A hurricane is certainly not the most effective way to stimulate the economy. Fixing infrastructure wrecked by the storm is nowhere near as effective as making the trillions of dollars worth of necessary repairs needed prior to Irene. But, at a time when businesses are hesitant to spend the money to hire and the government is politically paralyzed from undertaking any large-scale spending (with the exception of the 2009 stimulus, which was undermined by a corresponding fall in state and local government spending), this type of involuntary investment will make an economic impact.
In a normal economic situation, Jacoby's point would make a lot more sense. However, in our current dysfunctional economic and political environment, where House Majority Leader Eric Cantor is threatening to hold emergency funding for FEMA hostage to his own personal priorities in cutting spending, things are so dire that a natural disaster actually is an economic stimulus. In fact, some analysts are already boosting estimates for US GDP in the second half of 2011 as a result. Jacoby is viewing Irene’s impact from a theoretical perspective but, unfortunately, disasters don’t only happen in theory.
Reuters/Chip East: Workers removing trees and other hurricane debris in New Jersey on Monday.