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A Different Kind Of Storm, Part 2

Yesterday I talked about how the 2007 hurricane season forecast is for above-average activity, with the U.S. Gulf region once again a target. However, my greatest concern is the possibility of a major hurricane shooting up the Eastern Seaboard and making landfall in the New York City area. How likely is this scenario? A 1990 study by the U.S. Army Corps of Engineers said the 3 U.S. cities most vulnerable to hurricanes are New Orleans, Miami, and New York. The Associated Press on May 31 pinpointed 5 of the most vulnerable U.S. coastal spots, with New York City one of them. Joe Bastardi, the chief hurricane forecaster for AccuWeather.com, said that in past years with the same climatological patterns, “Some of those years also saw a storm break out of the pack and head up the East Coast, and we would not be surprised to see this scenario play out this year as well. Any storm that strikes north of Hatteras has increased potential to be a major one,” he said. Last year, Bastardi correctly forecast that the Gulf Coast would get “minimal” attention by that season’s hurricanes. According to ScienceDaily.com yesterday, University of Rhode Island Professor Isaac Ginis, who helped develop an ocean-based hurricane forecast model that has been the most accurate prediction tool at the National Hurricane Center, believes that the Eastern Seaboard may be at greater risk for a hurricane this year. Professor Ginis said, “We just finished an El Nino period, which results in fewer storms, but now we’re transitioning to La Nina, which favors storm development… We’re overdue here in New England for a big storm. Category 3 storms strike our region about every 60 years, and the last one was Carol in 1954.”

A major hurricane making landfall at or near New York City will result in extensive flooding and heavy storm surges. Even a minor hurricane has the potential to submerge Lower Manhattan and the runways at JFK Airport. A direct hit on New York’s Long Island by a Category 3 or higher hurricane could cost $100 billion (as compared to Katrina’s $81 billion), according to a CBS News report last July 30. The same size storm hitting south of the City in central New Jersey would be catastrophic, with $200 billion in damages and lost business. “And much of that disruption will not be covered by insurance,” according to catastrophe risk analyst Karen Clark. “It will be the largest financial disaster that this country has ever seen,” she added. Scott Mandia, a professor of physical sciences at Suffolk County Community College in Selden, New York, predicted in National Geographic News on May 19, 2006, that “There will be an economic shutdown for a few weeks, if not a month.” Nicholas Coch, a professor of environmental sciences at Queens College in New York City, added, “Should a hurricane close the port of New York and the New York Stock Exchange for a week or more, the damage to the nation’s economy would be more severe than that caused by Katrina.”

The socioeconomic impact of hurricanes in the United States is much more significant today than in years past because Americans have a love affair with coastal living. The U.S. Census Bureau estimates that 35 million people, or 12% of the population, live in coastal areas most threatened by Atlantic hurricanes. The number has more than tripled since 1950, and the Census doesn’t even count Northern coastal states, according to an Associated Press article on May 31. Margaret Davidson, director of the National Oceanic and Atmospheric Administration’s Coastal Services Center, told the Associated Press that, “When I was growing up on the Redneck Riviera, most of the stuff we built was built out of plywood, and you built it with your cousins on a weekend. And if it blew away, you got yourselves a keg of beer and you got your relatives together and you went out and built it again. And what we now have strewn across the coast is a bunch of McMansions.”

Contrary to what some economists would have you believe, natural disasters, such as hurricanes, do not benefit the U.S. economy. The dollars spent on reconstruction must come from somewhere- it doesn’t just materialize out of thin air. Money spent on reconstruction is money not spent on other projects, or on reducing government debt, or on tax cuts, etcetera. In the case of Hurricane Katrina, faced with the difficult choice of either reducing spending in other areas or borrowing money to pay for the recovery effort, the United States chose to borrow funds overseas, according to Peter Schiff in his book Crash Proof. Schiff said, “As a result, our external debt grew by that much more, exacerbating our current account deficit and representing a drain on our future consumption for generations to come. However, once foreigners no longer make their savings available to Americans, the real burden of natural disasters will be more apparent.” While hurricanes, like other natural disasters, may not in themselves cause a financial crash, they have the ability to hasten and magnify the pain of our “financial reckoning day.”