Sorry: Tragic Events Help the Economy

BOSTON (MainStreet) -- With unemployment so stubborn, perhaps the best news would be some bad news?

With no intention of minimizing or dismissing personal anguish, we might point out that there is undeniably an economy of the tragic. Tragedy and strife -- from war to Mother Nature's fury -- effectively rob from Peter to pay Paul. Where one person loses a house to floodwaters, another finds work as a contractor.
Bad news, disasterous weather and war all play a part in adding jobs.

A counterargument to the insensitive consideration that disaster might give an economic jolt or put people back to work is the so-called "broken window" theory offered by political economist Frederic Bastiat. Simply put, it can explain post-crisis gains as really just shuffling money around. The money that, for example, a contractor earns for repairing the proverbial broken window is ultimately coming at the expense of other ways the owner would have spent it. After a flood or hurricane, tradesmen may find work, but the local restaurant, auto dealer or retail store all lose out.

Nevertheless, there will always be some who find work when things go bad.

The ultimate worry for many is death itself. According to the National Funeral Directors Association, U.S. funeral homes employed 102,877 workers in 2007 (the last time the five-year U.S. Census Bureau's Economic Census was conducted). Funeral home and crematorium revenue that year was $12 billion, up from $11.1 billion in 2002. The average cost of a funeral is just shy of $7,000.

The association estimates that there are nearly 26,000 funeral directors and more than 8,000 embalmers employed in the U.S.

For that particular "sector," job growth is all but assured in the years to come, thanks to the aging population of baby boomers. The U.S. Census Bureau projects the annual number of deaths in the United States will rise to 3 million in 2024 and 4 million in 2043 from about 2.6 million now.

Sickness similarly keeps many earning their paychecks. According to the Department of Commerce, there are roughly 6,500 hospitals in the U.S. and they employ more than 5.5 million people. The annual payroll is north of $265 billion.

Natural disasters, on the whole, ruin lives and can push victims into poverty. Despite the overwhelming hardships, there is still a jobs impact. In the months that followed the 1994 Northridge earthquake in California, reconstruction efforts pushed the local unemployment rate down to 7.1% from 9.1%.

After Hurricane Katrina, those who remained in New Orleans and the tradesmen who flocked had their share of $9.7 billion in private contracts awarded by federal agencies. That may be little solace given that nearly 850,790 homes and 900 churches, synagogues and mosques were destroyed.

In the wake of the recent East Coast battering of Hurricane Irene, construction jobs have been in renewed demand, particularly in hard-hit Vermont. By some estimates, upward of $7 billion in direct private spending will take place when all is said and done, benefiting the construction and building-materials industries.

"We are now upping our estimate of fourth-quarter GDP in the US economy," wrote David Kotok, chairman and chief investment officer of Cumberland Advisors, a prominent investment advisory firm. "Billions will be spent on rebuilding and recovery. That will put some people back to work, at least temporarily. We speculate that Washington may set aside the usual destructive and divisive partisan political wrangling and act in the interest of the nation. That means there will be a flow of federal financial assistance to the disaster areas. We also suspect there will be a rapid response rather than Katrina-type delays. FEMA lives under a microscope these days."

"We expect GDP growth in Q4 to exceed 2% and maybe approach 2.5% to 3%," he added. "This will be accomplished with low inflation and very low interest rates. The earthquake-hurricane rebuilding will pile on the recovery of the manufacturing sector."

War, what is it good for? World War II is estimated to have created nearly 20 million jobs. Thousands and thousands of government contracts and more supporting jobs have been created by the modern, concurrent wars in Afghanistan and Iraq.

A 2007 study by Robert Pollin and Heidi Garrett-Peltier of the Department of Economics and Political Economy Research Institute at the University of Massachusetts at Amherst looked at the employment impact of wartime budgets.

"A view is often expressed that the military budget is a cornerstone of the U.S. economy," they wrote. "The Pentagon is often said to be a major underwriter of, and stimulus to, important technical innovations. It is also often cited as a major employer, providing good jobs -- jobs that are stable and at least decently paid -- to millions of Americans."

They focused on the nearly $600 billion in military spending in 2007, an amount they point out was "greater than the combined GDP of Sweden and Thailand, and eight times the amount of U.S. federal spending on education."

By their calculations, defense spending creates more than 8,500 total jobs for every $1 billion in spending.

They add, however, that "$1 billion spent on personal consumption, health care, education, mass transit and construction for home weatherization and infrastructure will all create more jobs within the U.S. economy than would the same $1 billion spent on the military."

This does lead to a debate for which the authors offer no definitive answer: "Is it better for overall economic welfare to generate more jobs, even if they are low-paying, or a fewer number of well-paying jobs?"

Economist Paul Krugman last month, appearing on CNN's Fareed Zakaria GPS slyly suggested an out-of-this-world scenario for job creation.

"Think about World War II, right? That was actually negative social product spending, and yet it brought us out of a depression," he said. "If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat, and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren't any aliens, we'd be better ... There was a Twilight Zone episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time, we don't need world peace. We need it in order to get some fiscal stimulus."

-- Written by Joe Mont in Boston.

>To contact the writer of this article, click here: Joe Mont.


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