Don Boudreaux on a conversation he had with a reporter on why natural disasters are not good for economies:
I was recently interviewed by a newspaper reporter who asked what I think of the idea that natural disasters make economies more productive by forcing the replacement of capital equipment embodying older technologies with capital equipment embodying newer, state-of-the-art technologies.
...I got a skeptical response from the reporter when I told him that businesses often -- and, likely, efficiently -- replace capital embodying older technology with capital embodying newer technology. They often make such replacements without being forced to do so by natural disasters, wars, or any other non-market phenomena. Businesses will make such replacements when the net present value of the expected stream of additional profits made possible by the newer capital exceeds the cost of acquiring and implementing the newer capital.
“But do such replacements happen in the real world?” he asked. “I’ve interviewed some economists who argue that people often miss these opportunities and hang on too long to older capital.”
“I disagree. I see such replacement going on constantly.” I answered. “For example, the supermarket nearest to my home was recently refurbished; it’s now much more attractive than it was previously. But, as far as I can tell, there was nothing about the store in its pre-refurbishment condition that was unfunctional. Another example is on-line banking: many [most? all?] banks now offer this service despite the fact that real-world bank tellers and ATMs remain functional.”
I could tell that he was still skeptical.
This is one that I'm not ashamed to say I've not heard. But as I've written before, natural disasters do not create economic activity. Instead, they destroy wealth and direct resources out of activities that would otherwise have taken place. The reporter needs to read about the broken window fallacy.
Anecdote time! Has the reporter been on a school bus recently? As the parent of an 8-year old and a 6-year old, I've had the opportunity to ride on the still bee-colored vehicles within the past 3 months. School busses these days look pretty much the same on the inside as the ones I used to ride on as a child. They are still the noisy, unattractive, uncomfortable cattle cars of old.
Lastly, if the reporter were right, then it would behoove authorities in coastal areas to ban the boarding up of businesses when hurricanes threaten. After all, the business owners aren't able to effectively realize they need new technology nor is there sufficient competition to force their hands. A hurricane is just what they need.
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