8/10/2019 Print Version - Sandy's Impact

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8/10/2019 Print Version - Sandy's Impact

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Thursday, November 01, 2012Page 2

www.gavekal.com

Sandys Impact Te storm makes it more likely that the scal cliff gets postponed orsignicantly sofened. Afer all, which congressman or senator willwant to be seen blocking bills designed to help the devastated region.O course, the bills will have to be better designed and implementedthan those that ollowed Katrina (when our avorite Senator,Oklahomas Dr No om Coburn, raised a stink about Alaskasbridge to nowhere). In reality, FEMA and other storm-relatedspending will be tiny compared to total outlays and is unrelated to thelarger scal cliff issuewhich, at least initially, is mostly about taxhikes. Indeed, politicians now have one more excuse to avoid much orall o the scal cliff. Tey can tell voters: When we established thesespending cuts and tax hikes we had no idea that the east coast would belicking its wounds afer a terrible storm. Now is the time to rebuild.

Te government scal contraction should be postponed or at least 6months, maybe a year. Hence, in the short term at least, expectcontinued super easy monetary policy combined with a neutral toexpansionary scal stance.

Another, longer-term, silver lining is that the storm will offer thegreater New York area an opportunity to upgrade an inrastructurebackbone that was starting to look well past its expiration date.

Finally, the storm hit the part o the US whose GDP is most likely thelightest; i.e., when Katrina hit New Orleans, reneries were destroyed,the traffic o goods along the Mississippi River (the USs major artery)

was disturbed or weeks which led to price spikes and an inventory pileup. By contrast, New York Citys main comparative advantage is in thegeneration o services (nancial, cultural, entertainment, etc). Andso while getting to work may be a hassle or weeks to come, the overalldisruption to the US economy may not be that large.

None o this analysis is to belittle the suffering many people areexperiencing right now. Every one o the 70 deaths reported so ar in theUS is a personal tragedy. And there is no doubt that devastation on thisscale cannot be seen as good news. We also eel sorry or all o our amilyand riends who live in the North-East, some o whom no doubt ace days,i not weeks, o clean-ups, hardship getting into work, school program

disturbances, etc. We wish everyone the best in their efforts to get back tonormal.

The storm makes is even more

likely that the fiscal cliff is

softened or postponed

New York can use this tragedy

as a spur to upgrade needed

infrastructure improvements

New York area is a knowledge

intensive economy so the

impact on growth from

physical disturbance may be

limited