Counterparties: The Sandy economy
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If you live on the East Coast, we trust you are reading this safe and dry – and from home. New York shut down the largest mass transit system in North America last night, ordered mandatory evacuations in the lowest parts of the city, and is preparing to pre-emptively shut down power in lower Manhattan. Millions more are likely to lose power across the region.
Banks implemented contingency plans to keep critical businesses running, but stock and options markets were closed today, and will be closed again tomorrow. Bond markets were open for half a day today and will likely be closed tomorrow. The storm may cause $18 billion in damage. The Washington Post’s Sarah Kliff has a great piece explaining why it is getting harder and harder for insurance companies to estimate how much they will have to pay out in losses.
Productivity loss is murkier still. Industries like travel and cargo shipping are obviously slowed (More than 12,000 flights have been canceled across the country.) But experts note that a backlog isn’t the same as completely lost business: “The cost of the cargo disruptions probably won’t be large…While cargo gets backed up it eventually gets delivered”.
For all the devastation wreaked by natural disasters, economists say that the long-term impact on a nation’s economy is generally negligible — particularly in countries with strong institutions and deep pockets.
Moody’s calls the impact “noticeable but temporary”. Yet, as economist Justin Wolfers tweeted, “Asking what a hurricane does to GDP is about as pointless as asking what a war does. Tells you more about problems with GDP than anything”. Unless you’re a property insurer, you almost certainly have more important things to worry about than the economic, as opposed to human, cost of Sandy. — Ben Walsh