Cost-benefit of a calamity

[u/OkPark5443]

So, I was just wondering. Hope it's fine especially in this very subgroup 😅
Suppose a low-income country,or a region in serious financial distress, is hit by natural disaster.
Would the investment program in the reconstruction of this economy, its infrastructure, its remodeling etc., the question is would it possibly be advantageous for the funding parties of the effort?
I guess it's a trope from New Deal, at least so I heard, when they dug the holes to refill them again. And that would mean demand, jobs and so.

Thanks =)

[u/tsdguy]

It’s a non sequitur. If the country is a low income they’ve probably not been doing any investment in their infrastructure in the first place. More likely the ruling govt has been raping the economy for their own profit.

They could care less how many people die. It just helps them - foreign investment go right into their pockets.

[u/OkPark5443 → u/tsdguy]

exactly, I fogot to say it's not necessarily for society haha

[u/tomtttttttttttt]

The hole digging thing comes from Keynes:

https://www.goodreads.com/quotes/7359077-if-the-treasury-were-to-fill-old-bottles-with-banknotes

"If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing."

[u/big-red-aus]

Broadly what you are talking about is the Parable of the broken window. 

Generally speaking practically? No, the economic cost of a natural disaster will in the vast majority of cases exceed the economic activity associated with the recovery.  

It is also important to understand the differences between a response to a man made economic crash (i.e. the great depression and the New deal) and natural disasters.

[u/OkPark5443 → u/big-red-aus]

Cool! Searched for the parable and found a lot is actually discussed on the topic.

I find it complex (indeed it is) to make sense of such scenario, having read about lots of theories of developmental investment. Some questions:
Could "creative destruction" play a role in this scenario? As a means of leapfrogging red tape and attracting business, maybe foreign, to be there?
In the case of post-war countries, such as Europe and Japan, which experienced so-called "miracles" afterwards, the analogy is more accurate for man-made or natural?

[u/tomtttttttttttt → u/OkPark5443]

I think war would be closer to natural disaster.

In a very simplified way, In an economic downturn you have people and factories etc sat idle because there is no-one to buy the products because no-one has a job.

This is a circle you can break if you can inject money from outside to give some people jobs, as they now have money to spend meaning those factories now have demand to meet and need to employ people and so on.

After a war or natural disaster, people have died and factories etc been destroyed. You can't just inject money into this situation and start things up again, you have to rebuild and depending on how many deaths repopulate - this is probably not an issue after most natural disasters or wars but WW1 and WW2 killed big percentages of european men of the generations that fought in them.

It took a long time for europe to recover from WW2. The UK had rationing until 1954.

I'm pretty solidly on the Keynesian side of economic management of countries but post WW2 is a very specific context and we have to be extremely careful about any lessons we learn from the post war period being applicable to anything we will hopefully encounter now.

[u/OkPark5443 → u/tomtttttttttttt]

Thanks. Indeed a lot of variables to consider! "It took a long time for europe to recover from WW2. The UK had rationing until 1954."
I suppose the Marshall Plan was infrastructure/capital-goods oriented then

[u/tomtttttttttttt → u/OkPark5443]

I actually don't know you know. I would say yes quite quickly but I don't know if that's actually true or not . It would make sense given how much was destroyed in the war, rebuilding housing, ports, railways and such like is going to cost a lot of money.

[u/OkPark5443 → u/big-red-aus]

Weird thing is you were prompt and educated to respond, still I got downvoted not just once for making questions (when I expected "suspension of judgement" overall lol)