Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Tuesday, November 09, 2004

No, hurricanes are NOT good for the economy

I've never been much of a fan of job creation statistics. What good is job creation if it's the result of a loss of wealth? Ignore the religious overtones in the full posting, but check out this from instapundit:

Last month, American employers added 337,000 new jobs, the largest increase in seven months.
The biggest single engine for job creation was the hurricanes.Part of the pick-up in jobs was down to the worst hurricane seasons for many years. About 71,000 new construction jobs had been added - the most since March 2000.
Kathleen Utgoff, commissioner of the Bureau of Labor Statistics, said this "reflected rebuilding and clean-up activity in the south-east following the four hurricanes that struck the US in August and September".

Sure, the aftermath of the hurricane meant that more people got to work in construction, cleanup, etc., but what if the hurricane hadn't happened? Then Florida would have all its pre-hurricane wealth (and capital) plus it would have the output of all the people who lost work time or whose work time was devoted to post-hurricane fixups and renovations.

Those who look only at job creation numbers ignore the most fundamental of all economic concepts, opportunity costs: what was the next best alternative use of the scarce resource.

So if you think the economy needed a hurricane to create those jobs, you're being too near-sighted. Having people work on cleanup means they're not available for other work; it also means the hurricane destroyed a lot of productive capacity, meaning the economy as a whole will be producing less. And if it's producing less, that means people are, on average, worse off.

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