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Trivia Tidbit Of The Day 220 -- Hurricanes & The American Economy.

Katrina-

Hurricane Katrina was far more destructive to the American economy than any other natural or man-made disasters in recent years, including 9/11. But destructive and disruptive are two separate concepts. 9/11 destroyed quite a bit of property and took thousands of lives, but it also disrupted the American economy, slowing economic growth itself in the short-term. 9/11 changed behaviors, nationally. Less travel, for example.

Katrina (thus far, at least), however, has not derailed American economic growth itself. The American economy is too strong.

Although GDP is the best measure of what the economy is producing, it is not the best measure of economic well-being in the presence of events like Katrina and Rita. To correctly measure economic well-being, it is necessary to consider what has been destroyed as well as what is produced. For this purpose, it is useful to look at net domestic product (NDP), which equals GDP minus depreciation of capital; depreciation includes destruction due to hurricanes and other disasters. Real NDP fell at a 7.3 percent annual rate in the third quarter, reflecting the destruction of $79 billion of capital by Katrina and Rita.

Also, notice the spike in NDP that happens each time, in the aftermath of disaster. We always rebuild, usually better and bigger than before.

Also encouraging is the fact that GDP growth is not too concentrated in one sector of the economy. It's a broad-based boom:

Source:
The Dallas Fed.

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Posted by Will Franklin · 19 November 2005 12:05 PM

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