CHUYN via iStockPhoto
As hurricane season approaches its end following historic destruction in North Carolina, Georgia, and Tennessee, it is more important than ever to pay attention to the economic disasters that can accompany them. Natural disasters have devastating effects, and with climate change exacerbating the strength and frequency of these tragic events, they become even more relevant in the discussion of local economies. The issue of disasters is especially relevant in the Southeast, as Texas, Florida and Louisiana lead the nation in the associated costs of weather events. Florida alone suffered a 7.5-10% hit to GDP as a result of a single hurricane in 2022.
The real kicker here is that 13 of the 15 fastest-growing cities in the country are located in the South. Accompanying that shift, the U.S. GDP is shifting south also, as Texas, Florida, Georgia, Tennessee and the Carolinas outperform the northeastern states. In a region historically lagging behind other parts of the country in economic output, we see a dilemma between two forces: how can we focus on sustainable, economic growth when just one storm can reduce output by 10%?
Dr. Kamal Saggi, the chair of Vanderbilt’s Department of Economics, underscored just how important disaster-related physical damage is. “First and foremost, the loss of life caused by these natural disasters in the Southeast is their biggest negative impact on the region,” Saggi said. “Second in line are the huge losses in personal property suffered by individuals, families and businesses in the area. To some extent, insurance might cover some of these losses, but the coverage will surely be incomplete.”
In fact, Hurricane Katrina resulted in $65 billion in losses in physical damage, excluding additional costs related to healthcare and human recovery.
“Third, there has been severe damage to public infrastructure (such as roads and bridges) and other public goods in the area,” Saggi continued. “This type of damage extends to everyone using such infrastructure (which is most people living in the area as well as scores that are traveling through) and therefore its cumulative economic effect in terms of time lost, gas wasted, and more can be quite significant.”
Insurance drives away business
As Saggi mentions, insurance is crucial to disaster recovery. Insurance premiums, however, have increased by 50% in storm-vulnerable regions as compared to 11% nationally.
As insuring homes and businesses becomes more expensive, two results will occur. First, small businesses will be driven out as they can no longer afford insurance, and second, larger businesses will hesitate to expand their presence in these areas.
Future economic development in the Southeast requires a larger and more educated workforce, suitable infrastructure and incentives to do business there. If businesses are not willing to pay high premiums and potential residents are unable to afford homeowners’ insurance, these factors are all under threat.
Infrastructure damage furthers loss
After Helene, parts of Interstate 40 connecting Tennessee to North Carolina collapsed, some of which remain closed. To understand the cost of a bridge collapse, after a 2007 collapse of a bridge in Minneapolis, Minn., the state estimated an economic loss of $400,000 per day as a result of the impacted infrastructure. A collapse of the Interstate 85 in Atlanta, Ga. resulted in similar losses, although for a much shorter length of time.
Evidently, highway damage can cause immense losses to economies, especially growing economies like those in the Southeast. The southeastern region is also less densely populated than some other parts of the country with cities generally far from each other, making transportation infrastructure even more important. That analysis leaves out additional kinds of infrastructure which can be damaged in natural disasters like railroads, energy and more.
Implications go beyond damage
Dr. Joe Bandy, Associate Professor of the Practice in Sociology, Climate and Environmental Studies and Culture, Advocacy and Leadership at Vanderbilt believes there are larger, ethical questions in play with these disasters. “For instance, how are cities or neighborhoods gentrified by policymakers during reconstruction (compounding the already severe social dislocation)?” Bandy said.
As communities rebuild damaged property, stakeholders are often concerned by the increased opportunity for gentrification. A familiar example may be tornadoes in Nashville fueling gentrification of neighborhoods, especially the 1998 tornado in East Nashville. As homes and businesses suffer damages in storms, developers often swoop in to buy property and build new, higher-valued plans.
The new development, higher property value and increased tax revenue from these changes can have the positive benefit of fueling economic growth, especially if development work requires members of the community. Extreme rebuilds can create new jobs and allow areas to benefit from an influx of residents. However, as storms increase in frequency and intensity, the incentive to buy up land may diminish as firms no longer wish to risk investing in these regions.
The larger ethical questions Bandy surfaced, along with the intensification of storms due to climate change, bring another dimension to the economic effects of storms. “There is a wide array of writing across the disciplines about what we are or are not doing to mitigate, or adapt to, climate change, and the types of effects inaction may have,” Bandy said. “Sir Nicholas Stern in 2007, for instance, did his assessment of the costs of climate change and concluded that climate change will have such impacts (beyond simple weather disasters, of course) that it is the largest market failure in the history of capitalism, with significant impacts on global GDP that rise year after year, well outpacing the cost of inaction.”
As these impacts continue to spread, more people will experience the costs of these disasters as they continue to rise and markets become increasingly complex.
“Regardless of the specifics of [Stern’s] methods or conclusions, most recognize that climate change will only cause more disasters and the costs of inaction are greater than those of preparedness,” Bandy concluded.
The result
Nashville and the entire region finds itself in a difficult position. Rapid growth is going to continue here for a while, and with more homes and businesses, the amount of damage from disasters escalates. The regional emphasis on new, economic development coupled with the regional vulnerability to worsening storms means we have to be ready to respond quickly and effectively to protect our emerging economy. The competing aspects of disasters that can allow development for some, displacement for others, and overall damage for all means our community is at risk of losing out on the potential for more growth than is already occurring.
