What does economic history teach about natural disasters and war?
THINKING about growth and investment patterns at a time of terrible human suffering is the sort of thing that gives economics its dismal name. Yet understanding the economic effects of natural and man-made disasters can also help to minimize their impact. What are the lessons from previous calamities. Disasters destroy some of the basic elements of an economy. The loss of human lives and capital reduces the quantity of goods and services produced and consumed. A less predictable effect comes through investments made to rebuild the capital stock and, even more significantly, through longer-term changes in consumer spendingwhich accounts, in America, for two-thirds of GDP. In brute terms of lives and property lost, the terrorist attacks are somewhat akin to natural disasters such as floods, hurricanes and earthquakes. Two of the biggest earthquakes in recent memory shed some light: • California’s earthquake in 1994, which killed 50 people and caused $40 billion of damage • Kobe earthquak
