Hurricane Sandy was the stimulus nobody wanted. It took a terrible toll in lives, homes, and dreams. For the families who lost loved ones the tragedy will never end. And yet, in a bitter irony, this terrible storm will spur the kind of spending we should have been seeing all along. There will be jobs, at least for a while -- in construction, road work, repair, and other lines of work.
This "accidental stimulus" won't make up for the loss of life, treasure, and property. But it's a reminder that the things which nurture us as human beings - the bonds of community, a sense of social responsibility, caring for one another - are also surprisingly sound economic principles.
The economic history of our last century illustrates something important: Our nation's always prospered when we care for one another. We do best economically when we use our government as an expression of our best selves.
A Sense of Purpose
Arianna Huffington wrote that the hurricane "downgraded the election and upgraded our barn-raising spirit," adding: "Suddenly it's much easier to see the purpose of government -- to make our collective power more effective."
I hope that's true. I believe it is. But why does it always seem to take a tragedy to make us see the common good -- and the common sense -- so that we'll fix what's broken? Why must some people pay such a high price for bringing us together as a community, when we should have been a community all along?
In her book A Paradise Born in Hell, Rebecca Solnit writes movingly about the human communities which formed after tragedies which include the San Francisco earthquake, the Mexico City earthquake, 9/11, and Katrina. "When all the ordinary divides are shattered," Solnit writes, most people "step up to become their brothers' keepers. And that purposefulness and connectedness bring joy even amid death, chaos, fear and loss."
"Were we to know and believe this," she adds, "our sense of what is possible at any time might change."
In responding to the needs of the victims all around them, survivors of those calamities found meaning and purpose in their own lives. Paradoxically, they found their own individual fulfillment in banding together with others for their mutual well-being.
Isn't that how societies should always work?
Common Value
When it comes to economics the picture isn't much different. Free-market ideologues promote the idea that the individual pursuit of self-interest leads to the betterment of all. But that idea didn't originate with an economist. It came from a far-right author named Ayn Rand. The concept was useful to wealthy interests, who quickly poured funds into the academic pursuit of her ideas.
But economics itself, from the days of Adam Smith and even earlier, has also emphasized the importance of both individual and collective action. It was Smith who first raised the idea of the market's "invisible hand," in The Theory of Moral Sentiments. But that same work spoke of the human need to serve others.
"How selfish soever man may be supposed," Smith wrote in the same work, "there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it."
The father of modern economics said it himself: Money isn't everything.
God's Stimulus
A friend's email asked if the hurricane was God's way of saying we need more stimulus spending. God must be a Keynesian, I said, because any objective analysis of what happens in Creation shows that Keynesian economics works. But no Supreme Power worth the name would waste human lives in order to send an economic policy memo.
Still, the principle of "catastrophe as stimulus" was confirmed by research into the economic after-effects of the earthquakes in Kobe Japan, Northridge California, Tangshan China, and Spitak Armenia, as well as floods in China and the United States. The pattern that emerged showed a short-term hit to the economy followed by increased growth.
That's one reason why studies by the International Monetary Fund and others predicted that Japan would see GDP growth after Fukushima.[1] Those growth effects were hampered by Japan's shutdown of its nuclear power facilities, which had been meeting 25 percent of its energy needs. Even so, as Dr. Samuel Epstein notes, Japan's GDP growth exceeded expectations in the wake of the disaster.
The growth would have been even greater if Japan had weaned itself off nuclear power sooner -- and spending on alternative energy sources in earlier years would have avoided this problem, and would provided Japan with much-needed economic growth in the years before Fukushima.
Shelter From the Storm
They're estimating that the total cost of Hurricane Sandy's damage will amount to $20 billion. $20 billion sounds like a lot of money. But it's less than the $29 billion the Federal Reserve put up so that JPMorgan Chase could acquire Bear Stearns during the 2008 financial crisis -- and it's a tiny fraction of the estimated $10 trillion lost because of that crisis.
That expenditure was made in secret. When money is spent to rebuild from Hurricane Sandy, it will be spent in the light of day. Roughly $10 billion of it will come from insurance payments, while the rest will come from other sources -- including government. Very few people will object to the expense.
Why? Because we as a people have never hesitated to reach into our pockets, individually or collectively, to help others in their time of need. The problem is that we don't always recognize that need -- even when it's all around us.
The Invisible Catastrophe
Some catastrophes aren't natural disasters. Why aren't we reacting to the financial crisis the same way we are to Hurricane Sandy? That crisis also brought devastation to many families, millions of whom are still struggling with lost jobs, underwater homes, and shrinking paychecks.
A study conducted for the American Society of Civil Engineers estimates that, because of our nation's crumbling infrastructure, it will cost $2.2 trillion just to bring our country up to current engineering standards.
This week we looked with appropriate horror at the devastation Hurricane Sandy brought to the shores of New Jersey. But why do we look away from our crumbling schools, roads, and bridges?
One catastrophe happened overnight. The other's occurring in slow motion. But if we don't fix that collapsing infrastructure, according the Engineers study, we'll lose even more money than Sandy's going to cost us. It concludes that we lose $710 per motorist every year because of unnecessary traffic delays. That's $78.2 billion every year. Then there are the costs from substandard aviation facilities, dams, reservoirs, hazardous waste, parks and recreations, railroad, mass transit ... each of them a loss of human time, ability, and freedom.
If our leaders could find the political will to rebuild our damaged infrastructure they'd create millions of jobs -- and end the millions of everyday catastrophes playing out in homes across the nation. And if they could find the political courage to give our young people a decent education, hundreds of thousands more would follow.
Every young person who can't afford a college education is a tragedy, too.
The Ties That Bind
It shouldn't take a disaster to make us do what's right -- right economically, as well as morally. And yet it always seems to.
Maybe someday that will change. Every year on New Year's Day, we're told, a senior Buddhist priest in Japan writes a single word of calligraphy which is intended to reflect the spirit of the people that year. After the tragedy of Fukushima the priest wrote the character for kizuna -- or "bond" -- to symbolize the bonds of community that formed thoughout Japan in the wake of Fukushima.
Disasters happen in every age, in every lifetime. Another Buddhist monk, priest/poet Soen Nakagawa, wrote these lines in the ruins of Tokyo in 1945: "... and the capital, which disappeared like a dream, will again be born like a dream."
Tokyo was rebuilt by the Japanese people, with help from the enemies who shattered it. My mother arrived in the ruins of Japan's capital as part of a conquering army. And I arrived there nearly half a century later, drawn by invisible economic bonds which tied my life to that of Tokyo's residents - and through them, back to my mother's. "Born again," as the poet wrote, "like a dream ..."
The dream of rebirth is formed from the bonds of community. And the bonds of community are formed by the perception of tragedy. If we could see the millions of tragedies happening all around us, each and every day, those bonds would be much stronger than they are today. Maybe soon our eyes and our hearts will learn how to see them. When they do, the broken bonds will form again. Then the real recovery can begin.
And maybe someday, if we're lucky, we'll be able to forge those bonds without any tragedies at all.
[1] See Horwich, 2000; Skidmore and Toya, 2002; Cookson and Pilling, 2011; Emmott, 2011; and Arnason, 2011.
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Arianna Huffington: How Hurricane Sandy Downgraded the Election and Upgraded Our Barn-Raising Spirit
Domenick Scudera: This Gay Is Exhausted From Causing Hurricane Sandy
Rev. Chuck Currie: Romney Puts Politics Before Country During Hurricane Sandy
For the people whose homes are now a pile of rubble, whose homes rest in the sea or river beds, whose homes are full of sand, homes they can't return to or leave, homes full of sewage, oil, gas, and only God know what ... what can be done for them? Most of the country has only seen what the TV has shown, but let me tell you that you have not been shown the worst.
So, all this arguing about who has done what and what is enough, there is no answer. I only wish money was enough. Honestly, I don't see us recovering from this in our generation.
The screaming about how Sandy will wind up being a "net positive" for the economy is nothing more than a rehash of the old, tired and long-disproved "broken-window" fallacy.
That's the premise that when one has a terrible thing happen the repair costs are additive to GDP but ignores the costs that were imposed in the first place, such as the destruction of wealth embodied into those windows.
"Recovery" from Sandy will certainly be a problem economically, but hammers should be applied to the heads of those in both the private sector and governments who failed to plan and thus planned to fail.
I remain stunned -- and appalled -- at failures among critical systems in places like hospitals which were unable to remain operating during this storm when cut off from utility power.
But when life-safety is involved and quasi-government "approval" and "licensing" is at-issue criminal charges must issue against those individuals and firms who couldn't be bothered to spend the money and plan for entirely-expected threats to operational continuity, as the entire premise of their alleged offering to emergency medical services is predicated on that continuity!
Reality is that storms happen.
Rather what this shows is that so-called "100 year flood" levels are, well, statistically valid for a once-in-a-hundred-year event -- which is about what we just had.
In her book A Paradise Born in Hell, Rebecca Solnit writes movingly about the human communities which formed after tragedies which include the San Francisco earthquake, the Mexico City earthquake, 9/11, and Katrina. "When all the ordinary divides are shattered," Solnit writes, most people "step up to become their brothers' keepers. And that purposefulness and connectedness bring joy even amid death, chaos, fear and loss."
It's brutal and devastating and impossible. But it's so much damn fun. And the connections you make run deep and forever.
The difference between true everyday Keynesian economics and the "success" we see in the wakes of disasters is the fact that government normally can't create its own markets, so spending is rarely allocated correctly. But maybe you're right; we should just level a town periodically so we can get the full effect of Keynesian brilliance.
For the record, disasters are not good for the economy. There is no stimulus in the hurricane - only debt and opportunity cost.
http://en.wikipedia.org/wiki/Parable_of_the_broken_window
Now, It obviously would have been better if the billions that will be spent to repair the damage of Sandy could have been spent in addition to a non-damaged Northeast coast - say on various public works projects that not only put people to work but create infrastructure that cultivates economic development. However, alas, in this sort of stagnant recessed economy, with high unemployment combined with a lack of adequate demand, which feed each other in a vicious cycle, a natural disaster, or war, can provide the political impetuous for a stimulus that would not have existed otherwise, which will lead to a growth in the economy and, perhaps, the end of the aforementioned vicious cycle.
Your out of context, or ignoring context, teaching of the Broken Window Fallacy would not be taught by most economists! This interpretation is only trotted out by libertarians and conservatives.
I'm wondering, what is the optimal number of wars for us to engage in to end this downturn? We have a few going, and it would be easy enough to start a few more, since any need for congressional approval has gone by the wayside.
Your use of the word "perhaps" is a little troubling. We could try dozens of foolish and destructive things, over many years, in futile attempts to "perhaps" bring about recovery. Heaven knows FDR did.
The point you seem to be missing is that growth in the economy after disaster fails to account for the destruction of capital that occurred in the first place. Yes, you have "growth" - but in rebuilding, all that growth does is get you back to the same level of wealth you started from.
Take your growth, subtract your destroyed capital, and you end up with net growth of zero. The point of economic activity is to grow wealth, not to run around in circles digging holes and filling them up again to keep people employed. That creates surplus debt, but not surplus wealth.
http://krugman.blogs.nytimes.com/2012/09/11/broken-windows-and-the-iphone-5/
Though Paul seems to buy into the economic benefits of broken windows at various times also.
All the effort and money will be placed into making things as they were. Anything put into making improvements on prior infrastructure goes into a different category.
I don't mean to sound reductionistic, but if these sorts of disasters can impel nations out of economic doldrums, why isn't the prescription for a recession to destroy a bunch of stuff?
Oh wait, i forgot about Cash for Clunkers... :p
What looting? Stay positive!
Now, today, as I've been warning people about the wave of looting that I know full well is about to be unleashed as darkness falls, I am being barraged by comments from the most absurd off-course optimists I've ever witnessed online. "Fear monger!" "Hyping fear!" "Lying about looting!" "Just trying to scare people!" "Pushing conspiracy theories!"
Ummm... so when did reporting the weather become a conspiracy theory, anyway? When did warning people to be prepared against looters and criminals become so politically incorrect?
"Government will save us" seems to be the mantra of these people. How dare I actually teach individuals to defend their own homes and families? That's the government's job!
Learn more: http://www.naturalnews.com/037759_fear_mongering_optimism_predictions.html#ixzz2Av9S2PXg
1st. There is no god coming to save you. Help yourself, help each other but don't wait for a sky daddy to swoop in and take care of business because it isn't happening.
2nd. The problem with what you are saying here is that two days after americas short term memory has faded, conservatives will start to make villians out of the victims. It's what they do.
3rd. If, Allah forbid, Romney were to actually win, say goodbye to ANY chance of recover, find a cave somewhere in the mountains and STAY THERE until Romney is gone. It's your best chance of survival.
"Were we to know and believe this," she adds, "our sense of what is possible at any time might change."
In responding to the needs of the victims all around them, survivors of those calamities found meaning and purpose in their own lives. Paradoxically, they found their own individual fulfillment in banding together with others for their mutual well-being.
Isn't that how societies should always work?"
These are very inspiring and true words. But please read them again and again until you realize that government was not involved. People stepped up and built communities. This has ABSOLUTLY nothing to do with government.
Government does NOT equel society. It is the institution that society tunrs to when the only solution for a problem is force. Forcing people to do or pay for something is the role of government. That is the only advantage government officials have over the rest of civil society.
However, I disagree with you about "force". Government can be a force for evil, but also great good.
In the disaster case if civil society is capable of creating institutions that are as good or better than tax payer ones why not use them?