"Hi Professor Morici -
I'm an economics doctoral student at American University, and I've recently been involved in some discussions around the economic effects of disasters. I was wondering if you could clarify a point you were making at Philly.com. My understanding of the economics of natural disasters is that as long as they don't severely damage the capital stock or introduce some other strong negative shock, they tend to have a positive effect on GDP, especially at a time when factors of production are underutilized. As you point out in your article, you also don't usually rebuild the same structures that you had before; you produce better structures. But that doesn't imply, of course, that society is wealthier as a result of a disaster. Wealth is destroyed by the hurricane, and some of the resources used to rebuild come out of society's wealth, so there is no reason to think society is wealthier even thought the capital stock may be much improved qualitatively and GDP gets a boost.
Is that a good summary of your opinion on the issue?
[Emphasis is mine]
"Wealth is a stock, income (GDP) is a flow.
Merely rebuilding as before would leave the society less wealthy--wealth would be reduced by the size of the damage. Rebuilding better would mitigate some of that effect, but not necessarily all--likely not. Economic activity (GDP) is initially depressed by the storm but then boosted, and will likely be higher several quarters from now.
Professor Department of Logistics, Business and Public Policy
Robert H. Smith School of Business
3413 Van Munching Hall
University of Maryland College Park, MD 20742-1815"
I was thinking a little about "likely not" vs. "never". I suppose you could imagine some extremely advanced innovations that had never actually been build because existing infrastructure was decent enough. With the opportunity to apply those innovations, scale economies would kick in and we'd be living in some fantastic world that would have taken decades to emerge otherwise. It's the basic idea of leap-frogging. It's possible, I guess, but as Morici says "likely not".
Anyway, this seems to squarely confirm my read and not Don and Bob's read of Morici.