Superstorm Sandy and the Economic Cost

It is interesting to read about the economic impact of Superstorm Sandy. Though the direct costs of the storm and the lost productivity, will be tens of billions of dollars, apparently we needn’t worry because on a longer timeline the effects will be negligible. A headline in the Globe and Mail states “Call it a wash: Hurricane Sandy’s economic effects”. Moody’s Analytics website says “While natural disasters take a large initial toll on the economy, they usually generate some extra activity afterward. We expect any lost output this week from Hurricane Sandy will be made up in subsequent weeks, minimizing the effect on fourth quarter GDP.”

These statements aren’t wrong, they’re just absurd. They aren’t wrong because the initial economic costs will largely be offset by the huge expense of repairing all of the damage that the storm caused, so it is true that the overall effect on GDP will be minimal. What is absurd is the fact that economic output, or GDP, is the only indicator that we use to determine how well off we are as a country. How often do we hear “the economy showed significant improvement”, and feel that things must be improving, or “we can’t undertake that policy or it will hurt economic growth” and think that it must therefore be a bad policy.

It’s easy to stimulate economic growth if that is our goal. War has always been the best way. Spending money to build bombs and tanks, having them blown up, and building more bombs and tanks is a great way to stimulate the economy. We could subsidize vandalism-perhaps prizes to those who can destroy the most property without stopping people from getting to work so the net economic benefit is highest. We could hire thousands of people to dig huge holes in the ground and then fill them back in.

It is important that Canadians realize when they hear that the economy is doing well, that they don’t take that to mean our lives are improving. We need a better measure of our standard of living and success as a country. We need to know how much of our economic activity is improving the lives of people, and how much is harming them. Until then an improvement in the economy is meaningless.