How much should cities plan for the storm of the century?

Storm Warnings

by Elaine Schwartz    •    Oct 28, 2012    •    556 Views

Some thoughts today about predicting natural disasters.

Weeks before 308 people perished in L’Aquila from an earthquake, a government commission proclaimed the chance was slim that a disaster would occur. It did happen and now, the 6 scientists and single government official who made the wrong prediction were sentenced by an Italian court to 6 years in jail for manslaughter.

Can you imagine the unintended costs of the court’s decision? Worrying more about jail than accuracy, scientists might predict many more natural disasters. Or, researchers might just refuse to serve on government commissions.

By contrast, here in New Jersey, we are being told to prepare for a hurricane that might be a record breaker. Responding, people near the shore are boarding windows and evacuating. Throughout the state, supermarket shelves are emptying and offices are closing.

An accurate prediction? If the storm does what the models predict, it will arrive within 24 hours but no one is positive.

As economists, where does this leave us? It takes me to Frederic Bastiat. Too often people seem to think that storms can boost GDP through the extra purchases they entail. Commenting, 19th century economist Frédéric Bastiat, in his “fallacy of the broken window,” tells us that disaster recovery only replaces what we already had. Using the land, labor and capital on new projects is far more beneficial. I wonder if his fallacy also applies to disaster preparation.

Whether looking at an Italian earthquake or a US hurricane prediction, does the spending they create wind up as misleading GDP additions?

Sources and resources: I used this Reuters article for facts about the Italian court decision while this NY Times Op-Ed conveys extra insight. To read more about broken windows, this econlife entry on the 2011 earthquake in Japan and this econlib excerpt from Frédéric Bastiat are possibilities.



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