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Paul Hancock

A major hurricane can damage the US economy for years. Here's how.


Record breaking hurricanes Harvey and Irma have wreaked havoc on communities in the Southeastern United States and along the gulf coast this summer, but the catastrophic damages don't stop along the coastline. Economists say the damages from major natural disasters can cause a ripple effect that could hurt the national economy for years after the flood waters recede.

"In terms of the national GDP, my prediction is that in the next couple of years it's actually going to go down by billions of dollars," said John Cui, assistant professor of operations at Georgetown University's McDonough School of Business.

Cui added that economists will have to conduct rigorous economic analysis to identify the true impacts, but based on first impressions and his previous research, he estimates GDP, consumption and the job market will feel the effects of the damaging storms for one or two years.

The first sign is increased prices for some goods like oranges, which are expected to become more expensive in the wake of Hurricane Irma ripping through orange crops in Florida, and gas prices will usually go up too.

Those small changes can have a big consequences on the national level.

"The increased energy price is going to be felt by all industries in all states," Cui said. "This is going to increase your costs for manufacturing, and also increase your labor costs and just in general people would have less buying, purchasing power so national consumption will go down."

Then there's the impact on the job market. When a powerful storm levels entire towns, inevitably jobs will be lost. But it's not just the storm-ridden areas that suffer the economic consequences.

"Yes for sure there’s going to be an increasing number of construction jobs maybe next year and into the next. However, all the other jobs are gone. If you don’t want to work for the construction industry, they have to feed themselves, they have to find jobs. So this is going to lead to re-allocation of the residents. They’re going to go to cities and states that have jobs for them," Cui said.

He explained that the influx of people migrating to cities for jobs can stress the job markets and impact wages in those areas.

A 2014 study published by the National Bureau of Economic Research found the economic damage caused by natural disasters can be as bad as some man-made economic issues like a tax increase and a truly devastating storm could cause economic damage similar to losses from a banking crisis.

Cui argued the economic impacts of a natural disaster could be worse than a man-made economic crisis because communities don't see a natural disaster coming and typically aren't prepared.

"You can’t really do anything in advance to prepare for it. You have to make real time decisions, whether you want to reallocate you residents, you want to keep them here. So this… make me think that natural disasters like a hurricane would have more bad consequences compared to a man-made economic downturn," he said.

But it's not all bad. Some economists argue that major hurricanes can have some positive impacts in the long term by spurring investments in better infrastructure and jobs.

Cui pointed to Japan as an example. After the 2011 earthquake and tsunami, many Japanese auto manufacturers had to stop operations, but it wasn't necessarily because their factories were destroyed by the disaster, it was because their smaller suppliers did.

This prompted manufacturing companies to invest in rebuilding those small suppliers and instate proactive measures ahead of future disasters.

Cui explained that the U.S. can also learn from this example. Homeowners might decided to buy more insurance and businesses might invest in better infrastructure to protect their interests in the future.

"This is actually a good wake up call that we could avoid more economic losses in that sense," Cui said.

It takes extensive analysis to determine the costs and effects of hurricane damage, and it can take months or even years to fully grasps the costs of rebuilding. Texas Gov. Greg Abott has estimated the damage from Hurricane Harvey could total $180 billion, making it the costliest storm in U.S. history, and that's before the numbers from Hurricane Irma have been tallied.

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