The Cost of Natural Disasters: Irma and Harvey

Damage+from+hurricane+Katrina%2C+New+Orleans%2C+LA.+Photos+of+Harvey+not+yet+available.+

Damage from hurricane Katrina, New Orleans, LA. Photos of Harvey not yet available.

Harvey McGuinness, Author

It is no surprise that hurricanes Harvey and Irma have had economic impacts across the United States, but the full effect as we now understand it is anything but precedented.

 

Accuweather, a commercial weather reporting and analysis website, estimates the combined economic impacts of the storms at $290 billion. In regard to Hurricane Harvey alone, Accuweather states, “We estimated that Hurricane Harvey is to be the costliest weather disaster in U.S. history at $190 billion or one full percentage point of the GDP.”

 

Joel Myers, Accuweather’s founder, adds, “Together, AccuWeather predicts these two disasters amount to 1.5 of a percentage point of the GDP, which will about equal and therefore counter the natural growth of the economy for the period of mid-August through the end of the fourth quarter.”

 

For storms like these, extreme devastation and economic impact is marked in tenths of a percentage of the U.S. Gross Domestic Product, almost never breaking the one-percent threshold. Harvey alone broke the one-percent threshold, and Irma made landfall less than two weeks later.

 

For reference, Hurricane Katrina, which struck the Gulf Coast in 2005 and was one of the most devastating storms ever to make landfall, only dealt an estimated $100 billion to $150 billion in damages. That storm was the costliest ever in U.S. history until Harvey.

 

This devastating 1.5 percent of GDP isn’t simply a measure of damage; it is also enough to completely counteract the country’s economic growth from mid-August through the end of the fourth quarter.

 

While the U.S. economy has repeatedly displayed extraordinary resilience when it comes to natural disasters, there are very present long-term effects inflicted by storms. Hurricane Harvey, according to CNBC, has caused as much as 31 percent of the total U.S. oil refining capacity to either be rendered completely offline or dramatically reduced in output. This has led to gas prices rising steadily, specifically in Texas, where most of the damage was dealt.

 

While gas prices rise, there is also the issue of obtaining it in the future. The damage from Hurricane Harvey to Texas was by no means temporary, and large sections of petroleum production and refining have been rendered completely unusable by the storm. This has caused a gap in the supply of oil relative to the demand for it, a gap that no U.S. company has yet been able to fill.

 

Then there is the issue of insurance. In an interview between CNBC and Farmers Insurance, the CEO stated, “For our own book of business, maybe 1 in 4 of our homeowners actually selects the Flood Insurance Program.” This points out the stark reality of the damage on properties left by these storms: flood damage, and the fact that many homeowners are not insured.

 

The displacement alone from storms like these is substantial, with an estimated 30,000 people being forced into shelters during Hurricane Harvey and another 25,000 in shelters due to Irma. While some of these people have insurance against these storms, most will end up with irreparable uninsured damages. Regarding Irma, the catastrophe analysis firm AIR Worldwide “predicts insured loss from Hurricane Irma will range from $20 billion to $40 billion,” a far lower figure than the estimated $100 billion in total damages from the storm.

 

These storms have political ramifications as well as economic ones. When a $15 billion relief package for Hurricane Harvey passed in Congress, it included a clause that raised the U.S. debt ceiling until mid-December. The debt ceiling limits the amount that the U.S. government may owe the U.S. Treasury, which, in turn, controls how much the U.S. government can spend. Should this debt limit be exceeded, it would trigger a multinational economic crisis.

 

Raising and lowering the debt ceiling has always been a point of political debate. As The Brookings Institution, a nonprofit public policy organization, puts it, “Politicians who want to reduce deficits or restrain the size of government have used the debt limit to negotiate for spending caps or budget restrictions in the past, a tactic that has proven difficult but successful on occasion.”

 

However, due to the damage inflicted by the hurricanes, bipartisan legislation was passed that increased this limit, thus increasing the amount the government can borrow. As much of an issue as this is in its own, it was able to pass through Congress with bipartisan support because it will allow the government to increase the amount FEMA can spend, which can increase future aid in regard to Irma and Harvey.

 

These storms have had tremendous impact on the U.S. economy, and also on individual lives across the nation. According to an article in “The Hill,” a political website, “Weekly jobless claims hit 298,000 in the week ending Sept. 2, an increase of 62,000 from the previous week’s 236,000, the highest level for initial claims since April 18, 2015, the Labor Department reported on Thursday.”

 

From uninsured damages to job losses, the impact from these storms is far from over and far from contained.