Comments on: The Best Kind of Hurricane Is One That Doesn’t Show Up

By: jamesoswald

jamesoswald — Mon, 29 Aug 2011 21:06:35 +0000

It may be a subtler statement of the broken window fallacy, but it’s still a broken window. People must forgo other types of consumption in order to buy hurricane preparation goods. The hurricane adds nothing to the production possibility frontier so ipso facto must make people worse off. It might increase short run spending, but if the central bank is competent, it shouldn’t even impact medium run spending levels.

By: Kevin L

Kevin L — Sun, 28 Aug 2011 18:18:40 +0000

Well said, Johnnie Linn. Mr. Smith, I thin, has not considered all the consequences of unnecessary purchases made in fear of disaster. Any increase in consumption is a decrease in capital. The article even asserts that “small capital” does nothing except in the rare case of a disaster. As someone who lived in a natural disaster-prone area, I can attest that most people had more emergency-related items than were really needed, and I think it’s safe to say that in general decisions made out of fear are less effective.

In short, that “small capital” represents purchasing power that might have been invested in something more productive. True, when comparing the purchase of disposable batteries to the purchase of a restaurant meal there is little difference. But when thousands of people purchase those occasional items, it can be a sizable chunk of capital that will now sit dormant in closets and basements rather than being productive.

By: Johnnie Linn

Johnnie Linn — Sun, 28 Aug 2011 05:05:38 +0000

The positive economic impact of a hurricane is that it allows investment in physical and human capital (the ability to predict hurricanes correctly) to pay off. Malinvestment (a poor prediction) will have a multiplier effect as does any form of investment, but the initial poor decision is dead weight loss and has to be written off the total. So the best hurricane is the one that is accurately predicted.