Amity Shlaes documents for National Review Online readers a new study that challenges popular misconceptions about government intervention after disasters.
We often tend to overrate the quality of post-disaster intervention. Economists Solomon Hsiang and Amir S. Jina recently studied economies of nations that had endured the prototypical natural disaster, the cyclone. Studying 6,700 cyclones that took place around the world between 1950 and 2008, the pair published a National Bureau of Economic Research paper supplying strong evidence that national economies decline compared with their pre-disaster trend and “do not recover.” Wrote the authors: “The data reject hypotheses that disasters stimulate growth or that short-run losses disappear.” The conclusion: Cyclone-hit countries, rich or poor, experience such losses. Places where very big cyclones hit lose 3.7 years of development over the following two decades. This blow compares to a tax increase of 1 percent of gross domestic product, or a currency crisis. …
… Three findings of the Hsiang-Jina report stand out. The first is that their study includes the contributions of international disaster aid. Since international aid money usually, if not always, buys something at the disaster site, this suggests that our faith in spending might be too strong. “We can’t test whether aid and government spending is good or bad, but we can just say it is not doing what some people claim it is,” says Jina.
The second finding is that repeat disasters further burden the economies they hit, resulting “in an accumulation of income losses over time.” In other words, what is true once is also true the second time, with even greater impact. Perhaps those New Orleans families who have chosen to settle somewhere else have made the correct choice.
But the third point is perhaps the subtlest and most interesting. Economies do experience a jolt of growth when governments or private companies, not to mention international nonprofits and agencies, dump cash and rock concerts in the rush that follows tragedy. That jolt may include food, bottled water, and blankets that save lives. But economically, a jolt is just a jolt. The growth is not sustained. The true economic picture, and a negative one, comes clear over the long term, the 10- or twenty-year period. The only reason we have not noticed this, as the authors point out, is that “the gradual nature of these losses renders them inconspicuous to the casual observer.” Politicians think in election cycles, and so do voters, which explains why we may heretofore have found it expedient to ignore any evidence of long-term weakness that came before us. …
… [T]he greater value of this study is in how it might help sort out what part of the disaster response results from fallacy. Now the evidence is there: Government spending alone simply does not do the trick. Big aid might not do the trick, either. And what about “creative destruction”?
Here one might reach a conclusion that differs from Jina’s. The “creative destruction” of which he spoke, and of which the development community speaks, is innovation catalyzed by disaster. The error here might be in believing that disasters foster extensive extra creative destruction. Perhaps the broader force of creative destruction, for which there is plenty of evidence, is not prompted by disaster: E-mail killed the fax without the necessity of any hurricane.
