Jan. 4 (Bloomberg) -- With Asian nations from Indonesia and Thailand to India and Sri Lanka still counting the casualties from the killer tsunami, a prominent economist has predicted that the world's biggest disaster in almost three decades would actually be good for economic growth.

``Perverse as it seems, disasters of this type usually do have positive long-term effects,'' C. Fred Bergsten, director of the Institute for International Economics, a private, non-partisan research institutions based in Washington, said on an NPR radio broadcast on Dec. 29.

``The reconstruction process itself requires a lot of new investment, some of it in this case financed by foreign assistance,'' said Bergsten, who also advises the Group of Eight industrial nations on their annual summits. ``But there will be new investment. That will create construction contracts.''

The net result: more jobs and higher growth. Besides, as newer, better beach resorts replace the properties flooded by the giant ocean waves, the Thai coastal province of Phuket, which has hundreds dead and missing, could earn more revenue from holidaymakers than it did before the disaster.

``When they put up new resort hotels, they'll be more modern, they'll be more attractive,'' Bergsten said. ``They'll probably bring in more people in the future. So again, although it seems perverse, the net effect of these things frequently is to boost economic activity, at least for a short to medium run, and to improve the underlying infrastructure and, therefore, the long- term prospects as well.''

Plausible Thesis?

Let's not be in a hurry to accuse Bergsten of callousness. He made it clear at the outset of the radio interview that his analysis only pertained to economic costs and benefits.

``I don't want anything I say to detract from the human tragedy,'' he said, ``which is obviously enormous.''

Is Bergsten's thesis a plausible one? It probably isn't for two reasons. For one, it may be impossible to separate the human tragedy from the economic disaster. Can anyone really write off from the cost-benefit equation the lives of the 155,000 people killed or reported missing from Thailand to Somalia just because most of them were poor people in poor countries and their lives didn't carry insured values?

Secondly, Bergsten's argument may be an example of the so- called ``broken window'' fallacy, says Christopher Westley, who teaches economics at Jacksonville State University in Alabama.

Unsettled Questions

Disasters aren't good for growth, Westley says on Ludwig von Mises Institute's Web site, because as the 19th-century French economist Frederic Bastiat showed in his famous essay, ``What is Seen and What is Unseen,'' the money spent on fixing a broken window merely transfers to the glazier a part of a homeowner's income that would have otherwise bought, say, a new suit.

``There is no benefit to industry in general, or to national employment as a whole,'' Bastiat concluded, ``whether windows are broken or not broken.''

Does that mean all speculation about higher economic growth following natural or man-made disasters like the earthquake that flattened the Japanese city of Kobe in 1995, the terrorist attacks in New York and Washington in Sept. 2001, or the hurricanes in Florida last year, are merely errors in reasoning?

If the answer to that question were as clear-cut as Westley makes it out to be, it's difficult to believe economists of the stature of Bergsten will be giving the notion any credence.

That the relationship between disasters and economic growth is an unresolved problem more than 150 years after Bastiat's death is evident from the fact that researchers are still asking the question, ``Do Natural Disasters Promote Long-Run Growth?''

Distinguishing Between Disasters

That was the title of a 2002 study by economists Mark Skidmore of the University of Wisconsin at Whitewater and Hideki Toya of the Nagoya City University in Japan, who showed that disasters like floods and hurricanes that are easier to predict and occur more frequently do indeed fuel long-term economic growth. Harder-to-forecast and more infrequent events like earthquakes and tsunamis don't have a beneficial impact.

It's easy to see why that should be so. Every time annual floods or hurricanes levels a house or factory or some other physical capital, the replacement usually involves some technological improvement, which is good for economic growth.

A one-off disaster, on the other hand, may only create a growth spurt in one quarter or one year. It won't lead to higher economic activity year after year. Besides, ``A disaster which affects both human life and physical assets does not promote long- run economic growth,'' Toya explained in an e-mail.

It may be tempting for investors to believe that the Asian tsunami will stimulate growth, although in this particular case, with the human tragedy exceeding the economic damage by a wide margin, they would probably do better to stick to Bastiat's aphorism: ``Destruction is not profitable.''

To contact the writer of this column: Andy Mukherjee in Singapore at amukherjee@bloomberg.net.

Last Updated: January 3, 2005 16:01 EST