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Rebuilding After Irene Is Not Going To Boost The Economy

Filed by KOSU News in Business.
August 31, 2011

While Hurricane Irene may, according to The New York Times, “prove to be one of the 10 costliest catastrophes in the nation’s history,” the recovery efforts as work gets going to repair the estimated $7 billion to $10 billion in damages are not going to give the overall U.S. economy a much-needed lift, our Planet Money colleague Adam Davidson says.

On Morning Edition today, Adam told host Steve Inskeep that while it’s often said after disasters that the one bit of good news will be the kick-start that recovery work gives to an ailing economy, that’s known in economics as the “broken window fallacy.”

That is, it’s just not true that the money spent by someone to fix a broken window (or other such damages) is good for the economy because it puts money into the pockets of glaziers and others who swoop in to fix things.

After all, Adam said, anyone with a broken window “probably would have spent the money on something else.” So, “it doesn’t really have a net benefit to the economy.” The effect is more of a transfer — money that might have gone toward a new TV, vacation or dinner out is spent on repairs instead.

Disasters, said Adam, basically reallocate “winners and losers.”

As for the aftereffects of Irene, The Associated Press says 2.5 million customers still don’t have power and that the death toll now stands at 44 people in 13 states. Here are some of this morning’s headlines:

– “Flooding From Irene Damages Roads, Strands Towns.” (NPR.org)

– “Thirteen Vermont Towns Isolated After Storm.” (Vermont Public Radio)

– In New Jersey, Some Have “Just Begun To Feel Irene’s Wrath” As Rivers Rise. (The Star-Ledger)

– In Connecticut, “Utilities Aim To Restore Most Power By Weekend.” (Hartford Courant)

– “Irene’s Aftermath Claims Second Marylander As Utilities Work To Restore Power.” (Baltimore Sun)

– “As Rivers Back off, Recovery.” (Albany, N.Y., Times Union) [Copyright 2011 National Public Radio]

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