Sandy to Rescue Our Economy—a Little

Tom LeeThe economy is crazy. The stock market is even more so.

Tom Lee of JP Morgan told CNBC that Hurricanes are normally good for the stock market. How can that be? After all, hurricanes cause some much damage; wouldn’t that mean that the economy has less value? In a fundamental sense, no. True, capital is destroyed. But in a depressed economy like ours, there is a lot of money that is sitting around idle. A big natural disaster makes use of that money. People have to rebuild. They spend cash reserves (their own or by borrowing). And this causes business activity. It stimulates the economy. And you know what that means: jobs! Not that the Wall Street types give a rat’s ass about that.

Lee said:

[I]f we look at markets in 2005, there was an initial sell-off, but markets really started gaining traction as people started to see past the short-term effects and started to see the lift coming from spending.

This is at its base a Keynesian idea. And everyone understands this stuff. It frustrates me greatly. When conservatives are in power, they are huge Keynesians; but when they aren’t in power, they claim it is some kind of communist plot.

Of course, hurricanes are bad. People die. Property is lost. Keynesian spending should be performed by the government on good stuff like education and roads and new technologies. But now that we’ve had Sandy, it is nice that some good will come of it.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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