This article originally appeared on the American Institute for Economic Research website.
Hurricane Harvey hit southeastern Texas on August 25, causing catastrophic flooding and at least 60 deaths. New analysis also indicates that, in terms of damage, Harvey will leave past US hurricanes in its wake.
Regarding the first major hurricane to make landfall in the United States since Hurricane Wilma in 2005, two specialized economists expect the damages from Harvey to reach $194 billion, which comfortably surpasses the Katrina figure. Devastating New Orleans, Alabama, and Cuba, Katrina caused $158 billion in damages, with Sandy next worst at $75 billion. In 2001, Allison caused about $12 billion in damages.
The authors of the analysis are Michael Hicks, director of the Center for Business and Economic Research at Ball State University, and Mark Burton, a research associate professor with the Center for Transportation Research at the University of Tennessee. They point out the population density of the areas impacted by Harvey, which consist of five major municipalities located in nine counties — home to 6.5 million people, 125,000 businesses, and major public infrastructure.
They have used a model developed along with the Army Corps of Engineers, to keep the methodology consistent across natural disasters and enable comparisons. They believe that the damage estimates derive particularly from the impact on commercial and residential properties, electric utilities, highways, and sewer systems. The flooding along the Texas coast is also likely to have long-standing consequences for the state’s oil and gas industry and the larger US economy.
A contrasting view comes from New York Federal Reserve President William Dudley. When interviewed by CNBC, he asserted that an economic silver lining comes with reconstruction and that Houston would on net benefit from Harvey:
“Those effects tend to be pretty transitory. The long-run effect of these disasters, unfortunately, is it actually lifts economic activity because you have to rebuild all the things that have been damaged by the storms.”
Dudley’s apparent ignorance of the broken-window fallacy, however, has drawn scorn from many economists. Christopher Lingle of Francisco Marroquín University in Guatemala went so far as to call him a certifiable moron.
Gavin Smith, director of the Department of Homeland Security’s Coastal Resilience Center of Excellence at the University of North Carolina, says that it’s important to learn from Katrina in terms of recovery time. When the storm levees broke in New Orleans in 2005, the poorest were hit the hardest. At the time, a third of the city lived below the poverty line with little to no means of transportation to evacuate. The majority lived in mobile homes with no flood insurance.
It’s been more than a decade since Katrina, and New Orleans is still rebuilding after more than 80 percent of the city was submerged.
“If you think of a storm striking an area of modest means, low- and moderate-income individuals,” Smith said, “their capacity to recover is very different from those that have flood insurance, that have the economic means to recover on their own. So that’s going to be something to watch over time, to see the impacts of the flooding in these different areas, low-wealth communities versus middle- and upper-income communities.”
Florida faces its own economic damages after Hurricane Irma made its way up the coast. By Monday morning, though, Irma had weakened to a tropical storm, after leaving 27 people dead across the Caribbean.