Natural Disasters and Their Effect on the Macro Economy Essay Example

Natural Disasters and Their Effect on the Macro Economy Paper It can reduce the numbers in livestock herds, which most of Asia relies on for everyday living needs as well as economic income. Before the end of the summer, the death toll would rise into the thousands. 15 million people were evacuated, and over a million homes destroyed. Nearly 34 million acres of crops were affected by floodwater, with at least an. Or million completely destroyed. By August, direct damage from the floods was estimated at $41 billion. This is something that affected the worldwide agricultural need and demand (Prevention, 2010). Proving the destructive power of natural disasters, even in highly developed nations, Hurricane Strain crushed the gulf coast. Just east of the Bahamas on August 4, 2005 a small, unlikely tropical depression intensified into a tropical storm which was given the name Strain. This storm slowly made its way to Florists southern coast on the 25th where most experts believed the storm would dissipate. Unfortunately, Strains path took it over the everglades allowing it to maintain its category 1 standing that it had acquired before it first made landfall, then entered the Gulf of Mexico. The warm waters of the Gulf fostered the rapid development of Strain (Sampler 2010). The above image shows Hurricane Strain at the height of her power. Estimates had Strain making landfall as a category 4, but thankfully it weakened a bit and before it rolled in as a strong category 3. Strain became been responsible for an estimated 1,800 deaths, as well as 100 billion dollars total in damages, of which about percent were uninsured losses. Some economists would put the total economic loss at around 250 Billion dollars (Madame 2011). We will write a custom essay sample on Natural Disasters and Their Effect on the Macro Economy specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Natural Disasters and Their Effect on the Macro Economy specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Natural Disasters and Their Effect on the Macro Economy specifically for you FOR ONLY $16.38 $13.9/page Hire Writer That made Strain the most destructive natural disaster ever to hit the United States. With all of Strains destruction, the short term effects on the economy were very evident. Only one year after the disaster he United States, the economy was back to normal. In the first three quarters of 2006 the United States had GAP growth of 5. 6 percent, some of the most rapid growth in recent years (Herman 2006). Even though the nation as a whole made a quick economic recovery after Strain, locations that were struck directly, like New Orleans, did not make the turnaround quite as rapidly as hoped. The first few months after Strain the United States economy went into a downward trend. The GAP growth rate dropped from the 4. 2 percent that it had experienced in the first three quarters to 1. 8 percent in the last quarter f 2005. The reason for this impact goes beyond the destruction of property and the primary economic concern; the loss of goods and production capabilities (Herman 2006). Perhaps the most important resource that the gulf region produces is oil. The gulf makes up about 30 percent of Americas oil production and distribution. The effects of Strain resulted in the destruction of 113 offshore platforms, and nearly 500 oil and gas pipelines (Madame 2011). The loss of this production led to a drastic increase in gas prices soaring to over 4 dollars per gallon. This drastic rise in prices created a manic, and people rushed to the gas stations to fill up before prices rose again, creating massive lines and much talk about the gloomy forecast of economic woes come. The only positive result from the increasing gas prices was when the Federal government opened the strategic petrolatum reserves. This increase in gasoline prices surprisingly did not have as much of an impact as speculators feared, other than peoples outlook on the situation. There were some effects. Though mostly food price centered. The three main goods that saw a notable impact were the prices of bananas, rice and sugar (Levitate 2006). The primary reason for the increase in the rice and sugar prices is because the Louisiana Mississippi area is responsible for 85 percent of the sugar cane production, and 14 percent of the rice production in the United States (Levitate 2006). The drastic loss in production from that area was softened by short-run increases in the other producers of those crops. This ability to increase short-run production is a factor that contributes to the resiliency of free-market economies. Though the nationwide effects were not all that staggering the effects in New Orleans the months following Strain were devastating. With 80 percent of the city flooded, hundreds of thousands of people were forced to flee the city of New Orleans, many never to return again (Blackburn 2010). This drastic loss in population coupled with the destruction of approximately 200,000 homes and businesses led New Orleans and the surrounding areas into a dire economic situation. In the first few months after Strain, Louisiana lost 12 percent Of the states 214,000 jobs (Herman 2006). One result of the loss of jobs was a drastic raise in mortgage delinquency rates (Herman 2006). This inability to pay is more than likely a contributing actor to the very low rate of return from people who were forced to evacuate their homes by Strain. Those that did find the resolve to return to stay were in a desperate situation. New Orleans, whose primary industry is tourism, suffered great losses after the storm. They desperately needed to be able to find a way to bring back the American and foreign tourist in order to fuel the creation for more jobs. The drop in tourism is best reflected by the attendance rates in New Orleans famous Marci-Grass and Jazz Festivals. Both events had roughly a 30 percent drop in attendance from previous years (A ear after Strain, New Orleans desperately seeking tourists 2006). Art of the reason for the delay in the return of the tourism industry is the mass clean-up that had to take place first. Before anyone could return and maintain normal operations, there was still 118 million cubic yards of debris to be cleaned up. (Madame 2011) Thanks to efforts by FEM., the Red Cross and many church ministries across the country, there was much help to be found. However, despite the efforts of all these groups, New Orleans a year after the incident was still working its way very slowly towards full recovery. With the aid that had come into the city, organizations were able to rebuild infrastructure and make great improvements to both education and government. In fact, post Strain New Orleans has experienced steady growth in almost every way, including education levels, over the last 6 years as shown by the chart below Though it took about a year for it the effects to show and recovery to really make a strong step forward, the relief money that came into New Orleans and the other areas affected by Hurricane Strain did what the nation was hoping it would; help restore one of Americas cultural and industrial centers. The economic turnaround in New Orleans shows how an initial investment in the form of government aid, insurance claims, and private donations can improve the economy of an area affected by a natural disaster. If this idea can hold to be true with the most costly natural disaster in American history, it should work with other costly natural disasters as well. Though maybe part of New Orleans success lay in the restructuring of their government and school systems in addition to the monetary support. Though the economy of the areas affected improve without bringing down he rest of the nations economy, suffering this type of event might not prove to be true in countries with weaker economies. Also, if a disaster like this was to hit a city like Los Angels or New York, like Irene almost did, it is still speculator to say if there would be similar results. One thing can be said for certain, Americas ability to maintain long term economic growth despite short term impacts, like Strain shows the resiliency of America as an economic super-power. Other economic super powers, like Japan, are trying to find this same formula for economic recovery. In the Case of Japans 9. Magnitude earthquake on March 11, 2011, the loss of clean water, electricity, infrastructure, production lines, financial institutions, and more than 15,000 lives caused what the Prime Minister of Japan called the The most difficult crisis for Japan since World War II. However difficult it has been, people have been recovering from the loss of loved ones, injury, and the general trauma of the disaster. Perhaps the greatest and most uncertain long term effects brewing are the economic impacts on the world market. Many large industries and economic functions have been hurt, causing price inflation in hose industries throughout the world. Since March 11, 201 1, nations around the world have had to adjust their consumption in accordance with the loss of production in Japan. Several car companies, such as Toyota and Honda, had their production of car parts slowed, and electronics producers experienced the same effects (Seed, 2011). This has been felt worldwide. For example, Toshiba, who produces roughly 30 percent of the worlds computer chips that store data in smart phones, cameras, and laptops, closed down several factories due to economic losses and physical damages. Events like this are what caused the average price of a hip with eight gigabytes of memory to rise from 7. 30 dollars to around 10 dollars just three days after the earths quake and tsunami struck (Helot, 2011 Obviously, the price of computer chips is not the only price that has risen. Because computer chips are more expensive, new phones, laptops, televisions, cars, cameras, electronic billboards, and complex machinery will have a rise in price to cover the cost of parts and production. This effect will be felt for months, and maybe even years in an already instable world economy. Many of these products are produced in Japan; the world export racket has been greatly affected because of that. Japans exports have decreased, causing increased economic uncertainty. The macroeconomic result of this is that investors tend to pull away from the increasing risk of pumping money into Japan and look for safer and smarter industries and nations to try to grow their profits (Sahara, 201 1). One of the most fascinating things about todays economy is that everything is so globally connected. Because of this and the slow in Japanese exports, the united States level of consumption of Japanese goods dove 3. 4 percent following the earthquake (Guardian. K, 201 1). If this trend continued throughout the year, then the Japanese economy would have lost 4. Billion dollars from 2010 levels of United States consumption alone (State. Gob, 2011 The disaster and surrounding effects not only caused a decrease of funds going into Japan, but the economic instability caused by the earthquake was devastating in its timing. Japanese and other Asian stock markets plunged as the news of the disaster spread, and this is coming on the heels of the U. S. Stock market falling nearly 2 percent the date before. Not only that, but the earthquake caused trundling European stocks to fall to three month lows (Cobwebs. Mom 2011). This goes to show that natural disasters can cause a myriad of negative factors in an economy, and that a spike in uncertainty can be one of the most demoralizing. That uncertainty does not just surface in the stock markets, but also in global financing. The Japanese currency, the Yen, had a significant surge the day after the massive earthquake struck (Bloomberg-corn, 201 1 This is said to be credited to the immediate cleanup, repair, and reconstruction needs that Japan incurred following the damages. The long-term effects of the boost in the alee of the Yen are still unknown, but it has made the Yen rise in demand in recent months, despite fluctuations since the initial rise in trading worth (Bernard, 2011). The Yen is currently becoming stable once again, eight months after its spike in March then fall in April. Japan has done well in its recovery considering that the Yen hit recent year record lows in April. This graph shows the trading value of the Yen in the past year (Foreleg. Org, 201 1). The value of the Yen is not the only financial issue at stake. Japan is one of the major foreign holders of US. Government and corporation debt. With Japans Debt-to-GAP ratio at 200 percent, and massive amounts of government spending looming in the rebuilding of the thousands of buildings and roadways lost, Japan is in great need of more money (CIA. Gob, 2010). Because of this, the current interest rates that U. S. Corporations are paying on their international loans could increase in an effort to generate more revenue in Japan (NATO, 201 1). In turn, corporations would not be able to borrow as much money for new capital investment, thus hurting the consumption and job creation in the United States at a time when jobs are greatly needed with unemployment rates near nine percent (BLISS. Ova, 2011 Jobs are a big issue in Japan too. With many of the more than 15,000 killed and nearly 6,000 injured people being a part of the Japanese work force, and tons of cleanup and construction to be done, companies and the government have had to hire thousands of new workers to satisfy the demand for work (Japanese National Police Agency, 201 1). After a brief climb in unemployment because of the direct aftermath of the earthquake, numbers dropped to a recent history record low of 4. 1 percent (Tragicomedies. Com, 2011). Once organization was restored, Japan began to utilize its workforce to combat the halogen of rebuilding cities. It is perhaps a gruesome yet effective means of increasing job demand in a nation when its economy was unsettlingly devastated. Since the record drop in unemployment, Japan has had what could be considered a Recovery boom. On November 14, 201 1 , a news article stated: Gross domestic product grew at an annulled 6 percent in the three months ending Seep. 30, the fastest pace in 1 1/2- years, the Cabinet Office said today in Tokyo. At 543 trillion yen ($7 trillion), economic output was back to levels seen before the March 1 1 earthquake, the report showed. Japans return to Roth after three quarters of contraction was driven by companies including Toyota Motor Corp.. Making up for lost output from the disaster. A sustained rebound will depend on how much reconstruction demand can offset a slowdown in global growth as Rupees debt crisis damps global confidence and an appreciating yen erodes profits (Sharp, 2011 The fact the Japan is now back to its pre-earthquake GAP level is remarkable. It initiates again the Idea of what is known to economists as The Broken Window Fallacy. The theory is that an economy can create jobs and achieve higher employment levels though the destruction Of the current odds that exist. However, the destruction comes at a cost of replacement that, in the end, is not going to create a net gain, but will instead create a loss or quick-fix break even because businesses will be stimulated, but run less efficiently in the long run. Only time will tell if Japans growth over the last few months is simply a rebound or if the disaster caused a rethinking of how things should be done and built, therefore creating a more efficient, productive Japanese economy. Economists will be watching closely to spot trends. Another disaster that could have the same categories of effects on a such smaller scale is Hurricane Irene. The northeastern U vs.. Experienced the worst flooding since the existence of many towns and buildings of the region. Since only three months have passed since Irene made landfall on the New England area on August 28, 201 1, the long term impact Of the estimated 45 billion dollars in losses are still speculative (Moronic, 201 1). Given the current status of the American economy, any damages of the storm are probably being felt most nationwide right now, if compared to the time table of Japans economic fall and rise with respect to the earthquake in March. The U. S. May see a slight drop in unemployment ND a rise in capital investment as part of the restoration of Urines damages, but most likely, no real growth will come out of it. However, the increase in consumption in order to rebuild the damaged parts of the northeast may spark a rise in consumer confidence, and that is what America desperately needs. A natural disaster in a third world country might bring in more money in aid than that countrys economy could have ever produced on its own, making a very positive economic impact. But, as far as the number go, in a developed nation like the United States or Japan, natural disasters cause little more than large scale broken window fallacy case study. A hurricane, earthquake, or other disaster can bring forth events that build intangible benefits such as consumer confidence, improved organization of infrastructure, or more efficient ideas, but most real development and confidence comes from ingenuity, not devastation. However, it is hard to argue against the fact that necessity is the mother Of invention, or in this case, restructured success.