Quakes aren’t good for the economy
Hey, I’m currently running so busy that I dont’ even have time to look at the other blogs – so I’m sure this has been covered somewhere else. However, I felt I have to say something.
When Stephen Toplis and Cameron Bagrie say that GDP growth will accelerate due to the earthquake they ARE NOT saying that it is good for the economy. That headline is completely inappropriate.
Effectively, a bunch of our capital stock was destroyed. Because of this, the “marginal product” of capital is probably a little higher, and so the “flow” of capital (investment) will temporarily pick up – driving up GDP growth. We’ve still lost a bunch of wealth. We are simply having to “work” (which is costly) to try to regain some of it. In no way does this mean that it is good for the economy – and that is not what these two economists were getting at.
I suspect the author of the article and/or the editor got confused between the flow concept, which is investment and GDP, and the stock concept, which is capital and underlying wealth. We have lost capital, and we have lost wealth – this negative shock is not just sucky for the people who had to face a disaster, but it IS a “negative for the economy” in terms of measured wealth.
I mean flip, if destroying a city is “good for the economy” why don’t we send the tanks into Wellington to blow it up right now? Actually, I’m in Wellington – lets make that Auckland instead 😉
I imagine that neither of these economists is particularly pleased that they are being sold as “merchants of doom” in this sense …