It’s hard to estimate the impact these fires will have on the economy. But some economists are tyring.
It’s one of the odd things about the economy, disasters are often good news.
Well, it’s kind of a question about what the economy measures and what it doesn’t.
If someone comes along and keys my Merc, for example, the money I spend on repairs is a positive contribution to GDP. The nights I spend crying into my pillow… they don’t get counted at all.
For a long time, this has been one of the big criticisms of the economics discipline, and the capitalist system it supports. An oil spill is bad news for wildlife. It’s a free-kick to the economy.
But while I might be open to the idea that we need to do a better job measuring happiness and misery, and making them policy objectives, the fact is that once the money starts flowing, it keeps flowing.
I pay the panel-beater. He takes the money and buys bread. The baker takes the money and buys groceries. Woolies takes the money and lobbies politicians to stop them opening up competition in the grocery market. The politicians take the money and pay junior-staffers to dig up dirt on their opponents.
And this is how our wonderful economy works.
And so in the context of this horrendous summer of fires (and let me be serious for a moment – these fires have been full-on. For the people personally and directly affected, I can see it’s been incredibly traumatic.) but in the context of these fires, the economic implications are not clear cut.
Obviously, in the first instance, it’s been a big disruption to economic activity. The economy has taken a hit.
But as we go on, and we begin the slow and painful processes of rebuilding – well, this is where we get our perverse result that disasters can be good for economic activity.
And where we end up at the end of the day, well, that’s something the economists are trying to nut out now.
Economists like Shane Oliver at AMP:
The damage to property and wealth flowing from the bushfires will likely run into many billions. For example, the Victorian Black Saturday bushfires are estimated to have cost $4.4bn, whereas the current fires have covered an area 15 times bigger. So there will be a very big rebuilding boost to economic activity to come once the fires are brought under control…
Activity related to farming, manufacturing, transport, tourism and business generally in the affected areas will be disrupted – this will involve around 2-3% of the population and will be concentrated around the March quarter. It will also be partly offset as affected people have to undertake spending that they otherwise wouldn’t have had to.
A bigger impact on economic activity is likely to come via a hit to consumer spending as the constant news of the fires and the smoke haze in several capital cities weighs on confidence…
Inbound tourism is also likely to be impacted by the heavy coverage of the bushfires globally – with ridiculous maps showing much of Australia on fire (including where I am right now) – likely to adversely affect perceptions of Australia…
Taken together we expect a detraction from GDP due to the bushfires of around 0.4% starting in the December quarter but mainly impacting the March quarter before a rebuilding boost kicks in from the June quarter. Given the uncertainty, the range around this negative impact is -0.25% up to a worse case of -1% of GDP should the fires continue on a widespread basis through the rest of summer. The rebuilding boost should reverse much of this drag later in the year, but there is considerable uncertainty around this as the impact on tourism and consumer spending may linger longer.
The short-term hit Oliver is pointing to is substantial. But as he says, it will likely reverse, and output in the second half of the year is stronger than it otherwise would have been.
That could see a government enjoying some stronger economic numbers in the second half of the year. With the memory of the fires (and how they’ve been handled) behind them, punters may view these stronger numbers favourably.
Obviously I’m not saying they planned it that way, but they won’t be looking that gift horse in the mouth either.
Anyway, whatever the case, people talking up the economic devastation that these fires have created, (again, leaving aside the very real personal devastation that many people have felt) are missing the point to a degree.
From a strictly economic perspective, some disasters are good news in the long run.