Rebuilding Efforts to Give Economy a Boost

FOXBusiness

Early estimates of the direct damage caused by Hurricane Irene are in the range of $7 billion. Add to those the loss of about one or two days economic activity, spread over a week across 25 percent of the economy, and an initial estimate of the losses imposed by Irene is about $25 to $30 billion. However, rebuilding after Irene, especially in an economy with high unemployment and underused resources in the construction and building materials industries, will unleash at least $7 billion in new direct private spending -- likely more as many folks rebuild larger than before, and the capital stock that emerges will prove more economically useful and productive. Regarding the latter, consider a restaurant with inadequate patronage -- its owner invests the insurance settlement in a new more attractive business. On the shore, older smaller homes on large plots are replaced by larger dwellings that can accommodate more families during the summer tourist season. The outer banks of North Carolina saw such gains several decades ago after rebuilding from a storm of similar scale. All of this is not to discount the direct costs to individuals by temporary and in some cases permanent displacements; however, when government authorities facilitate rebuilding quickly and effectively, the process of economic renewal can leave communities better off than before. Factoring in the multiplier effect of $7 billion spent rebuilding yields an economic benefit from reconstruction of about $13 billion. Add to that the gains from more a more modern and productive capital stock-likely in the range of $4 billion-and consumer and business spending that is only delayed but not permanently lost-likely in the range of $9 to $12 billion-and the total effects of natural disasters of the scale of Irene are not large two years down the road.Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former Chief Economist at the U.S. International Trade Commission.

Continue Reading Below

What do you think?

Click the button below to comment on this article.