Storm’s cost may hit $50B; rebuilding to ease economic blow - Analysis

This article was written by Christopher Rugaber and Martin Crutsinger, who supposedly know something about economics, since they are described as "AP Economics Writers." Reproduced here for fair use and discussion purposes. My comments below.

WASHINGTON (AP) — Superstorm Sandy will end up causing about $20 billion in property damages and $10 billion to $30 billion more in lost business, according to IHS Global Insight, a forecasting firm.

In the long run, the devastation the storm inflicted on New York City and other parts of the Northeast will barely nick the U.S. economy. That’s the view of economists who say a slightly slower economy in coming weeks will likely be matched by reconstruction and repairs that will contribute to growth over time.

The short-term blow to the economy, though, could subtract about 0.6 percentage point from U.S. economic growth in the October-December quarter, IHS says. Retailers, airlines and home construction firms will likely lose some business. The storm cut power to more than 8 million homes, shut down 70 percent of East Coast oil refineries and inflicted worse-than-expected damage in the New York metro area. That area produces about 10 percent of U.S. economic output.

New York City was all but closed off by car, train and air. The superstorm overflowed the city’s waterfront, flooded the financial district and subway tunnels and cut power to hundreds of thousands. Power is expected to be fully restored in Manhattan and Brooklyn within four days.

The New York Stock Exchange will reopen for regular trading Wednesday after being shut down for two days. There’s no evidence that the shutdown had any effect on the financial system or the economy. But Jim Paulsen, chief strategist at Wells Capital Management, said further delays might have rattled consumers and dampened their spending.

“It’s about confidence,” Paulsen said. “We’re watching these horrific images of the storm, and people are thinking whether they should ahead with that big purchase ....It doesn’t do any good to have another day with headlines saying the U.S can’t figure out how to open its stock exchange.”

Most homeowners who suffered losses from flooding won’t be able to benefit from their insurance policies. Standard homeowner policies don’t cover flood damage, and few homeowners have flood insurance.

But Fannie Mae and Freddie Mac said they will offer help to borrowers whose homes were damaged or destroyed, who live in designated disaster areas and whose loans the mortgage giants own or guarantee. Among other steps, mortgage servicers will be allowed to reduce the monthly payments of affected homeowners or require no payments from them temporarily.

Across U.S. industries, disruptions will slow the economy temporarily. Some restaurants and stores will draw fewer customers. Factories may shut down or shorten shifts because of a drop in customer demand.

Some of those losses won’t be easily made up. Restaurants that lose two or three days of business, for example, won’t necessarily experience a rebound later. And money spent to repair a home may lead to less spending elsewhere.

With some roads in the Northeast impassable after the storm, drivers won’t be filling up as much. That will slow demand for gasoline. Pump prices, which had been declining before the storm, will likely keep slipping. The national average for a gallon of regular fell by about a penny Tuesday, to $3.53 — more than 11 cents lower than a week ago.

From the article: "...a slightly slower economy in coming weeks will likely be matched by reconstruction and repairs that will contribute to growth over time." This is nonsense, nothing more than a glaring example of the Broken Window Fallacy. Economist Walter E. Williams ably explains this fallacy. I will say that when an event happens that causes destruction of property, the resources to repair that property do not appear out of thin air. They must be diverted from another place in order to pay for the repairs, which means that wherever that money may have gone to is no longer going to receive it. 

This same analysis applies to government redistributive programs like welfare and stimulus. The money must be sourced from one person's pocket in order to be distributed to another person's pocket. No wealth has been created, no prosperity is increased, no net gain has been made.

The article goes on to say, "Most homeowners who suffered losses from flooding won’t be able to benefit from their insurance policies. Standard homeowner policies don’t cover flood damage, and few homeowners have flood insurance. But Fannie Mae and Freddie Mac said they will offer help to borrowers whose homes were damaged or destroyed, who live in designated disaster areas and whose loans the mortgage giants own or guarantee." Think about this. You are a homeowner living in a disaster area, and because you are cheap, irresponsible, or careless, you do not buy flood insurance. Fannie Mae and Freddie Mac are going to bail you out of your stupidity! 

Those people who did the right thing and protected their property with flood insurance, well, they must be thinking that they've been taken for a ride. Of course few homeowners have flood insurance. Why would they, if they will get bailed out anyway? This is a repeat of the mortgage bailout, where people who were behind on their mortgages became eligible for lower interest rates and forgiveness of some of their back owed amounts, while responsible homeowners who pay their bills on time and scratch and scrimp to make sure their obligations are honored receive no benefits. Government rewards foolishness and irresponsibility and penalizes good behavior.

But the whole point of the article, that the storm will not hurt the economy very much, is nothing more than a puff piece designed to cover for a continuing weak economy. It is preposterous to assert that a disaster that will cost an estimated $50 billion in combined property damages and economic losses will not have "...any effect on the financial system or the economy."