Insights & Advice


What’s the price tag of a perfect storm?

Whether it’s real life earthquakes, volcanic eruptions, or make believe “end of the world” themes like the mother of all blizzards in the movie “The Day after Tomorrow”, we devour stories recounting the human pain and misery that accompanies these disasters. What we fail to realize, however, are the cumulative costs of weather and natural disasters that impact the world every year.

Ninety seven severe weather events have battered the U.S. over the last thirty years, according to the National Environmental Satellite, Data and Information Service (NESDIS), which is the nation’s scorekeeper in assessing severe weather events. NESDIS defines ‘severe’ as damage or costs that reach or exceed $1 billion per event.

Their running list encompasses everything from multiple year droughts in the Southwest and Great Plains to Western wildfires, to hurricanes, floods and winter ice storms.

In terms of an annual price tag, the U.S. Commerce department estimates that drought costs our economy $6-8 billion, wildfires, $2 billion, tornadoes, hurricanes and floods, $11.4 billion and severe weather like ice storms and snow storms cost another $5.8 billion. That’s over $27 billion, about the size of the State of Massachusetts’s budget.

Here in the U.S., weather and climate sensitive industries account for about one-third of U.S. GDP. We’re talking trillions of dollars here with weather directly impacting agriculture, construction, energy distribution and outdoor recreation (that’s about 10% of GDP). Weather can make a big difference in yearly output for a number of industries. In agriculture, for example, weather can alter output by as much as 20% a year.

Natural disasters, like the earthquakes in Haiti and Chile or the recent eruption of the volcano in Iceland have a duel impact on a country’s economy. There is the first wave of destruction in the form of loss of life and property causing multi-billions in damages. But there is another long-lasting “aftershock” that impacts a nation’s businesses when they try to resume operations. According to the Gartner Group, 43% of companies in an earthquake are immediately put out of business by a major loss of computer records and another 51% permanently close their doors within two years, leaving a mere six percent survival rate. That can cripple a nation’s economy for years into the future.

Ever notice how many times you’ve read or heard that the weather is changing over the last few years? That our climate has taken a turn for the worse or that natural disasters, like hurricanes or tornadoes, are much more frequent now then they were when we were kids?

“I tell you its climate change, the global warning, that’s behind it all,” claimed my lawn guy last weekend.
Since Lawn Guy is the closest thing to a climatologist I know, I thought, rather than take his word for it, I should do a little research. In my next column I will explore why the weather and natural disasters appear to be more frequent and so destructive. The answers might surprise you.

Posted in Macroeconomics, The Retired Advisor