Frédéric Bastiat showed simply and brilliantly that destruction doesn’t benefit the economy (even though you may spend to rebuild) n his 1850 essay That Which Is Seen, and That Which Is Not Seen. He coined what’s become known as ‘the broken window fallacy,’ showing that while the window gets replaced (and restores you to the original position), the resources spent fixing the broken window could have gone to something else – and now will not.
Destruction may not benefit the economy, but Delta Air Lines President Glenn Hauenstein said during the carrier’s fourth quarter earnings call that it benefits Delta.
Delta Air Lines LAX
Bloomberg’s Mary Schlangenstein asked about the “impact of the LA fires,” whether in the aftermath the airline expects to see “a drop in demand in that area because all these people who have lost their everything they have and are likely to be much less inclined to travel for a certain period?”
After all, they’ll be focused on rebuilding and spending their money rebuilding and may not be in a position to travel! Not so, says Hauenstein. Disasters are good for Delta profits! People are going to be traveling to L.A. to rebuild, and that’s good for Delta:
I think unfortunately after natural disasters, we actually see an uptick in demand as people go into rebuild that. Insurance adjustments come from all over the country. So I’d say until it’s rebuilt, you actually you never a natural disaster is a terrible thing and certainly something that our hearts go out to everybody in Los Angeles who’s affected by this. But from a long term airline perspective, we faced hurricanes, we faced flooding, we faced all that. And usually the impacts are in the beginning phases followed by recovery phase.
If you take Asheville, for example, we are actually having more traffic to Asheville than we did in the pre pandemic or the pre flooding experience as people go in to rebuild their homes and businesses.
Delta Air Lines LAX
Broken windows don’t benefit society – by the do benefit glassmakers!
(HT: Enilria)
More exclamation points and I might take the regular anti Delta articles from Gary more seriously.
I think he answered the question as best he could. I don’t think he was saying they were happy to see natural disasters. He was asked if they were expecting a drop in demand. And he said that historically (“unfortunately”) they see an uptick. Nothing to be offended by here. Not by this exchange anyway. Bit of a clickbait headline there Gary.
Come on Gary, you missed the obvious conspiracy theory your readers have come to expect.
If it’s good for business, no wonder the government creates such disasters.
Though there is also the theory that if the windows and such are fixed then people take more pride in their neighborhood, residents keep an eye on things, crime goes down, and values go up. Anyway, this situation was looked at from a business perspective and while it sounds heartless is probably true. But maybe it would have been better if he didn’t say it, at least until after the disaster when a positive spin could be put on Delta’s profit. (“We’re helping move in people to fix things.”)
There are a lot of offensive things that come out of the C-suite at Delta (that are then usually parroted and cheered by Tim Dumm), but this is not one of them. It is reality. I say this as someone who has lived in Los Angeles for over 30 years and as someone who was evacuated due to the fires.
The construction industry is also going to benefit. And lawyers are going to benefit as well, first from suing insurers that act in bad faith (and inevitably, insurance companies will try to screw Californians), and then from suing unscrupulous contractors in construction defect matters. I was discussing this very point yesterday on a United Airlines flight.
A lot of people seem to be wondering what the economic impact on growth will be from the LA fires. Due to reconstruction and other recovery needs — not all of which are just physical — the economy and economic demand tends to be rather resilient after a disaster when it comes to large population centers. At least in the relative near term.
That said, there are many reasons why I would not choose to live in LA/California nor in Florida.
If you lost your primary residence, and expect an eventual payout from insurance, you could become an embodiment of John Lennon’s Imagine, leave all those material possessions behind, and travel luxuriously, enjoy rich experiences, give back to others, see the world, and why not stay at a few five-star resorts, etc. After all, you survived a deadly fire, hurricane, volcano, earthquake, tsunami, or whatever, so it’s about time you ‘live a little’ and maybe splurge on DeltaOne!
However, the cynic in me celebrates yet another example of ‘profits over people,’ which at this point really should be our new national moto. As much as I personally prefer it, ‘e pluribus unum’ just is not the reality anymore. We could also go with ‘Praise be to DJT’ — It rhymes, sorta. Obviously, he’s not ‘my guy’ but for those drinking the Flavor Aid, you’d like that, wouldn’t ya?
Now, where are those typical right-wingers who frequent this site? Please, do tell me again that I am ‘the problem’ and that some form of ‘muting’ and ‘forced-labor/re-education’ camp is in my near future. Dear foes, please feed me your hate again soon; I will starve on mere kindness alone.
So Delta is cackling with glee over making money from other people’s misery? Welcome to Delta!
first, Delta was the first airline to report and it was inevitable that someone would ask the question about the LA fires.
second, while DL is the largest airline at LAX, southern CA is a divided and highly competitive market with lots of players. whatever impact DL sees, others will see as well
third, the near-term impact is far more significant than what is expected to happen long term based on what happened with other major disasters.
and the most important factor is that this round of LA fires might not play out like other disasters have. There are a number of structural and governmental reasons why this got out of hand so quickly and they have to all be addressed before some people are willing to rebuild. Insurance companies have been pulling out and this will only cause them to pull further back until things are fixed with how the state and city manage itself. Water, power and forest management issues are not easily fixed even when everyone agrees what needs to change. and there is a very real recognition that the current political environment has failed and, as much as they try to cling to power, few will trust their lives and wealth to the same people that could have at least minimized the scale of this disaster.
There are lots of reasons why this is nowhere near like previous CA fires or the NC or FL disasters.
@Neal Z, there are many business and individuals that will benefit from the fires and there is no reason to believe the fires are in control with such little containment and winds in the forecast again.
Government will be busy in the permit business and the inspection business. Workers will come. They will need housing, food, clothing and household supplies. They will have money and some time off so some will seek entertainment. Supply companies of all sorts will benefit. Architecture companies will benefit. Engineering companies will benefit. Because of the scope of the work, contracts for repowering the areas will go out because to rebuild fairly rapidly is beyond the scope of the local power companies. They don’t have enough qualified workers to do all of the extra work and wouldn’t want to put them on the payroll anyhow because of the problems related to layoffs after the work is done. Training new workers would take too long. All of the utilities will have to be reworked to some degree but electricity will probably require the most work. If the cities want to, they can require all electricity to be fed underground. Some already was but a lot was fed overhead. Underground systems cost a lot more. Conduits can be sized for the future power usage where every house has electric vehicles with fast chargers.
Curious on what percentage of home owners policies in the impacted LA area have replacement cost coverage.
GU
news sources say a half million insurance policies were not renewed in LA county alone and those numbers come from the state insurance commission. 5X that amount lost their insurance statewide. You can tell us how many insurance policies there were in LA county and the state 5 years ago but I suspect these are healthy double digit percentages of the number of policies.
All but the very rich are going to spend money on a building which insurance companies will not ensure. No mortgage company will offer a mortgage on uninsurable property.
Many people have lost everything and they do not have the resources to start over.
Even if their losses were insured, they might not be able to get insurance on a new building.
This is not like any other situation the US has ever seen before.
It is very possible that large parts of LA will never be developed again. or at least until there are major changes including rebuilding urban infrastructure such as installing underground utilities and much greater capacity water systems. that is all incredibly expensive.
Tim
I understand that your mother rarely lets you stay out past bedtime, let alone travel to CA, but I’ll point out here that LA is huge. It’s certainly not the case that large parts of LA have burnt down and will need to be redeveloped.
LA (and SF) have been through major Earthquakes and fires before. The city will revive.
Jon,
just tell us how many insured houses or residential properties there were in LA County in 2020. It has nothing to do with anyone’s bedtime or your need to insult anyone.
LA and SF have implemented major upgrades in building codes. Those weren’t cheap.
Of course, it is possible to spend money to fix what went wrong w/ these fires – which aren’t over yet.
The cost of everything now is much higher. The rest of the nation is not going to pay for it.
There is a point where it is no longer economically viable for many people to stay in CA.
There is an even larger number of people and companies -including insurers that are not going to go through the financial and emotional risk of starting all over until there are wholesale changes in the way LA and S. California is run.
It will be a much longer recovery than for other natural disasters.
Oh, what to make of the following?
“Sangmin Oh, a finance professor at Columbia Business School, and other researchers found that homeowners in more loosely regulated states effectively subsidize homeowners in states like California, where the industry has been more tightly regulated – despite higher levels of risk.
“Compared to home values, the average statewide premium in 2023 was the lowest among all 50 states, according to the Reuters analysis. California’s high property values may make that insurance seem relatively cheap, but even on an absolute dollar basis residents the average annual premium of $2,200 was less than residents paid in 30 other U.S. states.”
LA is so big (in terms of population) that LA has a larger population than can be said for 85% of the 50 US states.
Per the US Census Bureau, Los Angeles county has an estimated population of 9.663 million people as of July 1, 2023. Ten states, or 20% of the states, have larger populations of more than 10 million people. In decreasing order of population they are California, Texas, Florida, New York, Pennsylvania, Illinois, Ohio, Georgia, North Carolina and Michigan.
LACounty.gov:
“Los Angeles County has the largest population of any county in the nation, exceeded by only eight states.”
Your headline was clickbait. Anyone can rewrite what someone says to make them look crass. Your attempt was childish. What Hauenstein said was, simply put, accurate.
What you said “Disasters are good for Delta profits!” was simply your warped take on reality. Shame on you. Why do you hate Delta so much?
the question is simply what percentage of insured homes and residential properties there were in LA County in 2020. and what percentage 500,000 fewer policies are.
Hahaha, giving old numbers about Los Angeles County being over 10 million. Los Angeles County has been losing population for quite a few years since a peak around 2017 as anyone who lives there and is interested in those things should know. Living off of old statistics is a measure of the quality of the posts.
https://www.census.gov/quickfacts/losangelescountycalifornia
LA+Orange Counties — which some people lump together as the greater LA area — would be a population bigger than all but like 4 or 5 states in the country.[About equal to Pennsylvania, but smaller than California, Texas, Florida and New York.]
Even if home owners get a fair settlement from insurance companies, the check will go to the mortgage company if there is an outstanding balance. Via Hurricane Katrina, buddy of mine experienced true hell trying to get money for repairs for his home and his rental properties. Then the contractors appear out of the woodwork never doing the work agreed to. And the price of materials (roofing, lumber, plywood, sheetrock, etc) goes through the roof.
Do not wish this on anyone!!
@ GUWonder. If the average SFH in LA has an annual homeowner’s insurance premium of $2200, then indeed USAA , and others, are ripping off the non coast dwellers living in Texas. We already know that the CA property taxes average .75% (Travis County, Texas averages 1.7%). The CA rate evidently doesn’t cover the costs of providing essential service. Maybe it’s time for CA to chase some more businesses and homeowners out pf state by having realistic insurance prices and taxes that are not subsidized by those not living in CA.
@One Trippe, land taxes and insurance costs are not tightly tied together in California due to Proposition 8, a revolt by tax paying land owners many years ago. Insurance costs are tied to the value of the dwellings, outbuildings and their contents along with the amount of liability insurance. The land is a separate value and is quite high in California. Replacement cost insurance is higher than a policy without replacement cost. Per Zillow, my property would sell a bit north of a million dollars. Of course I wouldn’t end up with all of that as there are costs and I still have a mortgage at a very favorable rate due to refinancing. The assessed value has been going up at 2% a year since I bought more than 30 years ago. Therefore I am assessed at less than 50% of what I could sell the property for. Land taxes are 1% of assessed value plus a list of other government imposed charges that are essentially taxes but altogether add maybe 10% to the tax bill. The bottom line is that I pay less than a half percent in taxes compared to what I could sell for. Some homeowners are paying a significantly smaller percentage when calculated that way. People who bought in the last few years are paying a higher percentage. The low cost of land taxes, along with limits on how much the taxes can go up each year, help inflate property prices in California. It also allows long time owners who don’t have extensive income to be able to stay on their property instead of being chased out of town by ever increasing taxes that go up a lot each year. It is not all gravy. We pay some of the highest state income taxes in the country. Our sales taxes, in most places where people live, are also among the highest in the country. Texas, on the other hand, doesn’t have a state income tax.
I assume a significant minority of homeowners in California don’t have home owners insurance and that could explain part of why California would look relative cheap for home owner’s insurance. But we know what they say about assumptions.
Homeowners in poorer, working class neighborhoods that own their properties outright would be the ones that are underinsured or uninsured. Of the two major fires in the Los Angeles area, this would be more likely the case in Altadena and not in Pacific Palisades (with exception of the Palisades Bowl trailer park – officially the Pacific Palisades Bowl Mobile Estates.) In most of the Pacific Palisades, the homeowners would have enough income to cover the cost of insurance. In Altadena, I would guess that a lot of the residences have been paid off by the previous generations and the younger generations may not have enough money in retirement to pay for insurance. In other words, a lot of the houses have been inherited by people who could not have bought in even 30 or 40 years ago due to low paying jobs.
I’m honestly shocked that this comment thread has remained as civil, nuanced, and thoughtful as it has (other than bedtimes, which, hey, we all have them, or should, so…). Kudos to you folks. I suppose the typical meanies @AndyS @Mantis @Gene @TexasTJ @GeorgeRomey decided to sit this one out. We all need rest sometimes, I guess. Good on ya, fellas. See ya next time!