What was thought to be a massive but manageable storm has erupted into a full-blown disaster. Tropical storm Harvey touched down in Texas as a Category 4 hurricane. Although a proper assessment has obviously yet to be made, Hurricane Harvey is trending to become one of the most expensive natural disasters in U.S. history.
A consensus of economists’ forecasts estimate the damage to round out between $30 billion to $40 billion. If so, Hurricane Harvey will rank as the fifth worst natural disaster in terms of economic impact. Only tropical storms Katrina, Sandy, Andrew, and Ike are worse.
Yet Hurricane Harvey can easily post itself into the number three slot without much “effort,” so to speak. First, Ike netted damages of $34.8 billion, which is well inside the forecasted range of estimates for Harvey. But second and more importantly, Hurricane Harvey directly impacts the core U.S. energy source. Andrew, which presently sits at number three, impacted Florida and the Bahamas.
At the time tropical storm Andrew rendered the costliest natural-disaster related damage to the U.S., until its place was supplanted by Sandy. The present danger is that Hurricane Harvey could trigger a domino effect that could be felt for years to come.
Some economists are short-sighted enough to propose that major tropical storms can boost GDP due to activities related to structural and societal recovery. They would be well-advised to consider the long-reaching impact of Andrew, which is still being felt to this very day.
The fiscal wealth of a nation is much more than just GDP figures. A tropical storm like Harvey could render utter devastation for hundreds of thousands of American families, many of which were likely not getting ahead as it is. This renders a massive opportunity cost on the economy.
Then, you must calculate the associated costs of natural disasters. Jobs are lost. Infrastructure is destroyed. True, new jobs can be “created” to repair the devastation from an act of God. But those are investments made to restore a community to whole. How much more better off would that community be if it could utilize those resource to jump ahead?
While some economists may count the cost of the physical assets damaged or destroyed, the real devastation lies in the question of “what could have been.” I believe that only many years from now will we truly understand the scope of Harvey’s opportunity cost.