econlife - How to Calculate the Cost of a Disaster by Elaine Schwartz

With Dorian in the news, this year we’ve moved past Andrea, Barry, and Chantal, and might soon learn about Erin, Fernand, and Gabrielle. As for the rest, these names complete the 2019 hurricane list:

• Humberto
• Imelda
• Jerry
• Karen
• Lorenzo
• Melissa
• Nestor
• Olga
• Pablo
• Rebekah
• Sebastien
• Tanya
• Van
• Wendy

When we think about a hurricane or some other disaster like a drought or a wildfire, it helps to calculate the cost. Knowing the numbers, we can better assess risk, determine insurance needs, and do some planning for the future.

So let’s take a look at how they figure out the cost.

Calculating Disaster Costs

In a recent update, NOAA looked at the weather and climate disasters whose cost exceeded $1 billion. So far there have been six:

Totaling 14, during 2018 the weather and climate events whose cost was more than $1 billion topped the average of 6.3 events from 1980 to 2018:

Ranging from wildfires and hurricanes to droughts and hail storms, these were the 14:

The cost “scorekeeper” for the U.S. government is the National Center for Environmental Information (NCEI). When they figure out the cost of a disaster, they include items like the following:

If we were to rank storm costs, then hurricanes are at the top of the list at an average of $22.3 billion per event. Valued at far less, drought is #2 at an average cost of $9.6 billion. Then, dropping to an average of $5.0 billion per event, we have wildfires.

This was the NCEI summary:

However, the NCEI points out that they do not include the value of lives lost or the cost of healthcare. If they included what U.S. regulatory agencies call the Value of a Statistical Life (VSL) each fatality could add many millions of dollars to disaster costs. You can see below that no one quite agrees how much:

Our Bottom Line: GDP Impact

The Broken Window Fallacy is one way to explain the economic impact of a disaster. In “What is Seen, and What is Not Seen,” economist Frédéric Bastiat (1801-1850) reminds us of what we are not doing as we recover from a calamity. When a window is broken, the glazier gets employment and the GDP rises. However, we just wind up with the window we had once had. Or, as he said, “To break, to spoil, to waste, is not to encourage natural labour; or, more briefly, ‘destruction is not profit.'”

My sources and more: Good for weather information, NOAA had the up-to-date disaster facts and also cost calculation information. Next, The Farmers Almanac was a handy place to get 2019 hurricane names. And finally, this paper takes a brief contrarian look at how NOAA calculates losses. However, my most interesting read was Bloomberg’s VSL discussion.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

From the Homeschool Front … The Law by Colleen Hroncich

In a previous post I discussed Frederic Bastiat, a French economist and politician who lived from 1801-1850.  One of his seminal works, The Law, was published not long before his death in 1850. At the time he wrote The Law, socialists in France were proposing government program after government program to “solve” perceived social and economic problems. Bastiat was trying to show people that the law is meant to protect their rights not violate them.

“The law perverted! And the police powers of the state perverted along with it! The law, I say, not only turned from its proper purpose but made to follow an entirely contrary purpose! The law become the weapon of every kind of greed! Instead of checking crime, the law itself guilty of the evils it is supposed to punish!” Bastiat gets off to a roaring start on the first page of The Law.

Bastiat goes on to note, “Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty , and property existed beforehand that caused men to make laws in the first place.” The law is the “collective organization of the individual right to lawful defense.” Thus the law should not be used for any purpose other than to defend the life, liberty, and property of all.

When the law is used to take from one group and give to another, Bastiat calls this “legal plunder” and denounces the practice. When the law permits the government to do to citizens what would be illegal for citizens to do to each other then the law has been perverted. Bastiat provides numerous examples of the injustices perpetrated by the government under the socialists’ plans: protective tariffs, subsidies, guaranteed profits, guaranteed jobs, and more. Examine these, he says, and you will find they are always based on “legal plunder, organized injustice.”

The best summary of The Law is probably Bastiat’s frequently repeated phrase, “The law is justice.” More precisely, he points out, the purpose of the law is to prevent injustice. If governments could stick to this definition of the law, freedom would abound.

Colleen Hroncich loves that homeschooling allows her to learn right alongside her children. A published author and former policy analyst, Colleen’s favorite subjects are economics/public policy and history. She has been active in several homeschool co-ops and is a speech and debate coach.

From the Homeschool Front...Frederic Bastiat by Colleen Hroncich

One of the perks of homeschooling is that I get to learn alongside my children. Not long ago we studied Frederic Bastiat, a French economist and statesman who lived from 1801-1850. He had a tremendous ability to use analogies from daily life to explain economic phenomena.

One of his most important essays was “That Which is Seen, and That Which is Not Seen.” Here Bastiat explains that we must evaluate an action not just by looking at the immediate – or seen – effects. We must also examine the subsequent – or unseen – effects from the action.

This, he notes, is the difference between a good economist and a bad economist: “the one takes account of the visible effect; the other takes account both of the effects which are seen and also of those which it is necessary to foresee.” We witness this frequently in the political world. Politicians love to gain votes by supporting laws that seem to be beneficial one group or another. They rarely worry about the future consequences of their actions, knowing they’ll be gone when it comes time to pay the piper.

Let’s face it, though, we can see the same thing right within our own homes. If we use a credit card to go on a fantastic family vacation, we might be paying for it for years to come. Every year millions of people take on a huge debt burden buying Christmas gifts for everyone on their lists. Some are probably still paying it off when the next Christmas comes around. It can be easy to whip out a credit card in the heat of the moment, but we need to look ahead and see what the long term effects of that swipe will be.

When it comes to raising children, the same principle applies. Sometimes it is easier for me to just clean up a mess than to corral my kids and get them to finish the job. The seen effect of me doing the work is that the mess gets cleaned up more quickly. The unseen effect is that I’ve missed the chance to teach my children to clean up after themselves … thus ensuring future messes left for me.


Whether dealing with economics, politics, or home life, considering the unseen effects of an action can save a lot of problems down the road.

Colleen Hroncich loves that homeschooling allows her to learn right alongside her children. A published author and former policy analyst, Colleen’s favorite subjects are economics/public policy and history. She has been active in several homeschool co-ops and is a speech and debate coach.

econlife - Can a Hurricane Help an Economy? by Elaine Schwartz

First as a hurricane and then a tropical storm, Harvey is sure to affect more than the local Gulf Coast economy. With a path near almost one-third of U.S. refining capacity and one-fifth of its crude production, the storm already has shut down a hefty proportion of the industry.

Where are we going? To why hurricanes do not help an economy.

Step 1: A Supply Summary

First we should look at the supply chain that Harvey is hitting. Below, you can see the location of the Gulf’s refineries and where they send oil along the U.S. East Coast:

Step 2: Shipping

When Hurricane Harvey approached the Texas coast on Friday, immediately, some links in the gasoline shipping supply chain were eliminated.

You can see the dive to zero for departing vessels and maybe 1 for arrivals in Corpus Christi, Texas:

Step 3: Markets

Meanwhile, before the storm’s landfall, markets also had something to say. Because less gasoline could mean higher prices, we just needed to look at futures markets to see the weather prediction.

On the New York Mercantile Exchange (NYMEX), last Friday’s ups and downs of futures for a gallon of unleaded gasoline corresponded to changes in the storm’s intensity. At first futures moved upward. But then they reversed when the weather prediction changed:

Now, with the storm’s impact spreading, we can ask about the aftermath.

Our Bottom Line:  The Broken Window Fallacy

Nineteenth century economist Frederic Bastiat (1801-1850) said “destruction is not profitable” because disaster recovery replaces what was lost. So, although a clean-up could make the GDP surge, the spike reflects an increase in spending, not national wealth.

Bastiat questions the assumption that a broken window can be an economic blessing. He agrees that a glazier would receive, for example, six francs to fix it. However, he then says, “…if…you conclude…that it is good to break windows, that it helps to circulate money…I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.”

Bastiat wants us to recognize that the money given to the glazier would otherwise have been spent on new shoes or a book. Having been able to spend the six francs on a new pair of shoes, their owner would have had new shoes and the old, unbroken window.

So, whether looking at Corpus Christi’s port activity, gasoline futures, or the GDP, we can see the downside of hurricane economics.

My sources and more: Always excellent for unexpected detail, Vox had the economic perspective for Harvey. But if you want a firsthand look, do go to Corpus Christi port information. In addition,  EIA is a solid source as is this Marketwatch analysis of gasoline prices. Finally, econlib is always handy for bios and economic background information.

Please note that my description of the Broken Window Fallacy was published in a previous econlife post.

Ideal for the classroom, econlife.com reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.