Monday, February 16, 2009

The economics of tornado damage

Lately, I've been wondering about the significance of the dollar damage estimates for tornadoes provided by, say, Storm Data. These numbers seem to come out within a few days of an event, and I'm pretty uncertain about their real meaning. I'm guessing that someone (it's unclear just who) has estimated the cost of structures damaged or destroyed by a tornado. Apart from uncertainties associated with these estimates (and I know little about those uncertainties), this seems to be a vastly oversimplified way to understand the economic impact of tornadoes.

Of late, we've been seeing a fascinating impact story on TV about Greensburg, Kansas (virtually wiped off the map by a tornado in 2007): the "greening" of Greensburg. This had been a small town whose main claim to fame was the world's largest hand-dug well. Now, it seems that the town is being rebuilt in a way to make it a model for an environmentally-conscious community. In the long run, the tornado might have had a positive impact on Greensburg! This is not to minimize the significance of the losses, but to suggest that, at least in economic terms, Greensburg might turn out to be substantially better off than they were before. The jury is still out on this, of course, but there's cause for some optimism.

In 1999, the tornado outbreak of 3 May in Kansas and Oklahoma hit the town of Stroud very hard. Its main industries included an outlet mall on the Interstate through town, a factory, and a hospital. Apparently, after being heavily damaged, the outlet mall and factory were not rebuilt, costing the town jobs and income. Where does that impact show on the ledger for that tornado? This is an obvious economic impact that isn't accounted for at all in the dollar damage estimates after the fact.

It seems to me that economics is another example of a complex, highly nonlinear system (as is the weather itself). Deep understanding is required to do a comprehensive analysis of the economic impact of a devastating natural hazard event. There are all sorts of costs that aren't accounted for in the damage done to structures. The cost of the physical and mental trauma, the loss of income when people aren't able to go to work, the business losses by being shut down along with inventory damaged or destroyed. Plus, there are unaccounted-for benefits for some elements within a community - hardware store business might experience a large positive surge in sales of the means by which damage can be repaired, construction businesses experiencing a boom, replacement of obsolete or worn-out infrastructure (personal or commercial) with the help of insurance, and so on. Infusion of insurance, as well as state and federal funds can offset some of the damage costs. There are short-term and long-term impacts, the latter of which certainly are rarely, if ever, considered and definitely are not included in Storm Data.

I'm sure there are many elements of a community economy about which I'm unaware - I'm not an economist, after all - so I'm confident that a complete accounting of any specific tornado's impact has never really been done, to say nothing of the impact of the 1000 or so tornadoes that occur in the USA every year. Therefore, this topic seems ripe for a collaboration with some real economists. Unfortunately, the small number of economists I've mentioned this to aren't really looking for additional projects to fill up their copious spare time! I can understand their reluctance to add something new to their table, but it's disappointing.

If we want to have a clear understanding of the economic impacts of tornadoes, and I see many reasons why we meteorologists should want this information, then this is a major project just waiting to be done. It seems likely I won't be able to be a part of it, but I sure hope someone can make this happen!