During this undeniably tragic time I’ve noticed a little fallacy flying around again – that the latest quake will at least be good for the economy.
This is of course, not the case.
Not only does the recent earthquake have massive social costs, but even if we force ourselves to ignore all the pain inflicted on individuals by this disaster and decide to focus narrowly on measured economic activity this is a net negative.
Yes, economic growth will accelerate a year from now as Christchurch rebuilds (after slowing in the near term mind you). However, a ton of Christchurch’s capital stock – its firms, its homes, its offices – have been destroyed. Rebuilding them is akin to taking on a cost just to try and get back to where you were before you lost the properties.
We will get some “unemployed resources” into work in a year’s time because of the crisis – but these people will be rebuilding what we have lost, not “adding new value” to what was available prior to the earthquake.
Furthermore, people who are focusing on the stimulus are ignoring the massive negative impact right now – even in strict financial terms, the negative impact on consumer confidence and on capacity in Christchurch will smash economic activity. In essence this has made some sort of double dip recession a near certainty – even if we don’t quite technically have one.