Guest Post: Hurricanes Do Not Have A 'Silver Lining'

Tyler Durden's picture

Submitted by Pater Tenebrarum of Acting-Man blog,

It didn't take long for mainstream economists to provide us with some inane commentary regarding the latest natural catastrophe. Allegedly, the massive destruction of wealth hurricane 'Sandy' will leave behind has a 'silver lining'.

The WSJ for instance reports (under the heading 'Hurricane Sandy could boost GDP growth'):

It’s hard to assess the economic damage of a storm that hasn’t yet passed. But some economists predicted Monday that, barring a catastrophic event, Hurricane Sandy would slow growth in the short term but have a negligible impact on, and possibly even boost, fourth-quarter growth.


“While natural disasters take a large initial toll on the economy, they usually generate some extra activity afterward,Moody’s Analytics economist Ryan Sweet wrote on the firm’s website Monday. “We expect any lost output this week from Hurricane Sandy will be made up in subsequent weeks, minimizing the effect on fourth quarter GDP.”


Jason Schenker of Texas-based Prestige Economics said hurricanes like Sandy usually lead to a bump in economic growth, mainly through stronger retail sales. In a note to clients, he cited to “the last minute run to hardware stores and supermarkets, or after-the-storm replacement of furniture, windows, cars, and other damaged durable and non-durable goods.” He said that, barring major damage to infrastructure in the mid-Atlantic region, Sandy will likely help retail sales in November.

In an earlier version of this report, the WSJ at least still deigned to mention that:

„The hurricane will, of course, cause a loss of production and wages, the size depending on the magnitude of the damage and the length of the disruption. The region in Sandy’s path along the East Coast has a GDP of about $10 billion a day.“

(emphasis added)

They make it sound as if nothing especially pernicious had happened. Let us leave aside that it may perhaps have been appropriate to say a word or two about the loss of life the hurricane has caused. Even so, if anything, this would be yet another good opportunity to question the value of GDP statistics.

The loss of wealth the hurricane has inflicted is very real; the wealth destroyed by it is most definitely gone. GDP does however not measure the existing stock of wealth and the impact the hurricane has on it. It measures the annual flow of wealth creation (although we must stress that the statistic nonetheless remains deeply flawed and can definitely not be accepted at face value), but it tells us nothing about existing wealth or its destruction. Maybe they should at least have mentioned that?

Certainly companies will try to make up for lost production and the dwellings and infrastructure that have been damaged by the hurricane will be rebuilt. This rebuilding activity is then recorded as an 'addition to GDP'.

Suppose though there had been no hurricane. Then all the resources that must now be expended on rebuilding what it has destroyed would be available for other uses. In that event, it would indeed be possible to create additional wealth. The hurricane has rendered us poorer by precisely what it has destroyed – the rebuilding activity is merely undertaken to catch up to the status quo ante.

The statement about the 'bump in retail sales' that will 'boost GDP' is just as absurd. If people engage in panic buying ahead of the hurricane, then this represents demand for consumer goods that has been pulled forward; even in terms of GDP statistics this seems hardly relevant, as future consumer demand will be commensurately lower.


The Keynesian Fallacy at the Core

Why is it that modern-day economists always seem to insist that the destruction natural catastrophes and wars bring about is really a 'good thing' economically? We believe the main reason behind this stance is the unquestioned acceptance of one of Keynes' great fallacies: namely the idea that all economic activity – even unproductive activity – is somehow 'good'. Keynes for instance famously advised that governments could battle recessions by paying people to dig ditches and then fill them up again. He also published variants of this train of thought, as e.g. in his references to the joys and advantages of pyramid building. As Paul Cantor remarks on this:

„Lord Keynes's daffy paean to the power of pyramids has been something of an embarrassment to his followers, but, far from being uncharacteristic of his thought, this passage actually goes right to its heart. It is after all just another way of Keynes saying, "I never met a government expenditure I didn't like."

(emphasis added)

Naturally, if it were really true that we could create economic progress by breaking windows or digging ditches (we will admit that pyramids at least render what one might term 'monument services', even if the expense seems hardly justified by this), then the government should pay half the population for digging ditches and hire the other half to wreak wanton destruction. Some time later, everyone could be employed in rebuilding what has been destroyed. We'd have no unemployment and we'd have 'GDP growth', but would this make any sense?

It is the very same with the prosperity allegedly provided by war  (readers may recall that e.g. Paul Krugman was recently pining for a fake war with alien invaders, so as to spur deficit spending).

As Ludwig von Mises said about so-called 'war prosperity':

„War prosperity is like the prosperity that an earthquake or a plague brings. The earthquake means good business for construction workers, and cholera improves the business of physicians, pharmacists, and undertakers; but no one has for that reason yet sought to celebrate earthquakes and cholera as stimulators of the productive forces in the general interest.“

Evidently Mises didn't have the opportunity to encounter the mainstream economists infesting the world in the 21st century. As we have seen after the tsunami that devastated Japan, they do in fact celebrate earthquakes as 'stimulators of the productive forces in the general interest' – the financial press almost immediately reported on economists gushing about the 'boost to Japan's GDP' the tsunami would bring about.

They forgot to mention that 'GDP' is obviously not a useful measure of wealth and welfare (nonetheless, the usual suspects were happy; Paul Krugman seems to imply that Japan could really use another tsunami, given how nicely 'GDP' has grown shortly after the last one). One suspects that these economists would probably see the 'silver lining' in a cholera epidemic too.


Hurricane Trivia:

This week was the first time since 1888 that the New York Stock Exchange was closed two days in a row due to really bad weather.

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lolmao500's picture

Too bad the hurricane didn't drown all those scumbag economists cheering for disaster. You fucking scumbags with no conscience! Real people died!! PEOPLE WITH FAMILIES AND FEELINGS. You don't know what that is eh you sick fucks? But eh, people dying is worth it if some imaginary number can be 0.1% higher right?? Sick bastards... no better than the Mayans high priests cutting heads off to their Gods.

redpill's picture

Ixnay on the eheadingsbay, you'll just give them ideas.

knukles's picture

The storms have silver iodine linings...

Manthong's picture

Hypothecation means never having to say it’s gone.

max2205's picture

One day the stupid govt will realize that there is a whole lot more to governing than the fucking stock market. Fuck!

Gully Foyle's picture

Fuck me, now we have to deal with various storm metaphors and analagies.

Jesus christ I fucking hope an asteroid hits this planet so we can get some new interesting comparisions going.

Uncle Remus's picture

Some serious serf out there...

knukles's picture

Ya know Uncle, if there's ever a revolution I'll betcha some crazy fuck runs around yelling "Serf's Up".

Uncle Remus's picture

No doubt. I am looking forward to the potential in "hang ten" tho.

redpill's picture

And hopefully lots of wipe outs.

TheFourthStooge-ing's picture


I am looking forward to the potential in "hang ten" tho.

Hang a time. Cleaning up the planet with hemp rope - the reusable, renewable resource.

Uncle Remus's picture

"Smoke that and it'll really get you out there!"

Fíréan's picture

Wars are started for the so called economic benefits of both the war supply servicing ( destructiive element) and for the rebuilding there after ( reconstruction),  yet not on home soil ( for the most part). And for the financial benefits of loaning to all parties concerned etc., etc..


edit: didn't someone recently destroy the infra structure of Iraq so that their construction companies could financially benefit from over charging contracts to, so called, rebuild ? Somewhere along the same mentality, no ?

WillyGroper's picture

Anyone care to wager whether or not the election will be held?

malikai's picture

There's an election going on?

Uncle Remus's picture

Why do you think gas prices were down before Sandy hit? Sheesh.

The Gooch's picture

Did a vehicle come from somewhere out there?

Gully Foyle's picture


It has been, Romney won.

Everything else is theater for the unwashed masses.

the grateful unemployed's picture

Obama being in most ways the third term of Geo W Bush, I expect him to lose the popular vote, (circa 2000) but win through the electoral college. During their 4th term, I expect them to  start a war with a terrorist nation (Iran would do), which will help return them to power for a 5th term. Romney, like McCain, doesn't know who he's messing with. Sometime around the 6th term another Bush will run, perhaps as Democrat just to shove it up everyones ass.

dark pools of soros's picture

Did you pick up Karl Rove's napkin notes while cleaning his table?

dugorama's picture

Jenna won't be 35 until the 2026 election

mayhem_korner's picture



How many electoral votes are in the affected states?  Moreover, how many of those were contested?  I think it would be quite entertaining if Romney grabbed the election on the basis of pulling an upset in one of the Sandy states - say, Connecticut.  It'd be four more years before they sorted it all out.

krispkritter's picture

The best of Michael Moore:

"... Romney to oust Barack Obama, we will burn this motherfucker down..." 


blunderdog's picture

I don't see why not.  It's not like they need the voters to show up.  Elections in this country take care of themselves.

Maybe they'll have provisional/absentee options set up for a few states. 

Big whoop.

ejmoosa's picture

...and divorces are also good for the economy.  It boosts housing and furniture sales. 

Zero Govt's picture

Every disaster is good for the economy

Keynes and all the other (Govt?) crones that trumpet this bullcrap are trying to pervert the truth because we all know Govt is the biggest disaster in society.

if they can make disaster look benefical, because Govt cannot achieve success, then Govt justifies its ever failing always disasterous existence (see New York a total shambles from its epic error on sea defences) 

Rainman's picture

" The minute you think you've got it made, disaster is just around the corner "

                                                    Joe Paterno

El Viejo's picture

It's only good in a non competitive economic environment(without Europe, China, Japan, Korea etc) and when there is no govt disaster funding. Otherwise it is just an illusion like telling your wife you got a promotion with a slight raise, but you have to move to the highest cost of living area on the planet.

Or an increase in the GDP, but then finding out that the crime rate and healthcare costs have shot up dramatically.

ejmoosa's picture

That means that the disaster known as the Obama years will also one day be good for the economy.  I cannot wait. 

Should I lean forward even more now, or will someone give me a shove?

blunderdog's picture

I realize this isn't exactly "news," but one major problem we have is the idea that things CAN BE "good" or "bad" for the economy.  I suspect most people know this, but the way everyone walks around talking nonsense to each other, it's hard to tell sometimes.

The economy isn't a thing.  It doesn't have an agenda or a set of values.  The idea that some things are "good" for the economy and some are "bad" for the economy is a category mistake.

It's like saying your checking account balance is "bad for" the number 1279.  Meaningless.

Gully Foyle's picture


One of Hitchcocks better films.

knukles's picture

Talking about good films, The Taming of the Shrew (Burton & Taylor) is on tonight and The Bride of Frankenstein on Thursday.

Beats the shit outa Dancing with Insane Cripples

the grateful unemployed's picture

i can hear Cramer telling us to buy insurance companies, because they more than compensate their losses by raising rates. there's a point there that insurance is a necessity, and not an option when you buy on credit, (which is why insurance companies and banks are not strange bedfellows) however if you raise rates, that puts the hurt on the borrower as certainly as the adjustment in an ARM.  but like all good Socialists the insurance companies SPREAD the cost increases around to people are not at risk. (see Healthcare Insurance Fraud 101) there are no more "moral" decisions for the investor to make, including the problem of passive funds, unless you keep them in your mattress. the mattress was the best investment of the 1930s, but no investment advisor will ever say that. Cash is a lot better than it used to be, in terms of physical security, guards against counterfeiting. I can see through a dollar bill, a bar of gold is slightly more opaque.

Being Free's picture

Cash is a lot better than it used to be, in terms of physical security, guards against counterfeiting.

except of course the legalized counterfiting by the Fed and the gov. that're stealing from any cash savers at an alarming rate.

disabledvet's picture

Actually you want to buy the banks not the insurers. I think Hudson city just got bought...but sure...smaller one's that don't do the "crazy shit." obviously State and Local Governments will have to issues billions in debt to cover the economic loss...ideally the Governors of New York, New Jersey and Connecticut will work together to negotiate some type of "understanding" with Big Insurance so us the hapless citizenry don't have to wait ten years for the checks to be cut. Of course we all know how that goes...

mayhem_korner's picture

“We expect any lost output this week from Hurricane Sandy will be made up in subsequent weeks, minimizing the effect on fourth quarter GDP.”


Dood has had one-too-many servings of Fukishima earless rabbit, methinks.

Reparations come from one of two sources - savings or borrowings.  Either one of those is a wealth drain. Period.  To contort that reality to anything else is (yet another) indictment on the efficacy of the higher education system that produces these bozos.

CunnyFunt's picture

"... Mises didn't have the opportunity to encounter the mainstream economists ..."

Mises didn't even dignify Keynesians with the appelation "economists".

bnbdnb's picture

Yes, it always good that many people suffer so that other people get new jobs.

rosethorn's picture

So all the damaged assets need to be marked to reduced values; that should be recorded as a writeoff in the national accounts.  Perhaps a hit to GDP?

knukles's picture


Here's what happens.  All the broken windows do not get accounted for in any governmental or economic statistic.  There is no formal chart of accounts for National Net Worth, as it were.

What happens is that we as a people are poorer due to the losses. 
No question bout that.
But no negative entry in GDP which is the net change in production and value added in the economy relative to the preceding period.

Hence, if the broken window is replaced, it does count toward additional GDP that otherwise would not have been there had the window not been broken.  That's where the fallacy of the broken window comes from

The GDP figure does go higher but the nation is no richer (and indeed poorer) due to the loss of the property in the disaster.

It is what it is, that's how the accounting works, whether it makes any sense or not
Hey, I don't make the rules

Just sayin'

rosethorn's picture

Thanks for the reminder.  

csmith's picture

" negative entry in GDP which is the net change in production and value added in the economy relative to the preceding period."


The equivalent of not marking to market for a bank or investment firm.

How many businesses (particularly those without P&C coverage) in the northeast are now insolvent? Those that own the real property on which they operate are fine because they can borrow against it to rebuild. Others, not so much.

Henry Chinaski's picture

I just saw a photo of Obama and Christie touring the damage.  They could do a great Laurel and Hardy. 

Zero Govt's picture

did he tour Solyndra as well after that disaster sunk?

Jason T's picture

"Tempers flared Wednesday morning outside City Hall as some residents complained the city was slow to get food and other supplies out to the stranded." 

there is something wrong with this