Friday, September 8, 2017

HURRICANES | Measuring Severity and Cost

September 8, 2017 – On this date in 1900, a Cat 4 hurricane hit Galveston, a port city 50 miles southeast of Houston.

It still ranks as the deadliest hurricane in American history. But other hurricanes were more severe from a damage/cost standpoint, and hurricanes Harvey and Irma are being described as record-breaking.

Deadliest Hurricanes

Galveston had many vacationers, in addition to the town’s 40,000 year-round residents. People were aware of a strong tropical storm coming but the U.S. Weather Bureau was convinced that the storm's path would be up the Eastern Seaboard. The residents and tourists on Galveston Island weren’t warned until September 7. The hurricane brought a storm surge 15 feet high and covered the entire island. Telegraph lines and bridges to the mainland were destroyed. The New York Times quoted a survivor as saying:
“I managed to find a raft of driftwood or wreckage, and got on it, going with the tide, I knew not where. I had not drifted far before I was struck with some wreckage and my niece was knocked out of my arms. I could not save her, and had to see her drown.”
The Great Galveston Hurricane killed 6,000-12,000 people, often cited as the midpoint, 8,000. It was not just the deadliest hurricane in the United States ever, but the deadliest U.S. natural disaster.

              Ten Deadliest U.S. Hurricanes
              Rank. Hurricane, Year. Deaths
1. Galveston Hurricane, 1900.  8,000 dead.
2. Okeechobee Hurricane, 1928. 2,500-3,000 dead.
3. Hurricane Katrina, 2005. 1800 dead. 
4. The Cheniere Caminada Hurricane, 1893. 2,000 dead.
5. Sea Islands Hurricane, 1893. 1,100-2,000 dead.
6. Georgia-South Carolina Hurricane, 1881. 700 dead.
7. Atlantic-Gulf Hurricane, 1919. 600 dead. 
8. The Great New England Hurricane, 1938. 600 dead.
9. Hurricane Audrey, 1957. 400 dead.
10. Florida Keys Labor Day Hurricane, 1935. More than 400 dead
Prospective Measures of Hurricane Severity

The significance of an oncoming storm is estimated by meteorologists based on wind-speed categories and barometric pressure. The two measures are interrelated and point to likely wind speeds. The public needs also an indicator of the likely economic impact of flooding.

1. Five Wind-Speed Categories. A Category 1 hurricane means wind speeds of 74-95 mph on the Saffir/Simpson Hurricane Scale. The categories go up to 5 for wind speeds above 155 mph. Hurricane Irene petered out on its way north. The warm air carried by Hurricane Sandy on its way north met another storm with cold air from the northwest.

2. Millibars — Barometric Pressure. The Christian Science Monitor has posted a lucid summary of the significance of this measure of hurricane severity. (It also repeats the error cited above about the cost of Hurricane Irene — I will return to this.) Ordinarily, the barometric pressure is related to wind speed. The normal sea-level barometric pressure is 1013.5. During a hurricane the eye of the storm shows the lowest barometric pressure. The lower the pressure, the higher the winds. During the afternoon before Sandy hit landfall,the barometric pressure at its eye fell from 943 to 940, which is a level associated with Category 3 or Category 4 winds. The lowest barometric pressure that has been measured in a U.S. hurricane is 882 for Hurricane Wilma. Hurricane Carla was the tenth-lowest, 931. The National Hurricane Center list of the most intense Atlantic hurricanes does not follow the Millibars ranking exactly, since Katrina and Wilma are not in the order one would expect. Irene is not among these most intense hurricanes. So the prospective readings are not a definitive measure of impact.

3. Storm Surge Impact. Most of the damage from Hurricane Sandy is caused by the delayed impact of the storm surge (the hurricane equivalent of a post-earthquake tsunami). We need a new indicator of likely flood damage, which would have to take into account the economic value of property in the track of the hurricane, the sea level of the land, and the size of the expected surge.  The Storm Surge Impact index could take into account the timing of the tides — Hurricane Sandy hit landfall near high tide and the full moon added to the height of the tide and therefore to the surge. The geography of the surge was important in the case ofNew York City because the surge came from two directions — down the Connecticut coastline through the Long Island Sound and northward through the funnel of New York Harbor.

Retrospective Measures of Impact or Cost

There are at least six basic ways to measure or adjust the cost of a hurricane after the fact.

1. Deaths.  Every life is precious. That is why good records are kept on fatalities. On the measure of number of lives lost to a hurricane, Hurricane Irene’s 24 lives lost did not even rank among the 100 most costly hurricanes.  As a measure of the severity of a storm, the indicator is limited because government officials are much better than they used to be at identifying places from which people should be evacuated, and at following up. Over the years there has been steady improvement in (a) U.S. Government warning systems via NOAA and its National Weather Service and National Hurricane Center, and (b) the FEMA network of state notification and assistance.  Loss of life can be converted to a dollar figure via life insurance losses or a value that economists impute to a person’s remaining working life. Injuries also represent a cost either to the individual or to health insurance plans (private or governmental), and injuries that result in a disability can be attached to a working-life cost.

2. Damage to Physical Property.  Property can be destroyed by wind or flooding or a combination. This means a loss of wealth of the property owner. If the loss is charged against revenue, it means a loss of revenue. (A building may be a depreciated asset; loss of inventory is likely to be expensed.) The first impact may be flying debris, the lifting off of roofs, the flattening of flimsily constructed buildings. The delayed effects include (a) loss of electricity from downed power lines, which means that many perishables have to be thrown out, and (b) flooding, which destroys or rends temporarily useless all kinds of property, such as books and electronics, especially if the flooding is from salt water. In 2012, as Chief Economist for the New Jersey Institute for Social Justice, I wrote something for the Huffington Post looking at damage from Sandy in New Jersey and damage from Hurricane IreneIrene was originally billed as the fifth most costly U.S. hurricane, but was in fact not even among the ten most costly. The claim was based on decades-old figures, not adjusted for inflation.

3. Business Interruption. The delayed effects of a hurricane also include business interruption. Increasingly, businesses insure not only against loss of property but the loss in profits that comes from an interrupted business. When a restaurant or a theater remains closed because of floods that prevent people from showing up, it is hard to make up the loss because the business space has a limited capacity. That is something not fully taken into account by those who look for a large rebound after a disaster, as might be true of a retail store that offers a post-hurricane sale. Some kinds of losses are much harder to make up. Figures on the cost of hurricanes increasingly include business-interruption losses, which bias upward the later numbers — another reason it is so important to adjust for inflation as discussed below. It is incorrect to offset the wealth loss from hurricane damage with the economic activity from replacing the loss — Frederick Bastiat long ago explained why with his “broken window fallacy” analysis.

4. Insured vs. Uninsured Private Losses. Insurance companies are most interested in the total of insured losses. But from an economic perspective, losses to individuals (e.g., workers paid by the hour) are real. The money that would have been spent in the community by the individuals is missing. The National Hurricane Center uses a simple rule to estimate uninsured losses — it doubles the number for insured losses.

5. Government Losses. At the national level, flood insurance is provided by the National Flood Insurance Program. Individuals pay a premium for this insurance, which would otherwise not be available. After a hurricane, there will be payouts and a loss that may exceed cumulative premiums. The  National Hurricane Center in its estimate of damage adds in the number for flood damage provided by the National Flood Insurance Program. FEMA programs provide relief to local governments and individuals. Other Federal bodies (the dewatering unit of the Army Corps of Engineers, for example), states (emergency response teams) and localities (police, fire, sanitation, ambulance) must also be factored in as costs of a disaster.

6. Adjustments for Inflation or Growth in Business Activity. Two kinds of adjustments are typically made to comparisons among hurricanes. One is to adjust cost figures for inflation. The Christian Science Monitor story cited above incorrectly describes Hurricane Irene as the fifth mostly costly hurricane in U.S. history. As I explained last year, that label only works if we are under the delusion that a dollar 100 years ago should be valued the same as a dollar today. (Apart from the fact that business-interruption costs are increasingly included in hurricane losses, adding to the size of the numbers.)  There are widely available cost-of-living indicators to refer to, such as this one from the BLS. Business activity measures are used to relate hurricane damage to the value of the real estate through which the hurricane travels. This is a good predictor of cost and is also a factor to consider in comparing the impact of a hurricane traveling the same path in different years.

Total Economic Damage

The deadliest hurricanes are not always the costliest in terms of property loss or business interruption.

The 10 costliest Atlantic hurricanes are listed below with their estimated damage. Total estimated damage includes insured and uninsured losses. A rule of thumb is that uninsured losses equal insured losses. So if an insurance association or forecaster estimates that insured losses are $10 billion, then total private losses (insured plus uninsured) are commonly doubled (to $20 billion). In addition, losses are borne by Federal, state and local governments - the cost of special national insurance programs like flood insurance, or the cost of FEMA assistance, or the cost to states and localities of the overtime of emergency-assistance personnel or the damage to public infrastructure.

Note that earlier estimates are generally based on physical damage only, whereas later economic impact numbers, after WWII, include impacts such as business-interruption costs because these became widely insured events. In addition, as mentioned already, dollar-value rankings must be adjusted for inflation. There is no sense in old unadjusted dollar numbers. The most costly U.S. hurricane ever was the 1926 Miami Hurricane, which cost $165 billion in 2010 dollars, according to the National Hurricane Center.

Ten Costliest Hurricanes

Rank. Hurricane, Year. Cost $billion (2010 dollars)
1. Great Miami, 1926.  $165. 
2. Katrina, 2005.  $110. 
3. Galveston, 1900.  $104. 
4. Galveston, 1915.  $71.4. 
5. Andrew, 1992.   $60.5. 
6. L.I. Express, 1938. $41.1. 
7. SW Florida,1944.  $40.6. 
8. Lake Okeechobee, 1928 $35.3. 
9. Ike. 2008 $29.5. 
10. Donna. 1960 $28.2.
Source: NOAA, National Weather Service and National Hurricane Center, Blake and Gibney, 2011.  Calculations utilize Pielke et al. (R. A. Pielke, Jr., J. Gratz, C.W. Landsea, D. Collins, M. Saunders, and R. Musulin, 2008: “Normalized Hurricane Damages in the U.S.: 1900-2005.” Natural Hazards Review, 9, 29-42.)  Pielke et al. adjust historical data for inflation to 2010, wealth per capita and population.

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