Rather, clearing the deadwood
Posted by aogThursday, 10 July 2008 at 09:08 TrackBack Ping URL

Orrin Judd launches on one of his tropes about the stimulative effects of disaster with a cite of this article about how an earthquake in China appears to have increased its economic growth.

I suspect that the article is right, but only because this was in Communist China which normally has a dysfunctional economy. It’s not the replacement of physical goods that matters, but the relaxation of stifling regulations. A good analogy would be the private land plots in the USSR, which because they were free of collectivization were enormously more productive. The more efficient the economy, however, the less beneficial are external disasters.

Comments — Formatting by Textile
Harry Eagar Sunday, 13 July 2008 at 14:30

Well, when a hurricane devastated the island of Kauai in 1992, the transfer payments were large enough to make the aggregate economic statistics for the state of Hawaii go up instead of down, even though Kauai was taken off the table as far as new production was concerned for several years, and the local economists called this ‘growth.’

It’s been 16 years now, and Kauai has never recovered, and it looks as if it never will.

That’s why I say my job is to disaggregate the aggregates.

The myth of the productive private plots in Russia is partly a mirage. The production of eggs, for example, depended on grain grown on the collective farms.

Russian agriculture was so screwed up its hard to tell what was going on. Peasant agriculture can be very productive if the asset you’re comparing it against is land. If you compare it against labor, not necessarily.

Annoying Old Guy Monday, 14 July 2008 at 07:19

I was comparing Russian peasant agriculture to Russian collective agriculture and I don’t think there’s much doubt that the former was much more productive than the latter, even if it’s hard to tell exactly how much more productive.

But your comment made me think of another potential issue here — can one think of insurance payments for destroyed property as forced loans? I.e., could part of the effect be that some owner has property that he knows he could improve in a way that would be, longer term, profitable, but can’t get the capital to make the improvements? Then a disaster hits and in effect the insurance company is forced to loan him the money. On the other hand, that money came from other investments made by the insurance company and it’s not obvious that it’s moved from a lower yield to a higher yield one.

Hey Skipper Tuesday, 15 July 2008 at 11:26

Perhaps we can put this trope next to the ones about nothing getting more expensive, and the housing stock never losing value.

And, as of Oct 1, the A380 will never be allowed into the US.

China’s economy is nowhere near as dysfunctional as was that of the USSR. There, as here, there are basically two things to do with money: spend it, or save it.

Following the earthquake, for a time there will be less saving, and more spending. Hence a momentary bump in economic growth.

In the short term.

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