Japan and the economics of natural disaster

By W.W. | IOWA CITY

JAPAN is in tragic disarray after last week's massive earthquake and subsequent tsunami. Nature may be cruelly unpredictable, but people are just cruel. Every time there is a catastrophe abroad, American opinionators use the prospect of reconstruction as an opportunity to conduct a proxy debate over fiscal stimulus and economic fundamentals. So, like clockwork, some benighted folks started talking up the potential economic gains from Japan's disaster, causing a rubber ball to fall down a tube into a pail, which overflowed, splling water down a chute, which turned a little water-wheel, which rang a little bell, startling libertarian economics professors into lecturing us about "the broken windows fallacy".

Now, I believe the fallacy is indeed a fallacy, and I find the idea that Japan might somehow gain from this bout of terrifying havoc and mass death both ridiculous and disgustingly Panglossian. But, really, this isn't about us, and I've grown weary of playing a part in the rote broken-windows Punch and Judy show. Much more pertinent and interesting is the fascinating, lively, empirically-informed academic literature on the economic effects of disasters, which I was reading up on last night. Alas, the New York Times' Binyamin Appelbaum beat me to the punch, providing a short overview of some recent research that finds that disasters have no long-term affect on GDP. This excellent 2008 Boston Globe article by Drake Bennett offers a more comprehensive summary.