Stormy economics

Hurricanes Harvey and Irma have moved on and dissipated, but their calling cards are strewn widely across the greater Houston area and virtually the entire state of Florida.  The wind and water maelstrom may have ended, but the economic storm is just revving up.

Early damage estimates vary but run as high as $200 billion for the pair, outweighing previous champion Katrina by a wide margin and opening the floodgate of questions that lie dormant during fair-weather times.

Pundits of all stripes wonder why millions of smart people live in harm's way and question the adequacy of preparedness for mitigating nature's wrath.  Government policy at local, state, and federal levels is scrutinized, often focusing on property zoning and building codes.  Availability and issuance of insurance and reinsurance are examined and re-examined, leading to the ultimate aftermath question: who will pay to restore Houston and Florida to civilization as we know it?

This web of queries looks formidably complex, but the resolution is actually quite simple, rooted in just two numbers.  The $200B price tag for the storms may appear daunting, but when we add together the productivity of the Greater Houston area (Metropolitan Statistical Area) since its last major hurricane (Ike, 2008), and for Florida (Wilma, 2005), eight years of weather doldrums in Houston and eleven years in Florida contributed a total GDP north of $12 trillion.

The arithmetic says reward far outruns risk.  Houstonians and Floridians may not employ the wisest weather strategies when in extremis, but when Mother Nature isn't swelling tides or tossing cows in the air, Houstonians and Floridians know exactly where they want to live.

But when calamity strikes, the long-running bill for living and working in the ruts of historical storm tracks comes due.  Who should pay and who will actually pay are not synonymous, but are closer than much of the media would have us believe.

Between incessant TV video footage of shredded roofs and beached boats, we are constantly reminded of the significant numbers of the uninsured and under-insured, as if a formal contract with an insurer were the primary solution to disaster recovery.

Simple economics says otherwise.  For openers, think of a portion of that $12T productivity gain as self-insurance, sitting in the pockets and treasuries of all who prospered during the dry and calm years.

And who prospered?  Local property owners, businesses, employees, and government at every level -- local, regional, state, and national -- all thrived.  In short, virtually everyone prospered.  Imagine a Texas without Houston; or a scenario of life in America, not only short the $1.5B annual GDP of Houston and Florida, but an America without a tropical Floridian oasis bordering on the Caribbean, or a nation bereft of the energy contribution of a major piece of the Gulf Coast.

We may be tempted to overemphasize the moral hazard, valid as it may be, whereby local uninsured and underinsured victims dump their disaster liabilities on governments and innocent citizens, yet prior years of prosperity amply contributed to the welfare of all Houstonians, Texans, Floridians, and Americans.

It is no more possible to accurately allocate the spread of recovery costs among all beneficiaries of prosperity than it is to predict the location, severity, and timing of natural disasters.  The account ledgers are smudged.  The cost burden between local and national is continuing to shift toward Washington, and perhaps excessively so, but, all prosperity considered, it's not entirely unreasonable.

Harvey and Irma afford us a somewhat cloudy crystal ball view into the future of natural disasters.  Preparedness will continue to improve, American heroics and generosity will abound unabated, and the pains of recovery will be shared both locally and across the land – a literal model of a Federal Republic.

Hurricanes Harvey and Irma have moved on and dissipated, but their calling cards are strewn widely across the greater Houston area and virtually the entire state of Florida.  The wind and water maelstrom may have ended, but the economic storm is just revving up.

Early damage estimates vary but run as high as $200 billion for the pair, outweighing previous champion Katrina by a wide margin and opening the floodgate of questions that lie dormant during fair-weather times.

Pundits of all stripes wonder why millions of smart people live in harm's way and question the adequacy of preparedness for mitigating nature's wrath.  Government policy at local, state, and federal levels is scrutinized, often focusing on property zoning and building codes.  Availability and issuance of insurance and reinsurance are examined and re-examined, leading to the ultimate aftermath question: who will pay to restore Houston and Florida to civilization as we know it?

This web of queries looks formidably complex, but the resolution is actually quite simple, rooted in just two numbers.  The $200B price tag for the storms may appear daunting, but when we add together the productivity of the Greater Houston area (Metropolitan Statistical Area) since its last major hurricane (Ike, 2008), and for Florida (Wilma, 2005), eight years of weather doldrums in Houston and eleven years in Florida contributed a total GDP north of $12 trillion.

The arithmetic says reward far outruns risk.  Houstonians and Floridians may not employ the wisest weather strategies when in extremis, but when Mother Nature isn't swelling tides or tossing cows in the air, Houstonians and Floridians know exactly where they want to live.

But when calamity strikes, the long-running bill for living and working in the ruts of historical storm tracks comes due.  Who should pay and who will actually pay are not synonymous, but are closer than much of the media would have us believe.

Between incessant TV video footage of shredded roofs and beached boats, we are constantly reminded of the significant numbers of the uninsured and under-insured, as if a formal contract with an insurer were the primary solution to disaster recovery.

Simple economics says otherwise.  For openers, think of a portion of that $12T productivity gain as self-insurance, sitting in the pockets and treasuries of all who prospered during the dry and calm years.

And who prospered?  Local property owners, businesses, employees, and government at every level -- local, regional, state, and national -- all thrived.  In short, virtually everyone prospered.  Imagine a Texas without Houston; or a scenario of life in America, not only short the $1.5B annual GDP of Houston and Florida, but an America without a tropical Floridian oasis bordering on the Caribbean, or a nation bereft of the energy contribution of a major piece of the Gulf Coast.

We may be tempted to overemphasize the moral hazard, valid as it may be, whereby local uninsured and underinsured victims dump their disaster liabilities on governments and innocent citizens, yet prior years of prosperity amply contributed to the welfare of all Houstonians, Texans, Floridians, and Americans.

It is no more possible to accurately allocate the spread of recovery costs among all beneficiaries of prosperity than it is to predict the location, severity, and timing of natural disasters.  The account ledgers are smudged.  The cost burden between local and national is continuing to shift toward Washington, and perhaps excessively so, but, all prosperity considered, it's not entirely unreasonable.

Harvey and Irma afford us a somewhat cloudy crystal ball view into the future of natural disasters.  Preparedness will continue to improve, American heroics and generosity will abound unabated, and the pains of recovery will be shared both locally and across the land – a literal model of a Federal Republic.