of its tree canopy, and more than a million Midwestern homes and businesses lost electricity.
While the destruction was immense, there’s a movement in economics to say major disasters actually are not that bad because the ensuing recovery efforts — funded by insurance payouts and government relief payments — will be an economic stimulus.
However, for every winner in the storm recovery game, there is at least one loser. Each dollar that lands in the pocket of a construction worker has to come out of some other taxpayer’s or insurance customer’s pocket. That’s money that could have been spent on productive uses, not on hauling away a tree that was blown down before its time.
This is called the “broken window parable,” taken from French economist Frederic Bastiat’s 1850 publication “That Which is Seen, and That Which is Not Seen.”
The parable describes a shopkeeper with a broken window, and a bystander who suggests it’s a blessing since it makes work for the window glazier. But since the shopkeeper spent six francs to repair the window, he will forgo the new shoes he planned to buy, depriving the shoemaker of income. There is no net benefit, only a shopkeeper with old shoes.
Bastiat’s essay criticizes a French politician who purportedly calculated the positive trade impact that could be had from burning Paris to the ground. That outrageous inclination did not disappear over the next 150 years. In 2001, days after the Sept. 11 terrorist attacks, liberal economist Paul Krugman wrote in his New York Times column that the violence and destruction could “do some economic good.”
“Now, all of a sudden, we need some new office buildings,” Krugman wrote, welcoming the reversal in business investment brought on by toppling buildings with airplanes.
It’s extraordinarily difficult to say for certain whether the economic positives outweigh the negatives. Assessing the full scope of damage from a significant disaster is fraught with uncertainty, as illustrated by another historic Iowa weather event.
The great flood of 1993 is on record as one of the costliest natural disasters in U.S. history. Across nine Midwestern states, tens of thousands of people lost their homes, dozens of communities were completely covered in water, some for weeks, and every county in Iowa was affected.
Damage to property caused by the 1993 floods was estimated to be between $12 and $16 billion, but the total cost Americans incurred was far greater. Inevitably, analysts omit or miscalculate some of the indirect costs associated with disasters, which can take years to be realized.
Diminished soil quality on farmland, damage to building foundations and deteriorating roads are a few of the “hidden” costs mentioned in a 1994 report from the Federal Reserve Bank of St. Louis. With flooded transportation infrastructure throughout the region, commerce halted, causing a chain reaction of incalculable economic devastation.
After a widespread storm like the one the Cedar Rapids area experienced last month, there are millions of micro-costs that probably won’t show up on any government spreadsheet — the mom who still can’t go to work a month after the disaster because she lost her car; the young homeowner who overdrew his bank account to buy a generator; the homeless man who lost the camping supplies he uses to stay safe at night.
“Your economy was hindered because people couldn’t go to work,” Dave Swenson, Iowa State University economics professor, said in a recent Gazette news article. “And businesses couldn’t operate because of the derecho and the power losses, so you had disruptions in people’s ability to engage in commerce.”
To the extent disaster recovery creates a positive economic impact, it’s mostly because resources are diverted from elsewhere, such as through large payments from the federal government and insurance companies. It’s a shell game more than an economic development strategy, but it seems to work as long as the stable regions outnumber the disaster zones. In an era of climate disasters increasing in frequency and severity, that’s no sure thing.
If the whole world is on fire, underwater or ravaged by wind, there will be nobody left to help.
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