Economy and Disaster

What Economic Systems Respond Best to Disasters?

By Matthew Lutmer-Paulson

When the lives of citizens are disrupted by disasters, whether the disasters are economic, natural or man-made, those people often look to their government for assistance. All kinds of disasters can affect extremely large numbers of people. Natural disasters' results, though, often make it difficult for a government to respond effectively. The country's economic system often determines to what degree the government can provide citizens with needed goods and services following a natural disaster.

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Mixed Economy

In a mixed economy system, the government's role is to help the economy prosper while protecting consumers. Consumers receive protection from the government in the form of financial assistance, but businesses are allowed, and in fact encouraged, to make a profit even from a natural disaster. This ensures an adequate supply of essential goods and services while preserving the profit motive. Mixed economy is the economic system that is best able to adapt and respond to natural disasters because it combines the growth and freedom allowed by a free market economy while providing a safety net when disasters occur.

Free-Market Economy

In a free-market economic system, prices distribute resources in an efficient manner according to the law of supply and demand. In the event of a natural disaster, prices of water, food and shelter rise to accommodate the increased demand for those items. Businesses see potential for profit and provide more of those goods and services. Individuals who can afford the higher prices buy those goods and services, but many people may not be able to afford them.

Command Economy

In a command, or communist, economic system the government decides how much is produced, what products are produced and how products are distributed. This can make it difficult for a command economic system to adapt to a natural disaster because the need for...