Written by: Ali Pullaro
When a category five hurricane hits the coast, it leaves more than just shattered homes and uprooted trees in its wake. The devastation goes beyond what may initially meet the eye. These storms wreak havoc on local and national economies. The true economic toll of a hurricane isn’t measured only by wind speed or storm surge—it’s in difficulties left on supply chains, labor markets, and government spending. When examining the economic effects of natural disasters, it’s clear that the regions hit hardest are not always the ones with the strongest hurricanes.
The economic toll of natural disasters has been steadily rising. This trend is driven by factors such as population growth and increased development in high-risk areas. The effects of these storms can be both direct and indirect. Direct impacts are focused on the immediate damage to infrastructure, property, and businesses, while indirect impacts include long-term disruptions to trade, employment, and productivity. To model these effects, economists often use Input-Output (I-O) and Computable General Equilibrium (CGE) models, though these tools have limitations in capturing rapid changes over time. One solution is to have ongoing investments in resilient infrastructure to help mitigate future losses while pushing for further research in the long-term impacts of these natural disasters (Botzen et al., 2019).
Despite initial devastation caused by natural disasters, economies often recover faster than expected. The economic impact of disasters varies significantly depending on the type— events like hurricanes or tornadoes, which tend to be short-lived, have shorter periods of
destruction, while events such as floods or droughts tend to spread the damage over a longer time-frame. Estimating disaster losses is challenging, often prone to overestimation in the immediate aftermath and influenced by media or political motivations. Many underestimate these disasters and tend to not fully believe the weather and news in times of natural disasters, which can increase the lives lost if the natural disaster turns out to be as deadly as they might say. The actual losses depend heavily on factors such as the natural disaster severity, population density, and the local economic structure. There is an important distinction between losses from the destruction of physical assets and actual costs, which include the expenses of recovery and rebuilding. Direct losses, like damage to buildings and infrastructure, are easier to quantify than indirect losses, which include economic disruptions like lost wages or decreased tourism. It may be counterintuitive, but recovery periods often boost economic activity, due to the new demand for construction materials, employment, and tax revenues. In some cases, rebuilding leads to technological upgrades that even further enhance productivity. However, the speed and effectiveness of recovery depend on factors like disaster assistance funds, insured losses, and the timing of federal and state aid (Kliesen & Beyer, 1994).
Possible solutions include enhancing transparency in climate risk assessments and encouraging strategic planning at both the federal and state levels. The Government Accountability Office (GAO) has also called for better forecasting and budgeting for disaster costs, alongside creating a strategic resilience plan. Some states, such as North Carolina, Ohio, Virginia, and Colorado, are making progress by tracking disaster spending more effectively, which enables improved planning and management of future costs (Foard & Bryant, 2021).
In spite of the risks, many people continue to move to areas prone to natural disasters due to a variety of appealing factors. These factors may include affordability of homes, lower property taxes, greater housing options, and access to nature. This trend is particularly evident in states like Florida, Georgia, Texas, Colorado, and Arizona, which have seen an influx of new residents even as heat waves, fires, and floods become more frequent. For example, Williamson County, Texas, is not only the fastest-growing county in the U.S. but also faces the highest heat risk. However, it may be interesting to think: at what point will people’s general interest in living in high risk areas start to decline? (Americans Moving to Disaster-Prone Areas, Despite Climate Change, 2021).
Hurricane Milton’s economic impact is expected to be significant, particularly for Florida, where the state’s GDP will see the hardest hit. While the destruction of assets like homes and businesses doesn’t directly affect GDP, sectors such as tourism and construction will experience major setbacks. Tourism and construction are major sources for Florida’s economic successes. Florida’s tourism industry faces losses from canceled trips. On the other hand, retail might see a slight increase from emergency buying, however that alone won’t reverse the broader downturn. Although reconstruction efforts will eventually boost economic activity, this won’t fully offset the output lost, and the recovery process will be gradual, relying heavily on FEMA(Federal Emergency Management Agency) and other forms of federal aid (Daco, 2024).
Most Expensive Natural Disasters
| NATURAL DISASTER (NAME/TYPE/YEAR) | COST IN DETAILSDAMAGES # OF DEATHS |
| Hurricane Ike (2008) | 112 $40.2 billion Category 2; Texas and southwest Louisiana costs were hit the hardest. |
| Great Flood of 1993 | 48 $38.6 billion Largest flood in the US. The Midwest, specifically Mississippi and Missouri, impacted the hardest. |
| Drought and Heat Wave in 1998 | 454 $50.6 billion The Midwest hit the hardest with impacts on agriculture. Effects lasted until 1999. |
| Hurricane Andrew (1992) Hurricane Irma (2017) | 61 $51.3 billion Category 5 with 157 mph winds (and even higher); most damage was in south Florida. 97 $59.5 billion Category 5 and then 4; mostly impacted the US Virgin Islands and the Florida Keys. |
| Hurricane Ida (2021) | 96 $59.5 billion Hit Louisiana, and even New York, New Jersey, and eastern Pennsylvania. |
| Superstorm Sandy (2012) 159 | $82.0 billion New York and New Jersey took the most damage’ the NY Stock Exchange even closed down for two days. |
| Hurricane Maria (2017) | 1981 $107.1 billion Rainfall went up to 37 inches, major flooding, and left many indirect deaths from destruction. Impacted Puerto Rico the most. |
| Hurricane Ian (2022) | 149 $112.9 billion Most deaths were caused by drowning; most destruction was to Florida. Tropical storms hit the Carolinas as well. |
Hurricane Harvey (2017) 89 $148.9 billion Category 4; extreme rainfall; most affecting Texas. Hurricane Katrina(2005) 1833 $186.3 billion Much suffering was brought to New Orleans, Louisiana, but also Mississippi and Alabama; category 5; about 80% of New Orleans flooded. (Muhlbaum & Svokos, n.d.)
It is evident that the most damaging storms –by cost – are not necessarily the ones with the most number of deaths. Most of these disasters are hurricanes, however oftentimes flooding and smaller storms go along with major hurricanes, only increasing the damage. In conclusion, the economic impact of hurricanes and natural disasters is complicated and dependent on many factors. They can affect everything from local labor markets to national supply chains. While the immediate destruction is significant, long-term economic disruptions can persist for years, with indirect effects often being more destructive than the direct damages. Recovery efforts, though costly, can stimulate economic activity through rebuilding efforts. However, the rising costs of these disasters, driven by population growth in high risk areas, call for better disaster preparedness, resilient infrastructure, and more strategic planning.
References
Americans Moving to Disaster-Prone Areas, Despite Climate Change. (2021, August 27). Yale E360. Retrieved October 23, 2024, from
https://e360.yale.edu/digest/americans-moving-to-disaster-prone-areas-despite-climate-ch ange
Botzen, W.J. W., Deschenes, O., & Sanders, M. (2019). The Economic Impacts of Natural Disasters: A Review of Models and Empirical Studies. The University of Chicago Press Journals. Retrieved October 22, 2024, from https://www.journals.uchicago.edu/doi/10.1093/reep/rez004
Daco, G. (2024). Assessing Hurricane Milton’s Economic Impact. EY. Retrieved October 23, 2024, from
https://www.ey.com/en_us/insights/strategy/macroeconomics/assessing-hurricane-miltons -economic-impact1
Foard, C., & Bryant, M. (2021, August 27). How Government Can Address Growing Disaster Costs. The Pew Charitable Trusts. Retrieved October 23, 2024, from
https://www.pewtrusts.org/en/research-and-analysis/articles/2021/08/27/how-government -can-address-growing-disaster-costs
Image. (n.d.). flickr. https://www.google.com/url?sa=i&url=https%3A%2F%2Fwww.flickr.com%2Fphotos%2 F72821895%40N02%2F9551785046&psig=AOvVaw0-9h1s7rTYhBS5UetBfHJd&ust=1 729710130658000&source=images&cd=vfe&opi=89978449&ved=0CBQQjRxqFwoTC Kj5gcXWookDFQAAAAAdAAAAABAE
Kliesen, K. L., & Beyer, H. L. (1994). The Economics of Natural Disasters | St. Louis Fed. Federal Reserve Bank of St. Louis. Retrieved October 23, 2024, from
https://www.stlouisfed.org/publications/regional-economist/april-1994/the-economics-of natural-disasters
Muhlbaum, D., & Svokos, A. (n.d.). The Most Expensive Natural Disasters in US History. Kiplinger. Retrieved October 23, 2024, from
https://www.kiplinger.com/slideshow/business/t019-s001-most-expensive-natural-disaster s-in-u-s-history/index.html