Makena Coffman and Ilan Noy study the case of the Hawaiian island of Kauai that was affected by hurricane Iniki in 1992, while neighboring Maui was not. Comparing the two islands, it appears clearly that while externally there are few signs of the hurricane seventeen years ago, Kauai is still suffering, mostly because its labor market still has not recovered, despite massive transfers right after the storm. Population took a permanent hit, at least partly as a consequence of a sudden drop in the housing stock and a spike in unemployment, and never recovered compared to the neighboring island.Yes people natural disasters really are bad.
Monday, 31 August 2009
The long-term impact of hurricanes
A version of the Broken Window Fallacy is that while natural disasters, such as hurricanes, create havoc and impose large costs in the short run, they also simulate economic activity and thus are good for the economy. From the Economic Logic blog comes this counter to such thinking: