The Japan situation makes me convinced I will never understand economics, especially since economists are saying that the earthquake is actually going to benefit Japan's economy as it employs previously unemployed people to clean up the devastation. I don't really know how that's supposed to work, maybe we should wish for an earthquake over here to fix our economy.
JAPAN is in tragic disarray after last week's massive earthquake and subsequent tsunami. Nature may be cruelly unpredictable, but people are just cruel. Every time there is a catastrophe abroad, American opinionators use the prospect of reconstruction as an opportunity to conduct a proxy debate over fiscal stimulus and economic fundamentals. So, like clockwork, some benighted folks started
talking up the potential economic gains from Japan's disaster, causing a rubber ball to fall down a tube into a pail, which overflowed, splling water down a chute, which turned a little water-wheel, which rang a little bell, startling
libertarian economics professors into
lecturing us about
"the broken windows fallacy".
Now, I believe the fallacy is indeed a fallacy, and I find the idea that Japan might somehow gain from this bout of terrifying havoc and mass death both ridiculous and disgustingly Panglossian. But, really, this isn't about us, and I've grown weary of playing a part in the rote broken-windows Punch and Judy show. Much more pertinent and interesting is the fascinating, lively, empirically-informed academic literature on the economic effects of disasters, which I was reading up on last night. Alas, the New York Times' Binyamin Appelbaum beat me to the punch, providing
a short overview of some recent research that finds that disasters have no long-term affect on GDP. This excellent
2008 Boston Globe article by Drake Bennett offers a more comprehensive summary.
By far the boldest claim, advanced
in this 2002 paper by Mark Skidmore of the University of Wisconsin-Whitewater and Hideki Toya of Nagoya City University in Japan, is that some disasters can boost GDP by forcing upgrades in technology and infrastructure, and offering the opportunity for critical reappraisal of ingrained modes of economic activity, leading to a higher level of productivity and, eventually, to net gains in growth. They find that this holds for some weather-related disasters, but not for geological disasters. They find persistent, long-run negative effects for geological catastrophe, suggesting any upside from Japan's earthquake and tsunami is unlikely. The argument of this paper, which is as strong as the disaster-bonus case gets, is a touchstone for
a good deal of later research.
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