Economies Return to Normal After Disasters
October 29, 2001
Nations and societies generally recover from disasters in relatively short periods of time, according to economists. The secret, they say, is to retain knowledge and skills.
- For example, the earthquake that hit Kobe, Japan, in 1995 killed over 6,000 people and property losses were estimated at about $114 billion -- but it took only a little over a year before gross domestic product in the Kobe region returned to pre-quake levels.
- The oil price shocks of the 1970s and 1980s created temporary dislocations, but individuals and businesses conserved and made other adjustments, and the domestic petroleum industry launched an all-out search for new U.S. energy sources -- to the end that oil imports accounted for only about 0.7 percent of GDP in 1999, compared to 2.8 percent in 1980.
- Already, since Sept. 11, air travel has recovered to about 80 percent of pre-attack levels after initially falling to less than 50 percent -- and even attendance at Broadway shows has returned to close to pre-attack levels.
- Economists estimate the total physical assets of the U.S. at about $30 trillion and its human capital at around $100 trillion -- compared to a total economic loss of $25 billion to $60 billion on Sept. 11.
So even a $60 billion loss is only 0.2 percent of physical assets and 0.06 percent of total productive assets.
In contrast, the $114 billion of physical assets destroyed in Kobe was four times as large when compared to the whole Japanese economy.
Source: Gary S. Becker and Kevin M. Murphy (both of the University of Chicago), "Prosperity Will Rise Out of the Ashes," Wall Street Journal, October 29, 2001.
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