Wednesday, June 06, 2012

Crane Economics

This a view of the Christchurch CBD from the place where I work. Virtually every high rise building has a crane towering beside it.

Cranes on the horizon are usually a sign of a building boom, but not here. These cranes are working to demolish buildings that were damaged by in the earthquake and are too costly to repair. The red excavator is will demolish a building in a couple of weeks. When the demolitions are complete, there will be no tall building left in the centre of the city.

The demolition and rebuilding of office towers will contribute to the short-term stimulation of the economy, because most of the re-insurance money is coming from the United States and Europe (insurance take-up is very high here). However, after five years of demolishing and rebuilding, the capital stock will be not be much greater than it was before the earthquake, so productivity will not have increased at all. We will have run a long way to get back to the place where we were before.

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