Oh, Sandy [rolling updates]
It looks like Sandy is coming back to Asbury Park, New Jersey, today. This early Bruce Springsteen lament seems eerily appropriate.
Map from Wall Street Journal
UPDATE 1: In the wake of Sandy, be prepared for an onslaught of both enviro- and econo-silliness—both from economists arguing destruction causes prosperity (yes folks, sit tight for an onslaught of Broken Window Fallacies), and from warmists desperate to link weather to climate. (“Even in the midst of hurricanes,” notes Anthony Watts, “these people don’t give up trying to tie weather to climate. It’s shameless desperation.”)
Here’s some first signs of the warmist schtick: US warmists Bill McKibben and Joe Romm were out of the blocks early with their Tabloid Climatology™. Our own Jim Salinger pitched in on State Radio this morning. And Mr Real Estate Martyn Bradbury tried to join the tabloid climatologists with his own contribution.
Meanwhile, Roger Pielke points out “Large, damaging storms are not unprecedented in the second half of October, with Storm 11 (1944, ~$54 billion), Wilma (2005, $26 billion) and Hazel (1954, $24 billion).” Quite so, concurs Anthony Watts, who lists destructive October hurricanes making landfall in the north-eastern States all the way back to 1852—long before the first drop of carbon dioxide was emitted from an exhaust pipe.
Now, the alleged economists: Frank Stephenson points out some early alleged economics portraying Sandy as "stimulus.". Meanwhile, Don Boudreaux and Tim Worstall fire the first salvoes on behalf of sanity: “Destroying Property Does Not Promote Economic Prosperity,” argues Boudreaux. And Worstall points out that if anyone does see prosperity in destruction, it is only because of the ridiculous way GDP is measured. “The problem is that we don’t count the loss in capital value of the original [destruction]: nor of any [further consequences]. GDP measures the flows in the economy, not the stock.”
These numbers aren’t accurate (no one really has an accurate number for the wealth of the entire US) but they’re in the right order of magnitude at least. Imagine that the total wealth of the US is $100 trillion. All the buildings, the factories, the financial assets, the human capital, the natural resources, all add up to $100 trillion. The GDP of the country is around $15 trillion. That second is the flow that we get from the stock of the first.
Now imagine that Hurricane Sandy does $10 billion of damage to that wealth (for our purposes it doesn’t matter whether it’s $100 billion or $1 trillion. Although this obviously matters to everyone except for the purposes of this example). The US is now worth $99.990 Trillion. GDP might rise to $15.01 trillion as we repair that damage. But we’re not in fact any richer at all: despite the fact that GDP has gone up. What has actually happened is that some of our stock of wealth has been destroyed and we’re having to do more work in order to rebuild it. This is exactly the same as our pollution example. We’re measuring what we produce but not the capital stock of what we have (or had).
Yes, the rebound from Sandy may well provide “a boost to the economy.” But that’s a function of the way that we measure that economy, not a real boost in our general wealth.
UPDATE 2: Don Boudreaux’s been busy. He’s also taken the opportunity to send to the Washington Post the BEST LETTER EVER on speculation:
Have you noticed the enormous increase in greedy speculation in the northeast over the past two days? It’s quite something! In advance of hurricane Sandy, consumers are now artificially increasing the scarcity today of the likes of bottled water, canned goods, batteries, and medicines by stocking up on these goods.
And all of this self-interested speculation – done merely in anticipation of staple goods being much more scarce after Sandy strikes than they are today – is applauded and even encouraged by the news media and government leaders!
What gives? Many of the same people who today publicly encourage us to speculate (“Make sure your family has ample supplies of batteries!”) are among the loudest critics of speculation at other times and in other markets.
But in fact the oil speculator who, say, buys oil today in anticipation of oil becoming more scarce tomorrow does just what a consumer does today in a supermarket in anticipation of a disruptive storm: both persons usefully transfer resources across time. They both stock up on resources that are today relatively abundant in order to preserve these resources for consumption at a time when they are relatively more scarce (and, hence, more precious). Both persons transfer resources from today – when the consumption of any one bottle of water or gallon of gasoline provides relatively less benefit – to tomorrow when the consumption of that same bottle of water or gallon of gasoline will provide relatively more benefit.
Anticipating the future and taking actions to allocate goods and services from times of relative abundance to times of relatively greater scarcity is an immensely useful activity. And we all perform such speculation whether or not we are popularly identified as “speculators.”
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA 22030
UPDATE 4: Hurricane Sandy death toll in Caribbean rises to 69, mostly in Haiti.
UPDATE 5: Storm surge and high tide put ‘lower’ Manhattan under water [pics from Zero Hedge]:
UPDATE 6: WSJ reports Governor Cuomo’s office “has confirmed at least five storm-related fatalities in New York.”
UPDATE 7: CNBZ reports National Guard troops have moved into Lower Manhattan. Basement apartments, subway tunnels along the lower East River are under water. Water “rushing into” Battery Tunnel. Con Edison has begun shutting down all power in Manhattan … lights out in Greenwich Village … SoHo … Lower East Side …. Statue of Liberty…
UPDATE 8: The East River continues to surge over its barriers. This is 34th St and First Avenue in Manhattan, almost in MidTown [pic by Robert Wenzel]:
UPDATE 9: National Data Buoy Center reports winds are mercifully well below the 72 knots that would mark a hurricane, none of their stations recording over 50 knots. Hat tip Willis Eschenbach who says, “Please note that the big damage from such storms is the flooding, so I am not minimizing the likely extent of the damage. It will be widespread. However … not a hurricane.”
UPDATE 10: Still windy, however: “So The Front Of A Building Blew Off In NYC.”
Three feet of water on trading floor of NY Stock Exchange. May be shut down for weeks. [Hat tip @AmberLyon] Oops. No. CNN (who had made the claim) redacts.
UPDATE 12: Uh, Con Edision hadn’t been “shutting down” power. Turns out there was an explosion at the Con Ed Plant E14th and FDR Drive! [Hat tip Lyndon Hood]
UPDATE 13: WCBS reports the storm surge at Battery Park (Lower Manhattan) has begun to recede.
UPDATE 14: Salt Water Puts NYC Subway "In Jeopardy"