economics | November 18, 2012

Post-Sandy Stimulus? Not Likely: Erwann Michel-Kerjan In Fortune

"Sandy is different," Erwann Michel-Kerjan told Fortune magazine, "because it has shut down several major population centers for an extended period of time and, unlike Hurricane Irene, it hit during the workweek." In the article, Michel-Kerjan, a catastrophic risk management expert, assesses the economic impact that superstorm Sandy will have on the regions hit the hardest by its wrath. The long-term implications of the storm are still up for debate and as the article explains: "Some analysts are arguing that Sandy could act as a kind of grisly stimulus package, mostly thanks to the billions of dollars that will be spent repairing flood and wind damage." Michel-Kerjan, however, argues that the storm will barely cause a blip on the radar. He explains that, "in the aftermath of Hurricane Katrina, while regional unemployment dipped, national GDP growth slowed, if only slightly." Since Sandy was magnitudes smaller than Katrina, the co-director of the Wharton Risk Management and Decision Processes Center says that it is unlikely that any major economic ramifications (either positive or negative) will be seen. 

The losses from superstorm Sandy are estimated to be between $10-20 billion dollars, with Michel-Kerjan speculating that approximately 60 per cent of those losses will come from lost business. Most of that lost business, however, cannot be recovered. People aren't going to buy twice as many cups of Starbucks coffee because the store was closed during the storm and they couldn't get any, the article explains. Some stores, like Wal-Mart or home improvement stores, may see a bump in business as customers head through their doors to purchase materials to repair their damaged homes and yards. However, if there is a profit to be made it may have already come in the form of consumers disaster-proofing their homes. "Spending before the disaster is really where you have the best return on investment," says Michel-Kerjan. However, he also argues that attempting to get people to spend that type of money in the absence of a disaster is challenging, at best.

Along with teaching at Wharton, he also serves as the Chairman of the OECD Secretary-General Advisory Board on Financial Management of Catastrophes and gives keynote speeches on being prepared in a chaotic world. Not only does he explain how to be ready for anything, but he also provides practical advice on how to benefit from staying ahead of the pack.

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