Natural Disasters Suck For People, But They're Actually Not Bad For Economies


Even if Japan’s nuclear crisis is contained, its earthquake and tsunami now seem certain to be, economically speaking, among the worst natural disasters in history, with total losses potentially as high as two hundred billion dollars. In response, fearful investors sent the Nikkei down almost 20 per cent on the first day of trading after the tsunami, and it’s still down more than 10 per cent.

Yet, while the fear is understandable, this may turn out to have been an overreaction: history suggests that, despite the terrifying destruction and the horrific human toll, the long-term impact of the quake on the Japanese economy could be surprisingly small.

That may seem hard to reconcile with the scale and the scope of the devastation. But, as the economists Eduardo Cavallo and Ilan Noy have recently suggested, in developed countries even major disasters “are unlikely to affect economic growth in the long run.” Modern economies, it turns out, are adept at rebuilding and are often startlingly resilient.

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