Vance Ginn Economics
  • Home
  • About
  • CV
  • Media
  • Podcast/Speeches
  • Blog/Research
  • Research
  • Teaching
    • ECON 2301-Princ of Macro
    • ECON 2302-Princ of Micro
    • ECON 3352-Energy Eco
  • Home
  • About
  • CV
  • Media
  • Podcast/Speeches
  • Blog/Research
  • Research
  • Teaching
    • ECON 2301-Princ of Macro
    • ECON 2302-Princ of Micro
    • ECON 3352-Energy Eco

Typhoon Haiyan's Hidden Costs

11/17/2013

 
​On Nov. 8, Typhoon Haiyan barreled through the Philippines causing a 16-foot storm surge, torrential rains, and engulfing everything in sight with its 160 miles-per-hour winds — a Category 5 hurricane. The typhoon was a tragedy and my prayers go out to those families who are now struggling. The costs of these natural disasters are mind-boggling when the loss of human life, physical capital, and rebuilding efforts are all taken into account. In these situations, claims are frequently made that government aid is the optimal solution for disaster relief and the economies of this community will flourish thanks to rebuilding efforts. This view is based on erroneous assumptions.
ADVERTISINGTyphoon Haiyan caused mass destruction leaving property mangled across the region, killing approximately 4,000 people, and leaving thousands more injured or lost in the debris. The Economist reports that "early estimates of the economic costs are about $15 billion." The costs could have been much higher if the storm had not passed through one of the poorest regions in the world.
5To give some perspective, Hurricane Katrina was a weaker (Category 3) hurricane with 125 miles-per-hour winds when it made landfall near New Orleans in 2005, causing $125 billion in damages. In fact, Katrina holds the record for costliest Atlantic hurricane. Although Hurricane Katrina was a weaker storm, the economic costs were more than eight times greater because of greater economic development and prosperity along the U.S. coast than in the Philippines.
These catastrophic reports make it perplexing to read articles explaining how Typhoon Haiyan and other destructive events, such as 9/11 and Japan’s 2011 tsunami, boost economic growth. Proponents of this view argue that these disasters provide an economic stimulus due to the "jacuzzi effect," whereby upgrades and innovations are made in the wake of catastrophic events that might not have occurred if not for the disaster.
If we followed this rationale to its logical conclusion, we should burn buildings, throw rocks through windows, and pray for more natural disasters to stimulate economic growth.
The "broken window fallacy," conversely, demonstrates how unseen costs and unintended consequences must be considered when assessing the costs from a destructive event. In economics, the cost of a foregone alternative when pursuing a course of action is an "opportunity cost." This important concept must be considered when accounting for the costs of a disaster.
After any disaster, explicit costs can easily be tallied (e.g. bridges, buildings, machines, etc.) Implicit costs can go unnoticed (e.g. time, effort, lives lost, etc.) including what the funds could have been spent on instead of going toward rebuilding the region (i.e. opportunity costs.) Instead of spending money on demolishing destroyed houses and rebuilding them, imagine public and private funds spent on generating economic development in poor areas, improving failed schools, and upgrading dilapidated hospitals.
Furthermore, assistance in these situations is often delayed, due to the bureaucratic nightmare that is public sector aid. In general, government aid means well. The lack of incentives for the tracking of resources makes this type of aid ineffective and inefficient and thus the aid typically goes to inept or, worse, corrupt governments. Private sector resources from profit and non-profit entities provide aid much more efficiently because they have the incentive to track their funds appropriately and send dollars directly to those who need it most. Moreover, public sector funds come from the productive private sector, reducing donations to more efficient private sector entities — another opportunity cost.    
While the region affected by Typhoon Haiyan may see a "jacuzzi effect" from a boost in their gross domestic product for a couple quarters during the reconstruction, there will be a drop in their standard of living that will not show up in the data. Specifically, the "broken window fallacy" from the lost productivity of the 4,000 deceased, the lower output due to the $15 billion in destroyed capital, and the resources employed to clean up and rebuild the region hit by this devastating storm are a drag on long-term economic growth.  
As we question how disasters affect an economy, let us remember the opportunity costs associated with rebuilding efforts and inefficient government aid, not jump to erroneous conclusions about the economic and societal consequences of these events. 

Comments are closed.

    Vance Ginn, Ph.D.
    Chief Economist
    ​TPPF
    ​#LetPeopleProsper

    Vance Ginn, Ph.D., is founder and president of Ginn Economic Consulting, LLC. He is chief economist at Pelican Institute for Public Policy and senior fellow at Young Americans for Liberty and other institutions. He previously served as the associate director for economic policy of the White House’s Office of Management and Budget, 2019-20.

    Follow him on Twitter: @vanceginn

    View my profile on LinkedIn

    Archives

    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    January 2015
    November 2013
    September 2013
    May 2013
    February 2013
    August 2012
    July 2012
    January 2012
    May 2011
    April 2011

    Categories

    All
    Biden
    Book Reviews
    Budgets
    Capitalism
    Carbon Tax
    Congress
    COVID
    Debt
    Economic Freedom
    Economic Prosperity
    Economy
    Education
    Energy Markets
    Fed
    Free Trade
    Ginn Economic Brief
    Healthcare
    Immigration
    Inflation
    Interview
    Jobs Report
    Let People Prosper
    Licensing
    Louisiana
    Margin Tax
    Medicaid
    Minimum Wage
    Occupational Licensing
    Opportunity Project
    Pensions
    Podcast
    Poverty
    Property Taxes
    RAB
    Regulation
    Rules
    School Choice
    Socialism
    Spending Limits
    Taxes
    Tax Foundation
    Testimony
    Texas
    Transparency
    Video
    White House

    RSS Feed

Proudly powered by Weebly