Hurricane season will probably not cause a recession on the mainland.
It may cause a depression in Puerto Rico.
Over the past several weeks multiple hurricanes have torn through American states and territories, leveling several of the Virgin Islands, flooding Houston and annihilating much of Puerto Rico's infrastructure.
At the same time, Houston and south Florida have suffered hundreds of billions of dollars' worth of damage. Rebuilding south Florida may take years, while Harvey's salt water flooding will probably cause permanent damage to huge stretches of the Texas coast.
This has caused many people to start asking about the long term economic consequences of this kind of damage. What happens when major communities simply cease to exist on the map, and will the rest of America feel the loss when Washington and insurance companies spend billions of dollars rebuilding territories and states?
For the whole country, the answer is probably not.
"Even Katrina had a very small aggregate effect on the U.S. economy," said David Kelly, a professor with the University of Miami School of Business. "You might see a very small blip for one quarter but that's it, and Katrina was twice as damaging as Irma."
"The economy is very big, very diverse," he added. "It's hard for any one shock to knock it off balance."
But ever since Tropical Storm Harvey made landfall economic watchdogs have begun sounding the alarm that this could be the event that finally tips the U.S. into recession. After years of uninterrupted job growth and stock market gains, many believe that the country is primed for a downturn. They warn that the coming losses to insurance companies coupled with economic disruption could cause that to happen.
While not impossible that's unlikely for a number of reasons, the chief two being the local nature of this destruction and the scope of the coming aid packages.
The federal government is poised to send billions of dollars into stricken communities in Texas and south Florida. Without minimizing the scope of loss, both human and financial, these aid packages will help those communities get back on their feet. As rebuilding efforts begin not only will this money offset the impact of the hurricane, but in some circumstances it can actually boost employment and wage opportunities.
"Many of these properties are insured," Kelly said, "so you have money coming from people who are insured and rebuilding, and its paid for through the insurance money. Local governments can sometimes borrow money for the infrastructure rebuilding. FEMA can contribute some obviously."
"People sometimes lose their jobs in tourism, transportation these sorts of things, but it's a boon for some industries like construction," added. "You have to add up the gains and losses, and the losses are dominant in terms of employment, but in terms of wages the gains dominate."
Meanwhile in terms of overall impact, the national economy is generally too big for one storm to throw off course.
While a hurricane can cause local destruction, national resources can adapt. Harvey has taken Houston's massive energy sector offline, but America has many other refineries and production facilities to pick up the slack, and trade relationships that can do still more. The same goes for Florida's agricultural output. Despite some price fluctuations, a hurricane rarely affects the entire economy.
As one study from the St. Louis Federal Reserve found, a natural disaster that spans entire "regions of the country" can slow down national economic growth but that takes an event large enough to affect a major section of the population; a blizzard that shuts down the entire eastern seaboard, for example.
(It should be noted that this report, written in 1994, also discussed the "extraordinary spate of natural disasters and atypical weather" which "have cost the economy dearly in terms of lost wages and output… and hundreds of lives.")
If anything, there is a chance that some areas of the economy will actually grow due to the influx of government spending and the opportunity for insured property owners to rebuild with new, better materials.
Puerto Rico has not been so lucky.
Over the past few weeks the island territory has been virtually flattened by a succession of storms. Communities have had to cope with the destruction of buildings and infrastructure on a massive scale.
It is the latter which may prove most devastating.
Relief workers focus on restoration of basic infrastructure as the critical first step in rebuilding a community after a storm. Services like power, drinking water and functional roadways serve as a crucial link between rescuers and victims, and allow first responders to actually do their jobs. Tools, medical equipment and personnel all rely on some degree of infrastructure.
Without electricity equipment can't function, knocking out hospitals and on-site construction services. Without roads, workers will struggle to move generators and fuel into place to supply emergency power. Without water, crews and equipment will struggle to clear those roads. It adds up.
The destruction of Puerto Rico's infrastructure will make rescue and rebuilding operations much harder, and has many experts concerned that matters on the island will deteriorate further. Authorities have already expressed fears that disease and lawlessness will set in, worsening an already critical problem.
All of this means that Puerto Rico's rebuilding will take much longer and cost much more than in Houston and south Florida, with far fewer property owners insured. As a percentage of the local total far more value was wiped out in these communities, at a time when the local government already was struggling with outsized debt.
This community had less and has lost more. America will recover and be well. Puerto Rico may not.
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