Aug. 30, 2011, 12:01 a.m. EDT
Good night, Irene — the silver lining Commentary: Tropical storm leaves us with both good and bad news
By Irwin Kellner, MarketWatch
PORT WASHINGTON, N.Y. (MarketWatch) — Like any natural disaster, Irene has left in its wake lots of bad news, but also the potential to leave us with some good news as well.
The bad news is pretty obvious: Countless cars and houses were smashed by fallen trees; there was lots of water damage from the storm itself, as well as from the water that spilled over from nearby rivers, lakes — and even from the ocean.
Widespread power outages left millions in the dark, spoiling food and depriving people of air conditioning. Many businesses had to shut their doors for as long as a week. For retail outfits this is lost revenue that is unlikely to be made up.
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The damages have yet to be totaled up, but estimates of $7 billion or so seem to be common. Some of this will be paid for by insurance, some by the government in the form of disaster relief and flood insurance.
However, some of these damages are unrecoverable. For examples, many homeowners will have to pay a big chunk of the repair costs themselves.
For their part, restaurants either forced to close their doors or bereft of their usual complement of customers will not be able to make up these lost receipts. The same goes for other retailers like gasoline stations, department stores and the like.
Theaters will be unable to make up for the last-minute walk-ins at cancelled performances. Cities like New York, which shut down their mass transit systems and waved tolls on bridges and tunnels, will be unable to recoup these losses as well.
Although occurring more than half way through the third quarter, the effects of this storm could be enough to reduce growth in the gross domestic product by anywhere from a half to a full percentage point. This traces largely to the fact that Irene was such a big storm, affecting an area the size of Europe, containing more than 55 million people.
That said, the effects of the storm have the potential to boost the fourth quarter’s GDP by this much and more. This is because the need to clean up and rebuild will create numerous jobs — especially in the construction industry, which, as you know, is languishing from lack of activity in housing, shopping centers and office buildings.
Add to this spending on flashlights, batteries, generators, plywood and tools that would otherwise have not taken place. As these items are restocked, this will add to the GDP, as will the wages paid to construction, maintenance and utility workers.
Those who deride this positive effect make two arguments: The first is that this increase in spending and even jobs does not mean that we are better off. I agree: Job creation without property losses and widespread discomfort is obviously preferable.
The second is that all the rebound does is get us back to where we were. Otherwise, this argument goes, it would pay to knock down buildings and rebuild them again.
My answer to this is, what do you think happened under FDR’s Works Progress Administration? Some people were paid to dig holes while others were paid to fill them up.
But the fact that more money was in circulation resulted in more income, spending, jobs, and eventually more purchases of capital goods by business. While it lasted, it helped us climb out of the depths of the Great Depression.
This brings us to the fiscal stimulus so badly needed today. What the president and the Congress have been unable to do, Irene very well might.
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