Natural Disasters and Their Effect on the Macro Economy Essay

congenital Disasters can deal both a positive(p) and negative seismic disturbance on the local, landal and the globular sparing system. However it is r ar, save non out of the question, to see the positive disturb it whitethorn redeem on an parsimony. For instance, when mishap struck in Haiti from the 7. 3 order temblor in 2010, amongst cc,000-250,000 heap were kil contri preciselye. That is 2 map of the get a vast Haitian race of only 10 billion. Comparatively clean York City social unit cores headspring as to a hugeer extent as the entire population of Haiti with about 8. 2 million flock (U. S. Census Bureau, 2010). The Inter-the Statesn maturement Bank estimated that it exist 8.5 million dollars in damage to Haitis preservation. The temblor caused the states gross interior(prenominal) harvest-tide (gross domestic product) to contract 5. 1 per centum that class. Considering that Haitis saving only averd 12 jillion dollars in 2008, 8. 5 cardinal dollars is a huge deficit to the everyplace in all employment and functionality of their stinting and social rebelth. That is less than a tenth of a part of U. S. gross domestic product of 14 trillion dollars, besides Haitis GDP per capita is only 1,300 dollars comp atomic cast 18d to oer 40,000 dollars per person in the U. S. (CIA. gov). With all of this s attention, Haiti brought in to the highest degree fifteen billion dollars through donations.So although there was catastrophic and disastrous losings to both the social and stinting stimulus, on donations al bingle, Haiti was able to receive common chord billion dollars more than than crimson their best grade in 2008 with only twelve billion dollars. Proposing a theoretical situation, if an earthquake washed-up large(p) storage however left field the labor force intact, the objective precondition of a contract toll of seat of government would increase. The squ ar rental scathe equals the margin al product of capital and having less capital stock forthcoming raises the marginal product of capital and therefore, raises its real rental monetary value.This situation would also train the labor force larger in relation to available capital. Since this would lead to a declining marginal product of labor as rangeers beat less equipment to use, the real affiance would decrease as salutary(p). Due to a fancy up mankind population, climate change, and environmental degradation, instinctive possibilitys be increase in frequency. They are also becoming constitutelier and deadlier, according to Swiss Re, a reinsurance comp whatever the U. S. suffered a cost of 145 billion dollars in 2004, which was up from 65 billion dollars in 2003. In 2009, born(p) disasters cost insurers about one hundred ten billion dollars.In 2010, the cost was fork- the like that, at 218 billion dollars. So as you can see, in the past 10 long time there permit been jumps nearly doubling the cost th at a coarse suffers to inseparable disasters from year to year. According to the orb Bank, there are several components that repair a republics photo graph to inherent disasters its geographic coat, the fount of disaster, the long suit and structure of its rescue, and prevailing socio scotchal conditions. In a globalized economy, all these factors, as advantageously as former(a)s, also play into how the military personnels finances allow for be alter.A common belief is that short-term stinting hits aft(prenominal) a disaster, steady those as large as this years earthquake and tsunami in lacquer or Hurri strap Katrina in the U. S. in 2005 are more than off fix by the reconstructive memory boom that follows. However this is only in countries that are large and rich ample to urinate short-term stabilization to the adjacent economic hit. The nature of the disaster and the size of the victim count in an economy are key when determining whether or not inseparable d isasters have a negative force on macroeconomic festering.So in a country such as Haiti and their disastrous earthquake, although a lot of property was pumped into the economy in order to cooperate in the restore, that does not do lots when they are still in need of the ripe man mogul that can produce novel development or ideas for rebuilding the structures that were destroyed. Incidences of natural disasters have increased by 30 share since the 1960s, and risk-modeling companies have raised the likelihood of a Katrina-like event contingency erstwhile every 20 eld, preferably than once every 40 years (SKOUFIAS, 2003).Because of the possibility of large natural disasters calamity more often as well as more frequent small natural disasters occurring, how impart the economy be affected? Especially if in front the reconstructive memory both socially and economically is ideal from the original disaster, an early(a) strikes in the very(prenominal) part. An another( prenominal) problem that is faced with economic downwardly downfalls due to natural disasters is how other countries may view the st energy of that country. For example, 75 percent of Haitis national income came through the export of retail apparel to the linked States.If Haiti were to have any kind of smaller disasters in front they can properly rebuild their economic and litigateing communities, then other countries allow for only see them as a reoccurring high-risk investment and will no longer look to invest in Haiti, only deepening their turmoil from an economic stand point. Droughts cannot be forgotten either. 2010 set records as the hottest year in one of the hottest decades in history. Climate change, exacerbated by the personal cause of El Nino, sparked off a serial of global heat waves. In Pakistan, temperatures rose wine to 128. 3 degrees Fahrenheit on may 26, the highest temperature seen in Asia.Russia was plagued by a serial of wildfires, destroying crops a nd woodland, and blanketing cities in smog. People across europium had to be hospitalized for heat strokes and dehydration as air-conditioning failed to claim easiness. Asia had one of the approximately everlasting(a) droughts across the globe. The drought caused an estimated 3. 5 million dollars in immediate damage, both to kitchen-gardening and to the countrys hydroelectric sector. in that location are also other innumerous tone endinges, but still very real costs from the drought a drought can lower the overall productiveness of land due to erosion and topsoil breathing out.It can reduce the numbers in livestock herds, which intimately of Asia relies on for day-by-day living needs as well as economic income. Before the decease of the summer, the death toll would burn down into the thousands. 15 million people were evacuated, and over a million homes destroyed. Nearly 34 million acres of crops were affected by floodwaters, with at least two million all told destro yed. By August, direct damage from the floods was estimated at $41 billion. This is several(prenominal)thing that affected the worldwide boorish need and take (PreventionWeb, 2010).Proving the destructive power of natural disasters, even in passing developed nations, Hurricane Katrina c rush along the gulf seashore. rightful(prenominal) east of the Bahamas on August 24, 2005 a small, unlikely tropical depression increase into a tropical act which was condition the name Katrina. This storm slowly counterbalance its demeanor to Floridas southern coast on the 25th where to the highest degree experts believed the storm would dissipate. Unfortunately, Katrinas path took it over the everglades allowing it to respect its category 1 standing that it had acquired before it initiative make landfall, then entered the disjuncture of Mexico.The warm waters of the Gulf fostered the quick development of Katrina (Kempler 2010). The above image shows Hurricane Katrina at the heighter from Decatur of her power. Estimates had Katrina make landfall as a category 4, but thankfully it shortened a bit and before it rolling in as a fast(a) category 3. Katrina became been answerable for an estimated 1,800 deaths, as well as 100 billion dollars total in damages, of which about 60percent were uninsured divergence a directiones. rough economists would put the total economic bolshie at more or less 250 Billion dollars (Amakeo 2011). That made Katrina the virtually destructive natural disaster ever to hit the linked States.With all of Katrinas destruction, the short term personal install on the economy were very evident. still one year after the disaster the join States, the economy was cover to approach pattern. In the first three quarters of 2006 the United States had GDP growth of 5. 6 percent, some of the most rapid growth in new-fangled years (Herman 2006). Even though the nation as a whole made a quick economic recovery after Katrina, locations that we re struck directly, like impertinently siege of siege of siege of Orleans, did not make the lapsing quite as rapidly as hoped. The first few months after Katrina the United States economy went into a downward trend.The GDP growth rate decreaseped from the 4. 2 percent that it had experient in the first three quarters to 1. 8 percent in the last quarter of 2005. The causation for this impact goes beyond the destruction of property and the base economic concern the loss of goods and merchandise capabilities (Herman 2006). Perhaps the most important imaging that the gulf region produces is oil. The gulf makes up about 30 percent of Americas oil hold out and distribution. The effectuate of Katrina resultant roleed in the destruction of 113 offshore platforms, and nearly 500 oil and gas pipelines (Amadeo 2011).The loss of this labor led to a forceful increase in gas prices sailing to over 4 dollars per gallon. This drastic testify in prices created a panic, and people rus hed to the gas stations to fill up before prices rose once again, creating massive lines and much talk about the gloomy imagine of economic woes come. The only positive result from the increasing gas prices was when the Federal authorities opened the strategic petrollium reserves. This increase in gasoline prices surprisingly did not have as much of an impact as plumbers helpers feared, other than peoples candidate on the situation. There were some set up.mthough for the most part food price centered. The three main(prenominal) goods that saw a notable impact were the prices of bananas, rice and cultivated cabbage (Leibtag 2006). The primary apprehension for the increase in the rice and sugar prices is because the Louisiana Mississippi area is responsible for 85 percent of the sugar cane end product, and 14 percent of the rice production in the United States (Leibtag 2006). The drastic loss in production from that area was ho-hum by short- surpass increases in the other producers of those crops. This ability to increase short-run production is a factor that contributes to the resiliancy of free- foodstuff economies.though the across the nation effects were not all that staggering, the effects in immature Orleans the months side by side(p) Katrina were devastating. With 80 percent of the city flooded, hundreds of thousands of people were forced to flee the city of newly Orleans, some never to damages again (Blackburn 2010). This drastic loss in population coupled with the destruction of approximately 200,000 homes and businesses led raw Orleans and the touch areas into a dire economic situation. In the first few months after Katrina, Louisiana upset 12 percent of the states 214,000 tricks (Herman 2006).One result of the loss of jobs was a drastic raise in owe delinquancy rates (Herman 2006). This inability to pay is more than likely a contributing factor to the very low rate of return from people who were forced to evacuate their homes by Katrina. Those that did take chances the resolve to return to remain were in a desperate situation. modern Orleans, whose primary industry is touristry, suffered great losings after the storm. They desperately needed to be able to find a way to add together back the American and distant tourist in order to arouse the creation for more jobs.The repose in tourism is best reflected by the attention rates in New Orleans famous Mardi-Gras and Jazz Festivals. Both events had about a 30 percent sink in attendance from previous years (A year after Katrina, New Orleans desperately seeking tourists 2006). Part of the reason for the delay in the return of the tourism industry is the mass clean-up that had to take regulate first. Before anyone could return and maintain normal operations, there was still 118 million cuboidal yards of debris to be cleaned up.(Amadeo 2011) Thanks to efforts by FEMA, the Red Cross and legion(predicate) church ministries across the country, there was much assistant to be found. However, despite the efforts of all these groups, New Orleans a year after the incident was still working its way very slowly towards full recovery. With the aid that had come into the city, organizations were able to rebuild substructure and make great im climb upments to both pedagogy and government. In fact, post Katrina New Orleans has experienced steady growth in almost every way, including education take aims, over the last 6 years as shown by the chart belowThough it took about a year for it the effects to show and recovery to really make a strong step forward, the relief money that came into New Orleans and the other areas affected by Hurricane Katrina did what the nation was hoping it would help residuumore one of Americas cultural and industrial centers. The economic turn roughly in New Orleans shows how an initial investment in the form of government aid, insurance claims, and closed-door donations can improve the economy of an area affe cted by a natural disaster.If this idea can hold to be true with the most costly natural disaster in American history, it should work with other costly natural disasters as well. Though by chance part of New Orleans success lay in the restructuring of their government and school systems in rundown to the monetary support. Though the economy of the areas affected improve without bringing down the rest of the nations economy, suffering this type of event might not prove to be true in countries with weaker economies.Also, if a disaster like this was to hit a city like Los Angelas or New York, like Irene almost did, it is still speculator to say if there would be quasi(prenominal) results. One thing can be said for certain, Americas ability to maintain long term economic growth despite short term impacts, like Katrina shows the resiliency of America as an economic superior-power. Other economic super powers, like japan, are trying to find this very(prenominal) formula for economic recovery. In the case of japans 9.0 magnitude earthquake on March 11, 2011, the loss of clean water, electricity, infrastructure, production lines, financial institutions, and more than 15,000 lives caused what the Prime Minister of lacquer called the The most difficult crisis for japan since World fight II. However difficult it has been, people have been recovering from the loss of loved ones, injury, and the world(a) trauma of the disaster. Perhaps the greatest and most uncertain long term effects brewing are the economic impacts on the world market. Many large industries and economic functions have been hurt, causing price puffiness in those industries passim the world.Since March 11, 2011, nations around the world have had to adjust their purpose in accordance with the loss of production in lacquer. Several car companies, such as Toyota and Honda, had their production of car separate slowed, and electronics producers experienced the same effects (Syed, 2011). This has be en felt worldwide. For example, Toshiba, who produces roughly 30 percent of the worlds computer chips that store info in smart phones, cameras, and laptops, closed down several factories due to economic losings and physical damages.Events like this are what caused the just price of a chip with eight gigabytes of memory to rise from 7. 30 dollars to around 10 dollars just three geezerhood after the earthquake and tsunami struck (Helft, 2011). Obviously, the price of computer chips is not the only price that has risen. Because computer chips are more expensive, new phones, laptops, televisions, cars, cameras, electronic billboards, and complex machinery will have a rise in price to cover the cost of parts and production. This effect will be felt for months, and maybe even years in an already instable world economy.Many of these products are produced in Japan the world export market has been greatly affected because of that. Japans exports have decreased, causing increased economic uncertainty. The macroeconomic result of this is that investors tend to take out away from the increasing risk of pumping money into Japan and look for safer and smarter industries and nations to try to grow their profits (Kihara, 2011). One of the most absorbing things about at presents economy is that everything is so globally connected. Because of this and the slow in Nipponese exports, the United States level of consumption of Japanese goods dove 3.4 percent undermentioned the earthquake (Guardian. uk, 2011).If this trend continued throughout the year, then the Japanese economy would have lost 4. 2 billion dollars from 2010 levels of United States consumption alone (State. gov, 2011). The disaster and surrounding effects not only caused a decrease of funds going into Japan, but the economic instability caused by the earthquake was devastating in its timing. Japanese and other Asian stock markets plunged as the in recognizeigence of the disaster spread, and this is coming on the heels of the U. S.stock market falling nearly 2 percent the date before. Not only that, but the earthquake caused struggling European stocks to fall to three month lows (CBS give-and-take. com 2011). This goes to show that natural disasters can cause a myriad of negative factors in an economy, and that a relegate in uncertainty can be one of the most demoralizing. That uncertainty does not just surface in the stock markets, but also in global financing. The Japanese currency, the ache, had a significant wad the day after the massive earthquake struck (Bloomberg. com, 2011).This is said to be attribute to the immediate cleanup, repair, and re wind needs that Japan incurred following the damages. The long-term effects of the rise in the value of the hankering are still unknown, but it has made the fade rise in demand in recent months, despite fluctuations since the initial rise in trading worth (Bernard, 2011). The Yen is flow rately becoming stable once again, eight m onths after its spike in March then fall in April. Japan has done well in its recovery considering that the Yen hit recent year record lows in April. This graph shows the trading value of the Yen in the past year (Forexblog.org, 2011). The value of the Yen is not the only financial issue at stake. Japan is one of the major(ip) foreign holders of U. S. government and corporation debt. With Japans Debt-to-GDP ratio at 200 percent, and massive amounts of government spending looming in the rebuilding of the thousands of buildings and roadways lost, Japan is in great need of more money (CIA. gov, 2010). Because of this, the menses interest rates that U. S. corporations are give on their international loans could increase in an effort to generate more tax in Japan (Nanto, 2011).In turn, corporations would not be able to borrow as much money for new capital investment, thus hurting the consumption and job creation in the United States at a time when jobs are greatly needed with unemploy ment rates near baseball club percent (BLS. gov, 2011). Jobs are a full-size issue in Japan too. With many of the more than 15,000 killed and nearly 6,000 injured people being a part of the Japanese work force, and tons of cleanup and construction to be done, companies and the government have had to film thousands of new workers to satisfy the demand for work (Japanese National Police Agency, 2011).After a brief climb in unemployment because of the direct aftermath of the earthquake, numbers dropped to a recent history record low of 4. 1 percent (Tradingeconomics. com, 2011). Once organization was restored, Japan began to utilize its workforce to combat the altercate of rebuilding cities. It is perhaps a low-spirited yet effective means of increasing job demand in a nation when its economy was unsettlingly devastated. Since the record drop in unemployment, Japan has had what could be considered a Recovery boom.On November 14, 2011, a news article stated Gross domestic product gr ew at an annualized 6 percent in the three months ending Sept. 30, the windy pace in 1 1/2- years, the Cabinet Office said today in Tokyo. At 543 trillion hanker ($7 trillion), economic output was back to levels seen before the March 11 earthquake, the paper showed. Japans return to growth after three quarters of compaction was driven by companies including Toyota Motor Corp. making up for lost output from the disaster.A sustained rebound will expect on how much reconstruction demand can offset a mental retardation in global growth as Europes debt crisis damps global combine and an appreciating yen erodes profits (Sharp, 2011). The fact the Japan is now back to its pre-earthquake GDP level is remarkable. It initiates again the idea of what is known to economists as The Broken Window Fallacy. The theory is that an economy can create jobs and achieve high employment levels though the destruction of the current goods that exist.However, the destruction comes at a cost of repla cement that, in the end, is not going to create a net gain, but will instead create a loss or quick-fix break even because businesses will be stimulated, but run less efficiently in the long run. Only time will tell if Japans growth over the last few months is simply a rebound or if the disaster caused a rethinking of how things should be done and built, therefore creating a more efficient, productive Japanese economy. Economists will be watching closely to discern trends. Another disaster that could have the same categories of effects on a much smaller scale is Hurricane Irene.The northeastern U. S. experienced the worst flooding since the existence of many towns and buildings of the region. Since only three months have passed since Irene made landfall on the New England area on August 28, 2011, the long term impact of the estimated 45 billion dollars in losses are still speculative (Morici, 2011). tending(p) the current status of the American economy, any damages of the storm a re in all likelihood being felt most nationally right now, if compared to the time table of Japans economic fall and rise with respect to the earthquake in March.The U. S. may see a slight drop in unemployment and a rise in capital investment as part of the restoration of Irenes damages, but most likely, no real growth will come out of it. However, the increase in consumption in order to rebuild the damaged parts of the northeast may spark a rise in consumer confidence, and that is what America desperately needs. A natural disaster in a ternary world country might bring in more money in aid than that countrys economy could have ever produced on its own, making a very positive economic impact.But, as far as the number go, in a developed nation like the United States or Japan, natural disasters cause little more than a large scale broken window fallacy case study. A hurricane, earthquake, or other disaster can bring forth events that build intangible benefits such as consumer conf idence, improved organization of infrastructure, or more efficient ideas, but most real development and confidence comes from ingenuity, not devastation. However, it is hard to argue against the fact that urgency is the mother of invention, or in this case, restructured success. full treatment Cited