Storm Drain

Floridians are breathing a bit easier as they slog toward the end of the hurricane season. Over a six-week period, hurricanes Ivan, Charley, Frances and Jeanne battered the state. Insurance companies estimate the costs to be in the billions. The state’s agricultural industry has been dealt a significant blow. Homes were destroyed, and lives were lost.

Yet many reporters, analysts and a few economists (who should know better) have found that there is beauty in the beast: Hurricanes are great for the economy!

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A recent USA Today headline reads, "Economic growth from hurricanes could outweigh costs." Or witness the article, "Storms create lucrative times" from Florida’s own St. Petersburg Times. According to the articles, not only will certain niche industries benefit from the destruction caused by the four hurricanes, but as one economist told USA Today, "From an economic point of view, it is a plus!"

These pieces focus on the spending that occurs in the wake of a hurricane. As one reporter from the St. Petersburg Times summed it up, "Construction creates thousands of jobs, insurance provides for billions in consumer purchases, and new facilities built to higher standards might help offset future storm-related losses."

But reality isn’t that kind. Together, all four hurricanes caused tens of billions of dollars of damage. This money is lost forever. The capital spent on reconstruction is money that in the absence of hurricanes could have been used to invest in new businesses, not merely new buildings for old businesses.

And those who think their insurance windfall is a no-cost economic bounty are sorely mistaken. As reported by the Insurance Journal, Florida homeowner insurance rates have increased more than 150 percent since Hurricane Andrew in 1992. Additionally, many insurance companies stopped offering flat-rate deductibles for hurricane insurance and replaced them with deductibles determined as a percentage of a home’s value. People who were unable to secure flat-rate deductibles for their homes may now need to take out a loan just to pay the deductible when claiming damages.

Insurance companies may make other hard choices in order to prevent themselves from going belly-up. They may, for example, spread the risk of insuring homes and personal property across the Florida population. Inevitably, more money spent on insurance means less money spent on other parts of the marketplace or on entrepreneurial activities. Added to the enormous destruction wrought by the hurricanes, this does not add up to an economic boon.

Still, if Florida’s economy did somehow receive a net boost, then we must recognize that it came at the expense of the U.S. taxpayers in the form of federal emergency relief. These taxpayers include those Floridians who were not affected by the hurricanes, as well as those who choose to live in states with fewer natural disasters. There is no such thing as free money.

Those who point to historical evidence of hurricanes improving Florida’s economy are simply painting the bull’s-eye after they have taken aim and fired. Any signs of an improved market following a disaster are quickly singled out as evidence of a bustling economy.

As Mackinac Center President Lawrence W. Reed first pointed out in 1995, this is the same fallacy that arises if one looks only at where a thief spends his loot, and not where he got it from in the first place. No one assumes that a thief who robbed a bank is stimulating the economy because he spent the stolen loot at the local mall. Most would understand that the stolen money belonged to someone else and could have been directed toward more productive activities.

Today’s bad economists are overlooking the theft and focusing on the thief’s spending. They see the insurance checks, new buildings and jobs created by the hurricanes. Yet they ignore the unseen value of an economy free from the distress of destruction and full of stored-up potential to create new and vibrant markets.

It would indeed be a wondrous thing if we could destroy our way to economic success. Imagine: Each town could have its own rogue band of "economic stimulants." These individuals could engage in vandalism, arson and theft. No matter the activity, as long as it harmed and destroyed, there would be a need to treat, repair and rebuild, and the economy would be better off because of it.

But we cannot ignore facts and destroy our way to success. In this case at least, there’s no beauty in the beast.


Justin W. Marshall is membership development officer at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.