Just as Hurricane Matthew moved through the Caribbean, he looked like this:
The Dollar Cost of a Hurricane
When destructive weather strikes, media coverage shows the damage and the dollars. Below, I’ve copied an emdat “top ten” storm list for 2000-2014. You can see that the dollar price tag was highest for Katrina and Sandy:
However, according to hurricane research from the University of Illinois, the totals are understated. When we add an aftermath that includes unemployment insurance, medical expenses, disability and other safety net programs, the dollars multiply.
The following graphs show the 10-year fiscal impact of a hurricane:
Specific Government Transfers
Our Bottom Line: The Broken Window Fallacy
Whenever we see hurricane spending, we should keep in mind the fallacy of the broken window. As 19th century economist Frederic Bastiat (1801-1850) explained, “destruction is not profitable” because disaster recovery replaces what was lost. So yes, while GDP might surge, national wealth could be less.
And that returns us to the hidden side of hurricane spending.
My sources and more: Thanks to Vox for alerting me to the NOAH satellite pictures and to Dr. Tatyana Deryugina for her hurricane research. I also recommend this recent FAO report for much more data on the impact of disasters. Please note that parts of this post appeared in a previous econlife.