Hurricane Economics

As powerful Hurricane Katrina takes aim on the northern Gulf Coast, it's important to keep two things in mind:

1.  Hurricanes are not good for the affected economies.  Hurricanes kill.  Hurricanes destroy businesses and homes.  In short, hurricanes destroy wealth and they destroy sources of income.  While it is true that some individuals will find some increased income opportunities, the costs certainly outweigh the benefits.

2.  Hurricanes do catastrophic damage to property, damage that occurs all at once and that people want repaired as soon as possible.  Because this causes demand for construction services and construction materials to increase dramatically, the prices of these things increases, sending a signal to others that these things are needed.  There will be, no doubt, calls for action against so-called price gougers.  Some localities even have laws against price gouging.  But these laws put restrictions on price increases and have the unintended effect of limiting reconstruction activities.  Why is that a good thing?