Hurricane Katrina Had No Silver Lining!

By: Paul Kasriel | Wed, Aug 31, 2005
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Inevitably, some perky economic analyst is going to say that despite the death and destruction Hurricane Katrina visited on the poor souls who populate Gulf coasts of Alabama, Mississippi and Louisiana, it had a "silver lining" as it will stimulate economic activity via new building, clean-up, etc. Balderdash! Katrina contained no silver lining. Firstly, there is never any silver lining to the death and injury of human beings. Secondly, although there will be expenditures made to clean up the mess and rebuild damaged/destroyed structures, there will be other expenditures not made that otherwise would have. I doubt that folks will be going to the movies or on vacation as much now that they have to spend more on rebuilding. There will be a change in the composition of spending, not in its total. Government disaster aid represents a redistribution of income. So, the givers of aid spend less and the receivers spend more - net, net, a wash. Thirdly, there has been a loss of real wealth. Katrina represented accelerated depreciation. Structures and other tangible assets were destroyed. That means that the services or "income" these tangible assets produced - shelter, transportation - have disappeared. The production of capital assets entails the postponement of current consumption. So, some people are going to have to defer current consumption so that finite resources can be used to reproduce capital assets. If hurricanes or other natural disasters contained economic silver linings, we wouldn't have to wait for Mother Nature's serendipities. We could create man-made ones. Short of wars, which destroy not only physical capital but human capital, too, we could blow-up neighborhoods after giving residents a "heads up" to gather their mementos and vacate their homes. Wow! Think of all the economic activity we could generate. This concept of man-made disasters as good for the economy sounds silly, doesn't it? No sillier than the analysts who will declare that there is an economic silver lining in Hurricane Katrina.


Paul Kasriel

Author: Paul Kasriel

Paul L. Kasriel
Director of Economic Research
The Northern Trust Company
Economic Research Department
Positive Economic Commentary
"The economics of what is, rather than what you might like it to be."
50 South LaSalle Street, Chicago, Illinois 60675

Paul Kasriel

Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005. The accuracy of Paul's 2008 economic forecast was ranked in the top five of The Wall Street Journal survey panel of economists. In January 2009, The Wall Street Journal and Forbes cited Paul as one of the few who identified early on the formation of the housing bubble and foresaw the economic and financial market havoc that would ensue after the bubble inevitably burst. Through written commentaries containing his straightforward and often nonconsensus analysis of economic and financial market issues, Paul has developed a loyal following in the financial community. The Northern's economic website was listed as one of the top ten most interesting by The Wall Street Journal. Paul is the co-author of a book entitled Seven Indicators That Move Markets.

Paul began his career as a research economist at the Federal Reserve Bank of Chicago. He has taught courses in finance at the DePaul University Kellstadt Graduate School of Business and at the Northwestern University Kellogg Graduate School of Management. Paul serves on the Economic Advisory Committee of the American Bankers Association.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The information herein is based on sources which The Northern Trust Company believes to be reliable, but we cannot warrant its accuracy or completeness. Such information is subject to change and is not intended to influence your investment decisions.

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