Hurricane Harvey left massive devastation in its wake, with estimates from Moody’s Analytics putting property losses between $45 billion and $65 billion and wider economic losses between $6 billion and $10 billion. At $75 billion, Harvey could be the most costly natural catastrophe in U.S. history. But by focusing on resilience and restoring business operations, it might not need to be.
In terms on longer-term economic impact, there is a fair amount of disagreement between economists. Yahoo Finance offers that:
- Goldman Sachs’ Jan Hatzius calls Harvey’s GDP effects ambiguous, “as the level of economic activity typically returns to its previous trend—or even somewhat above—reflecting a boost from rebuilding efforts and a catch-up in economic activity displaced during the hurricane.”
- Don Rissmiller of Strategas sees a potentially positive GDP impact, writing, “Rebuilding will be a significant story, though monthly data (especially durables) will likely be volatile. Replacement spending will boost economic growth, though it’s not good for wealth.”
- And Deutsche Bank’s Brett Ryan speculates the GDP impact could be negative, estimating the disaster would be a drag on GDP growth but that it would have little impact on what’s expected to be strong growth.
While it is a worthwhile exercise to forecast longer-term economic impacts, it is also important to consider how the potential economic consequences could be mitigated and potentially lowered. The economists cited did not examine the impact associated with the inefficiencies of getting back to normal, which is something that can be controlled. While I do not have the modeling tools that these individuals have, I do know from experience with Hurricane Katrina that on the margin, economic losses continue to be high every day we wait to get our businesses and other organizations back up and running.
Take a hypothetical example. The economic impact from businesses not opening is $1 billion on the first day, $900 million on the second day, $800 million on the third day, and so on. The cumulative impact over 10 days is roughly $5.5 billion. But if a concerted effort is made to get operations back to normal sooner than otherwise (e.g., shortening the lag time to get construction permits), the economic impact would be less. If everyone working together focused even harder on this effort, and the impact was a 10% improvement each day, then the economic impact over ten days would be $4.95 billion. In other words, if some of the normal inefficiencies were eliminated, the economic impact using my example above would result in a savings of about $500 million.
This is an important consideration because it is impossible to control the event. It is also impossible to prevent the damage once it has already occurred. But it is not impossible to reduce the economic impact after the event has occurred.
