The money circulation in the markets increases in periods following an earthquake. Immediately a rapid fund transfer mechanism steps in.

I read the following years ago (I cannot remember now from which author): ""I have understood this much from this situation: "That which is good for the economy is bad for me. That which is good for me is bad for the economy."  He is right once again. Are natural disasters good or bad for the human race? Have you ever thought that disasters can be beneficial to the economy? Studies indicate so.

The earthquake that hit Japan on 11 March was huge. The epicenter of the earthquake being far from Tokyo prevented the death toll from being higher. In 1923, 140 thousand people were killed in the Great Kanto earthquake that hit Tokyo. This time approximately 10 thousand people were killed. The total cost of the earthquake in 1923 was US$ 1.5 trillion against the cost of the 2011 earthquake of US$ 300 trillion. The magnitude of the 1923 earthquake was 7.9 whereas that of the 2011 earthquake was 9.0. The problem escalated because of the six old nuclear power plants within the earthquake zone. The threat of radiation has changed the picture.

How do earthquakes affect the economy? The biggest earthquake we knew before the latest disaster in Japan was that in Kobe, Japan, the sixth biggest port of the world. In the earthquake in 1995, 6400 people were killed and 300 thousand were left homeless. But after the earthquake the Japanese economy not only offset the loss, but also grew more rapidly than expected. An earthquake in Sezuan, China struck in 2008. After the earthquake, the Chinese economy maintained its growth performance despite the crisis. On the basis of these examples, we must conclude at least that earthquakes are not bad for the economy.

The same is applicable for the Marmara earthquake of 1999. The ember burned where it fell; but the earthquake had no adverse effect on the economy. While I considered the issue a disaster that had demolished almost the entire production capacity of the country coupled with fires, more experienced economists were saying that disasters were good for the economy. In fact, they were right. Do you think that the expected Marmara earthquake has had no role in the acceleration of construction projects in Istanbul? It has, indeed.

We also see, however, the example of Haiti in 2010. The magnitude of the earthquake was around 7. Approximately 315 thousand people were killed, 300 thousand injured and a total of 1 million people were left homeless. The country is still a wreck. The economy contracted by 8 percent in 2010. So, in this context, we have to revise the above statement to read, "earthquakes are bad for poor economies." On the global scale, 95 percent of the total deaths of national disasters take place in poor countries. I guess this is why they say, "One law for the rich and another for the poor."

In economies that have funds to spend, the money circulation in the markets increases in periods following an earthquake. Immediately a rapid fund transfer mechanism steps in. Public funds flow towards construction firms and workers in the construction sector. However, the experts on the issue argue that the one-time fund transfers are not the only implication of earthquakes for the economy. According to them, in rich countries natural disasters contribute to the rapid technological regeneration of the economy. This is why productivity increases and growth accelerates in periods following a disaster.

So what is the deal? "What is good for the economy is bad for me," indeed. Let us hope for the best!

This commentary was published in Radikal daily on 25.03.2011