One of the best songs ever written about a hangover is also the perfect anthem for the next week in the United States: Jimmy Buffett’s “Trying to Reason with Hurricane Season.”
Forecasters said Friday they expect a “near-normal” number of hurricanes during that season this year, somewhere between four and eight, though the experts say it’s a particularly difficult year to predict.
Here’s the scary side of that: Economic research published this week suggests that we’ve been undercounting the cost of past hurricanes to taxpayers, by a lot.
The paper, from Tatyana Deryugina at the University of Illinois at Urbana-Champaign, examines hurricanes from 1979-2002 and follows the effects of each one for a decade after. It finds that on average, each hurricane resulted in about $155 to $160 over official government disaster assistance, per person affected by the storm. That’s what you might call our official estimation of the fiscal cost of those hurricanes.
Where the price tag soars, Deryugina finds, is in what you might call the unofficial costs of the storms. In the 10 years after a county is hit by a hurricane, she estimates, it receives a lot more government assistance through safety-net programs, such as unemployment insurance and medical benefits.
It’s an intuitive finding — storms disrupt economies and hurt people — and when it’s taken into account, it adds, on average, an extra $780 to $1,150 per person in fiscal costs. That’s about five times the cost of direct disaster aid alone. (All of those figures have been adjusted for inflation and rendered in 2013 dollars.)
The upside of that finding is that it appears the U.S. safety net does a very thorough job of compensating Americans for all their potential income losses from a hurricane. Other research suggests the system doesn't often compensate hard-hit workers from other bad things that can befall them. Deryugina concludes, for example, that you’re much better off having your livelihood disrupted by a big storm than by outsourcing to China.
The downside is that such an effective system of social insurance may be encouraging too many Americans to live in areas prone to hurricanes and other natural disasters, especially at a time when scientists warn climate change is making catastrophic storms more likely to occur. This is what economists call “moral hazard,” and she worries it could be double-barreled in this instance.
“First, disaster risk is not currently accounted for in unemployment insurance premiums,” Deryugina writes. “This omission effectively subsidizes business activity in disaster-prone areas, which decreases social welfare. Second, insurance subsidies and free disaster aid could discourage the provision or private purchase of insurance coverage and encourage people to live in disaster-prone areas.”
On this front, too, Buffett offers guidance in “Trying to Reason”:
It’s time to close the shutters
It’s time to go inside.
In a week I’ll be in gay Paris;
That’s a mighty long airplane ride.
But, from an economist’s point of view, perhaps a more optimal place to ride out the storms.
