Hurricane Irene turned out to be less of a force on the US East Coast over
the weekend than expected, leaving about 20 people dead. However, research
suggests that the US economy is becoming more vulnerable to hurricanes.
The hurricane, which had a wingspan
from its centre of 500 miles wide, was downgraded by The National Hurricane Center to a tropical
storm overnight Saturday and Irene's winds had dropped to 65 mph by 9am Eastern
Standard Time (EST), Sunday morning. At 11 pm EST Sunday, the winds had fallen
to 50 mph near the US-Canadian border.
The Wall Street Journal reports that society has become better at coping with
floods, fires and other disasters, yet the damage from hurricanes is generally
worse now than in previous generations, according to an oft-cited
2005 paper that has been updated with new data on the economic effects of
hurricanes by William Nordhaus, a Yale economics professor.
“We appear to have become more vulnerable to hurricanes, all other things
being equal,” said Prof. Nordhaus in an interview.
Nordhaus’s paper uses data from 233 hurricanes that have made landfall in
the US from 1900 to 2008 and creates gauges for measuring how economic losses
increase in proportion to the intensity of a given storm. One surprising finding
was that hurricane damage grows substantially with even modest increases in
wind-speed beyond hurricane velocity (above 74 mph).
The Journal says, for example, according to
Nordhaus’s calculations, a hurricane with sustained winds of 108 mph would
do roughly twice the damage as a hurricane with sustained winds of 100 mph.
This finding had been originally doubted when Nordhaus published his paper, as other work
on hurricanes had assumed that higher winds increased damages by a much smaller
factor. “There is a tremendous amplifier effect in these kinds of storms,” he
The major conclusions from Nordhaus’s paper are: First, there
are substantial vulnerabilities to intense hurricanes in the Atlantic coastal
United States. Damages appear to rise with the ninth power of maximum wind
speed. Second, greenhouse warming is likely to lead to stronger hurricanes, but
the evidence on hurricane frequency is unclear.
Prof. Peter Morici of the University of
Maryland, commented on Sunday: "Although, initially a Category 1
hurricane and now only a tropical storm, Irene is testing flood-level records in
New York City and in much of the Northeast, raising casualty loss estimates to
$20bn. Two days of lost economic activity, over a period of a week, is almost
certain, and adds another $20bn. Longer term, rebuilding and postponed business
activity will make up much of the near term impact on the economy.
Revised estimates of the direct damage caused by
Hurricane Irene are in the range of $20bn. Add to those the loss of about two
days economic activity, spread over a week, across 25 percent of the economy,
and an estimated of the losses imposed by Irene is about $40 to 45bn.
However, rebuilding after Irene, especially in an
economy with high unemployment and underused resources in the construction and
building materials industries, will unleash at least $20bn in new direct private
spending-likely more as many folks rebuild larger than before, and the capital
stock that emerges will prove more economically useful and productive.
Regarding the latter, consider a restaurant with
inadequate patronage-its owner invests the insurance settlement in a new more
attractive business. On the shore, older smaller homes on large plots are
replaced by larger dwellings that can accommodate more families during the
summer tourist season. The outer banks of North Carolina saw such gains several
decades ago after rebuilding from a storm of similar scale.
All of this is not to discount the direct costs to
individuals by temporary and in some cases permanent displacements; however,
when government authorities facilitate rebuilding quickly and effectively, the
process of economic renewal can leave communities better off than before.
Factoring in the multiplier effect of $20bn spent
rebuilding yields an economic benefit from reconstruction of about $36bn. Add to
that the gains from more a more modern and productive capital stock-likely in
the range of $10bn-and consumer and business spending that is only delayed but
not permanently lost-likely in the range of $10 to $12bn-and the total effects
of natural disasters of the scale of Irene are not large two years down the