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Dorian ruined parts of Bahamas. You want to help. What you — and your country — can do

The pictures are frightening. Hurricane Dorian devastated the islands of the Bahamas.

The damage to homes and other property is difficult to look at, but also hard to watch are all the families displaced by the storm. In this and previous natural disasters, however, there are three fundamental economic principles we can learn and act on.

The first is known in my profession as the broken-window fallacy. Sometimes people view property damage, like a broken window, as an opportunity for economic growth. If the window is broken, or your house destroyed, at least we’ll see new construction spending that may boost jobs in the economy and increase overall spending.

The fallacy is that the money spent to repair the break, or clean up after a hurricane, could have been spent or invested elsewhere on new and otherwise more productive ventures. It’s an easy mistake to make. Even Nobel-Prize winning economist Paul Krugman has been criticized for thinking along these lines sometimes.

The second principle is the value of trade over aid. It’s completely natural for people to send stuff to locations hit by a hurricane, earthquake, or tornado. However, such aid can sometimes be of the wrong type, or simply too much, and thereby go to waste. This happened again after Hurricane Dorian when perishable food items were sent to an island that had already been evacuated.

The economic lesson is that it is therefore better to send cash assistance to the affected areas, and allow the impacted resident to purchase — that is trade for — what they need. Everyone wants to help, but only the people already there know what is most needed.

Peter Crabb.jpg
Peter Crabb

Finally, one of the worst things about natural disasters is how they displace people, and specifically workers. People whose homes and businesses are destroyed may benefit from financial assistance to rebuild, but in the meantime, they just need to work.

The economic lesson is once again to let them help themselves by allowing those affected to move to places where they can work. For the U.S., this means lowering immigration barriers to those affected by the storm.

Historical evidence has already shown that immigration is good for the country. Research shows that immigrants expand the economy’s productive capacity, stimulate new investment and boost productivity.

One study showed that U.S. states with higher immigrant worker populations have higher rates of output per worker. Another study showed that immigrants are more likely to start new businesses, increasing employment and tax revenues that fund government spending priorities.

As in previous debates over immigration, President Trump has framed it as a security issue, arguing that allowing the refugees from the Bahamas to enter the U.S. risks letting in criminals or terrorists. This is an issue beyond economics, but one would think that our police are ready and able to protect us from such risks.

It’s a terrible disaster. But let’s not forget economic principles as we address Dorian or any other storm.

Peter Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa. pcrabb@nnu.edu

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