Mark Thorton from the LvMI disproved the “stimulus” effect for Hurricane Katrina so why bother doing it again for Hurricane Sandy?
However, an increase in GDP can be misleading. GDP rose significantly in the United States during World War II, but real consumption per capita remained at the same level as the Great Depression. The difference was all the tanks, bombs, and bullets that provided no improvement in economic well-being.
What makes wealthier economies able to rebuild is that they have access to savings, insurance, and borrowing, whereas poor nations do not. The resources made available from these sources make the people involved less wealthy in the case of savings, reduces the reserves of insurance companies and the value of insurance stocks, and creates a future liability for borrowers.
This means that wealthier countries have the ability to spread the economic pain of natural disasters over time, space, and the number of people involved (e.g., foreign owners of local insurance companies). They do not have the ability to magically make the pain go away — and certainly not to turn it into pleasure or prosperity.
The fact that the replacement buildings and equipment might be more modern does not make the disaster a boon either. What Henry Hazlitt said about war is just as true for natural disasters:
It is sometimes said that the Germans or the Japanese had a postwar advantage over the Americans because their old plants, having been destroyed completely by bombs during the war, they could replace them with the most modern plants and equipment and thus produce more efficiently and at lower costs than the Americans with their older and half-obsolete plants and equipment. But if this were really a clear net advantage, Americans could easily offset it by immediately wrecking their old plants, junking all the old equipment. In fact, all manufacturers in all countries could scrap all their old plants and equipment every year and erect new plants and install new equipment.
The simple truth is that there is an optimum rate of replacement, a best time for replacement. It would be an advantage for a manufacturer to have his factory and equipment destroyed by bombs only if the time had arrived when, through deterioration and obsolescence, his plant and equipment had already acquired a null or a negative value and the bombs fell just when he should have called in a wrecking crew or ordered new equipment anyway. (emphasis added)
Yes, a few individuals might benefit from a disaster, but not the economy in general. Mises described the outcomes of war as similar to natural disasters:
War prosperity is like the prosperity that an earthquake or a plague brings. The earthquake means good business for construction workers, and cholera improves the business of physicians, pharmacists, and undertakers; but no one has for that reason yet sought to celebrate earthquakes and cholera as stimulators of the productive forces in the general interest.
Therefore we can rest the common-sense case that natural disasters are indeed bad. A nation that experiences natural disasters will be harmed directly and will be less preferred by investors to otherwise similar nations that are disaster free. More disasters do not improve the economy, and as with Bastiat’s broken-window fallacy, we cannot achieve prosperity in any sense via destruction.