A new study shows that government aid and World Bank projects are not enough to spur lasting recovery.
New Orleans is growing, but is New Orleans back?
Not entirely.
That’s the exchange we’ll all be hearing in the coming weeks as the city marks the ninth anniversary of Hurricane Katrina. Interesting new businesses have sprung up. Many schools are better than they used to be. New Orleans has more bicycle paths. But the city can’t claim the population it had in July 2005. And poverty rates have increased from their level in the first hopeful years after the storm.
This outcome disappoints, and it also challenges received wisdom. Americans nurse their own very private and personal storm of emoto-thoughts when it comes to natural disasters. We want to do something, so we look for theories that support action. One such theory is that restoring old structures or hurricane and flood spending can so stimulate economic activity at a disaster site that the place will emerge better than it would have been prior to the misfortune. Our officials routinely buttress this thesis.
In addition to such arguments for government or private spending, we see a second theory: disaster as a kind of natural selection of businesses. There’s yet a third theory, which is related: that disaster spaces can benefit from a specific version of Joseph Schumpeter’s “creative destruction.” In this view, the same disaster environment that is hostile to humans is especially hospitable to innovators. Technological innovators flock in and drive out old backward technology, yielding productivity gains that also render New Orleans, or any other such unfortunate locale, superior to its old self.
This optimism speaks well of our national character, but not necessarily of our logic. For a systematic and global sweep of the evidence suggests that New Orleans is no exception: We often tend to overrate the quality of post-disaster intervention. Economists Solomon Hsiang and Amir S. Jina recently studied economies of nations that had endured the prototypical natural disaster, the cyclone. Studying 6,700 cyclones that took place around the world between 1950 and 2008, the pair published a National Bureau of Economic Research paper supplying strong evidence that national economies decline compared with their pre-disaster trend and “do not recover.” Wrote the authors: “The data reject hypotheses that disasters stimulate growth or that short-run losses disappear.” The conclusion: Cyclone-hit countries, rich or poor, experience such losses. Places where very big cyclones hit lose 3.7 years of development over the following two decades. This blow compares to a tax increase of 1 percent of gross domestic product, or a currency crisis.