Victor V. Claar and Abigail R. Hall
October 13, 2022
When a recent episode of NPR’s nationally syndicated “Here and Now” aired in Southwest Florida, we lost our minds. We live in Fort Myers and in Tampa, and we’re economists who recognize fuzzy economic thinking when we hear it.
In a four-minute interview with Bloomberg News senior editor Mike Regan, Regan told the show’s hosts the economic devastation from Hurricane Ian isn’t much of an issue. In fact, there’s a silver lining:
“In the short run it’s just a massive hit to business and the economy in Florida as a whole,” he said. “But…in the long run a disaster like this can actually help an economy like Florida’s boom. Because when you think of, $100 billion in damage, well, most of that is insured. So, there will be plenty of money to rebuild, which will mean a lot of job opportunities and opportunities for local businesses in Florida to rebuild everything that needs to be rebuilt and clean up everything that needs to be cleaned up.”
That’s when we lost it.
Mr. Regan is both incorrect and insensitive. There’s no economic “boom” from human tragedy. And there isn’t “plenty of money to rebuild,” either.
Ignoring the obvious offensiveness — suggesting happy benefits to the suffering of countless people in the forms of forced evacuations, cowering in closets for hours, losses of power, boil-water orders or complete losses of running water, no cell service, and, of course, losses of life and property — this thinking is economically backward.
Regan isn’t alone in suggesting an upside to disaster. Economics Nobel laureate Paul Krugman made similar assertions days after 9/11. Writing in the New York Times Krugman said, “It seems almost in bad taste to talk about dollars and cents after an act of mass murder,’’ but the terrorist attacks could “do some economic good.’’ He went on to suggest Manhattan would “need some new office buildings’’ and “rebuilding will generate at least some increase in business spending.’’
This “prime the pump” economics is wrong because it assumes that a dollar spent on recovery is a dollar that’s growing the economy. Regan, Krugman, and many others fall prey to the “broken window fallacy”: that destruction leads to economic growth. But this overlooks the fact that every dollar spent on recovery is a dollar that would have been spent, productively, elsewhere. Here’s an example: Suppose a business owner has $5,000 to spend. Prior to Hurricane Ian, this owner was planning on hiring some help. After the storm, however, he now must use that $5,000 to repair his windows — windows that he once had. You wouldn’t say that’s an economic “win” for the shop owner — or even the person he now must employ to replace windows rather than work in the shop! And you also wouldn’t say that families who paid hundreds for hotel rooms, gas, and food while evacuating are better off because they “fueled the economy.” When you consider that many Americans have trouble covering an unexpected $400 expense, this doesn’t sound so good, does it?
As French economist Frédéric Bastiat noted more than 150 years ago, fixing broken windows is costly. We fix the windows, but we can never see what productive activity might have happened otherwise. Hurricane Ian is no different.
But there was another issue in the NPR segment that grabbed our attention. Regan claimed “there will be plenty of money to rebuild” because the damage is “insured.”
Apparently, he forgot that Florida is in a homeowners’ insurance crisis. Just last month newspapers statewide reported that, in the last two years, more than 400,000 Floridians had their policies canceled. Even worse, 14 companies have stopped writing new policies in Florida, while six have gone out of business in 2022 alone. If that doesn’t seem bad, the record is eight in one year: after Hurricane Andrew. Since 2019, annual Florida premiums have more than doubled according to the Insurance Information Institute. And since Citizens, the state-run insurer, has taken on hundreds of thousands of Floridians those who can’t get private insurance anymore, taxpayers will be on the hook if Citizens runs short.
So much for all that insurance money.
There are no “winners” from natural disasters. To suggest otherwise shows a misunderstanding of basic economics. Think about it this way. If catastrophes like hurricanes really lead to economic booms, then the rest of Florida, along with anyplace spared from Ian, should really envy Fort Myers and Tampa right now. Just think of all those long-run economic benefits they’re missing!
Victor V. Claar is an associate professor of economics in the Lutgert College of Business at Florida Gulf Coast University in Fort Myers.
Abigail R. Hall is an associate professor of economics at the Sykes College of Business at the University of Tampa.