How Disasters Move Money

Last week, when President Biden declared the California wildfires were a Major Disaster, FEMA’s funding could kick in.

This time though, it might be a “game changer.”

Wildfire Disaster Spending

As a first step during a disaster, the Federal Emergency Management Agency (FEMA) has an individual assistance program to kickstart recovery. It is only the beginning though, through which individuals or families receive immediate assistance. Next, FEMA suggests that participants in their programs– if possible through private insurance–start the rebuilding process.

FEMA has enough money for initially supporting individuals and California’s statewide spending (e.g. debris removal) as well as continuing recovery from Hurricanes Helene and Milton in North Carolina, Georgia, and Florida.

However, according to the Carnegie Endowment, the California wildfires are a federal spending “game changer.” While traditionally wildfires affect rural areas where a small number of recipients receive relatively high payments, now we are looking at urban devastation that will destroy many thousands of structures.

You can see that the average FEMA Individuals and Households Program Awards exceeded other payments:

But now, the wildfire slice of the assistance pie could indeed change:

What will not change, though, is how different parts of the nation can support each other by shifting available resources.

Our Bottom Line: A National Market

Rewinding to the 1930s, we first saw why mortgage markets moved money.

Mortgages and Wildfires

Mortgages

In 1938, when Fannie Mae began as a federal agency, a part of her mission was to move money. At the time, because of the 1927 McFadden Act, interstate banking was prohibited. As a result, there was insufficient money for mortgages in one region and too much unused mortgage money elsewhere. By buying mortgages from banks and brokers, Fannie Mae was able to move money to areas that needed it. Meanwhile, by selling the mortgages she purchased, she could attract funding from the areas that had it to lend.

Wildfires

During an emergency, money also moves from areas that have it to those that need it. Here, we can specifically talk about the federal budget. Implemented by FEMA during natural disasters, immediate relief pays for food or larger amounts of assistance. It is also possible that FEMA will refer people to the Small Business Administration’s disaster loan program where businesses, and homeowners, and renters can do low interest borrowing. As with Fannie Mae, the key here is that the nation funds disaster spending by moving money.

A National Market

Because the United States is large and geographically diverse, during the 19th century, our economy grew. Increasingly connected by a transportation infrastructure, a national market emerged. As a result, the West could sell its grain to the Northeast and the South could grow cotton. In return New England and the Mid-Atlantic took care of manufacturing.

Indeed, whether looking at economic growth, mortgages, or wildfires, we can see how the country’s coffers tie us together. All three, though, have experienced game changing circumstances that modify where and how money moves.

My sources and more: Trying to detail disaster spending, today it made sense to start with NOAA (National Oceanic and Atmospheric Administration) and this past econlife post for the big picture. Next, NPR had the up-to-date information, with the President’s disaster proclamation and the Carnegie Endowment, as the ideal complements. And finally, as a long time Econtalk listener, I originally got my Fannie Mae information from this podcast while this website gives a Fannie Mae factual update.

Please note that parts of “Our Bottom Line” was in a previous econlife post.