Disaster Economics

Disaster economics can take us to dollar totals:

But there is much more.

Disaster Economics

Disaster economics can involve two kinds of losses. Easier to identify, market losses have a dollar value like a house or a car. However, we also have non-market losses that take us to intangible values that are impossible to calculate. With a devastated museum, for example, rebuilding the structure has a number but its absence represents an intangible community loss.

Furthermore, we have the indirect costs that occur before and cascade later. Preparing for a natural disaster, we build seawalls, strengthen levees, and reinforce bridges. Then, after, if a disaster devastates a business, its employees lose their wages. When roadways are destroyed, commuting takes more time, and we sacrifice the leisure or sleep time we might have had. Next though, we have an opportunity cost when we replace those roadways. Construction and utility crews that could have worked elsewhere on new projects instead are replacing and repairing what had existed.

The Great (Mississippi River) Flood of 1993

A 1994 paper from the St. Louis Federal Reserve detailed the different costs of a flood. Through referring to events from more than 30 years ago, the example is timeless. Affecting 500 counties in nine states, the Great Flood even included the entire state of Iowa.

When we think of disaster economics for this Mississippi River flood, we can start with big categories like manufacturing, agriculture, and transportation. But then, more precisely, we had farmland that was less fertile, weakened roadways, and structures with waterlogged foundations. Because of transportation delays, crop and livestock markets were affected as were factories. Railroads reported destroyed signaling equipment, tracks, and bridges. Furthermore, rerouting trains cost them millions. Similarly, the floods upset the movement of coal, fertilizers, and other commodities on barges and trucks. The federal government disbursed more than $1.1 billion in disaster assistance to farmers.

Our Bottom Line: Opportunity Cost

As economists, we know that cost refer to sacrifice. The cost of a decision is what we might have done. A pizza lunch could have cost us a salad or a sandwich and the time we could have spent elsewhere. Then, moving to opportunity cost, we cite the one best alternative that we sacrificed.

With disaster economics, costs abound. But I guess we have always known that the cost of a natural disaster is much more than what we spend to rebuild. And, I worry that I have not even mentioned the incalculable massive human cost.

My sources and more: Always handy, Our World In Data had the graphics. Then though, two papers, here and here, from the St. Louis Fed were helpful with defining costs. And finally, for up-to-date disaster economics, Hurricane Helene related federal government support has included 21 million meals and 285,000 gallons of fuel. And WSJ had the personal financial toll.