Economy

A Costly Hurricane

Now that Hurricane Harvey's floodwaters are receding, it's time to start focusing on the recovery efforts and costs.

Brian Mark Weber · Sep. 1, 2017

There’s nothing more heartwarming than seeing strangers risking their lives to help their neighbors and fellow citizens after a natural disaster. It’s one of those rare moments when people put aside whatever differences they may have for the greater good. But now that Hurricane Harvey’s floodwaters are receding, it’s time to start focusing on the recovery efforts and their associated costs. And the costs are tremendous.

The Houston Business Journal reports, “Moody’s Analytics, a New York-based financial analysis company, has pegged the destruction to southeast Texas, which includes the Rockport area where Harvey made landfall, as of mid-morning Aug. 29 at about $75 billion, covering homes, vehicles, businesses, infrastructure and lost economic output. Homes and vehicles alone in the region are expected to suffer about $30 billion to $40 billion in damage, according to an email from a Moody’s representative. Regional businesses could see up to $15 billion in damage.” Other estimates place the cost closer to $200 billion.

Natural disasters cannot be prevented, but their impacts can be reduced if cities like Houston would take the threat from these storms seriously and act proactively. Data from the National Weather Service show that Texas has been hit by 64 hurricanes and 56 tropical storms since the 1850s. So it’s not like Hurricane Harvey was an anomaly.

Worse, Ralph Vartabedian writes in the Los Angeles Times, “[Houston] has been deceiving itself for decades about its vulnerability to flooding, said Robert Bea, a member of the National Academy of Engineering and UC Berkeley emeritus civil engineering professor who has studied hurricane risks along the Gulf Coast. The city’s flood system is supposed to protect the public from a 100-year storm” that is “based on a rainfall total of 13 inches in 24 hours.”

Clearly, the system wasn’t designed to protect Houston from a storm the size of Harvey. Had various levels of government directed resources into Houston’s infrastructure, the costs incurred would have certainly been less than those the city is now facing. Another way the costs of these powerful storms can be reduced is to fix the flawed and bankrupt National Flood Insurance Program (NFIP), run by the Federal Emergency Management Agency. Government programs always sound good, but there’s always more to the story.

The editors of Investor’s Business Daily write, “[NFIP] owes close to $25 billion to the U.S. Treasury, which means it owes you, the taxpayer. How could that be? The fact is, as with so many government programs, the very name of the agency is false. It is not providing ‘insurance’ in any true sense, but rather a taxpayer guarantee. Big difference.”

Unlike insurance programs in the free market, the NFIP does not charge premiums that are high enough to cover the costs of a natural disaster. They’re simply taking taxpayer monies and subsidizing government payouts from other agencies as well as private-sector donations. But it gets worse. The very existence of programs like NFIP results in developers and individuals building homes in flood areas and earthquake zones knowing full well that they’re going to be covered when disaster strikes. Sure, it’s a great deal for the homeowner, but not so much for American taxpayers or the nation’s economy.

And what’s all this talk about how the devastation in Houston will ultimately boost the country’s GDP? On the surface, this appears true. Billions of dollars will be needed to clean up and rebuild Houston, and this money will boost all sorts of recovery industries. But that only tells part of the story.

Tim Worstall of the Washington Examiner reminds us, “Opportunity costs matter and there are problems with net and gross. So, we will record ourselves as being richer as a result of the storm — but we’ll actually be poorer, by exactly the amount of what we’ve not got, which we should have had if the storm hadn’t happened, plus the damages themselves, which we’ve not accounted for either.”

In other words, all of the services and resources needed to help southeast Texas recover and rebuild will boost the economy in some ways, but these same services and resources being funneled into Houston are thus not going elsewhere. Essentially, the increase in GDP falls short of the tremendous costs involved in such a large recovery operation. And this is money that could instead have become part of a vital infrastructure project, such as the border wall.

Yet another problem we’re seeing in the wake of these ferocious storms is price gouging. $42 for a case of water at Best Buy? That’s not a typo. Now, to be fair, Best Buy doesn’t usually sell cases of water. A company spokesperson claimed that one of its employees mistakenly added up the cost for each bottle, and an apology was issued. Mistakes aside, some people are willing to take advantage of the most vulnerable citizens in a time of tragedy. But we shouldn’t think that everyone is getting away with it, or that there isn’t some market-driven supply and demand at play.

USA Today reports, “The office of the Texas State Attorney General said that as of Wednesday morning, it had received 684 complaints about excessive pricing. They included a convenience store in Houston selling gasoline for $20 a gallon. Such acts can lead to a $20,000 fine, or a penalty of up to $250,000 if the victim is at least 65 years old. The state attorney general has so far notified nine alleged offenders that they have violated the law, and what fines they could face if they don’t stop the gouging.”

But there’s gouging, and then there are natural market forces. John Stossel explains, “Suppose a disaster devastates your town, and your local store is not allowed to raise the price of bottled water. People rush to buy all the water they can get. The store sells out. Only the first customers get what they need. The storeowner has no incentive to risk life and limb restocking his store. He wants to get to safety, too. So he closes his store. But if the owner can charge $99 for a case of water, you will buy less water, and other customers get what they need. More importantly, entrepreneurs have an incentive to move heaven and earth to bring water to the disaster area. They soon do, and the price drops again. That’s economics — supply and demand. It works pretty well.”

In other words, sometimes the high costs associated with disaster ensure that relief goes where it’s needed most. Moreover, numerous charitable organizations and businesses are giving away water and such. The real lesson might be that morality and capitalism must go hand in hand.

Now that the people of southeast Texas and Louisiana are beginning to put their lives back together, it’s time to look at a range of issues associated with the government’s role in natural disasters. This doesn’t mean we should leave our fellow citizens to fend for themselves. The outpouring of support from across Texas and the entire U.S. clearly shows that we’re a compassionate country. But it’s time to get serious. It’s time to get the government out of the disaster insurance business and to be more proactive about infrastructure.

Editor’s note:

Patriots, please send financial support to Texas — and make sure your support does the greatest good! If you want 100% of your donation to benefit hurricane/flood victim relief, consider supporting the following:

The Salvation Army

The North American Mission Board

Samaritan’s Purse

United Way of Houston

Of course, there are other good organizations, including regional food banks. Note that we do NOT recommend supporting the Red Cross, now a huge bureaucracy which has a declining record for effective assistance.

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