Economics Professor Thomas "Danny" Boston is the author the Gazelle Index, a national quarterly survey of CEOs of high performing small businesses and businesses owned by diverse groups. In a recent blog post, Boston, a professor in the Ivan Allen College of Liberal Arts, suggests that the area of the nation that was devastated by Hurricane Sandy will likely never regain the complete economic footing that was washed away by the disaster.
As the focus turns to rebuilding, some analysts are underestimating the economic impact of the storm. They believe, mistakenly, that dollars flowing into the northeast region from the federal government, and the expenditures made by households to rebuild, will in the final analysis add jobs and income; ultimately offsetting the damage. However, this view is shortsighted.
What they are looking at is the positive multiplier effect of new dollars flowing into the region. Each dollar spent becomes income to someone else who also spends. The eventual effect is to create more income and spending than was injected originally. Furthermore, it is generally the case that every $1 million of new construction dollars adds about 22 jobs. This sounds good on the surface.
What this logic fails to consider is the negative multiplier effect caused by the destruction of the hurricane in the first place. That is, every dollar of spending taken out of the economy as a result of the hurricane also had a multiplier effect, which worked in the opposite direction.
In the long run, the positive multiplier effect caused by rebuilding will not likely be greater than the negative multiplier effect caused by the hurricane’s disruption. In plain language, at the end of the day the region will probably be much worse off, no matter how much rebuilding occurs.
Click here to read the entire blog post on the Gazelle Index.
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