Today's Bloomberg BusinessWeek carries a front-page article (entitled "It's Global Warming, Stupid!") blaming SuperStorm Sandy on global warming, and projecting that reconstruction will give the economy a needed shot in the arm. The article is wrong on both counts. Bloomberg apparently needs a refresher course in basic economics.
Yes, Superstorm Sandy was bolstered by global warming, in particular by warmer ocean temperatures and consequently higher storm energy. But that does not mean that the warming is primarily manmade, much less that the many ambitious proposed solutions to the problem (mostly economic sanctions to favor one special-interest group over another) are a viable solution.
I don't deny that mankind may be contributing to global warming, or that weather may be getting worse. But I am old enough to remember the 1970s, when the prophets of climate change said that we were sliding into another ice age, and that we needed to sprinkle ash on the ice caps to warm the doomed planet. I also remember that Leif Ericson found grapes in Greenland over 1000 years ago. As I argued previously, there are always people predicting the end of the world, and they haven't been right yet. And the goal of "controlling" the climate just betrays our most human characteristic: hubris.
If anything, this storm really just underlines the basic truth that was ignored both before and after Katrina, after the Indonesian and Japanese tsunamis, and every other major natural cataclysm. Nature is in charge, and while we may be able to limit her effects in some areas, and for some period of time, we cannot hope to eliminate them all, and we should plan accordingly.
In his best-selling book "The Black Swan", Nassim Nicholas Taleb explores the very human trait that causes us to repeatedly underestimate both the frequency and the severity of uncommon and catastrophic events. He points out how we search after the fact for causes to blame, and then we convince ourselves that they won't happen again--until, of course, they do. History repeats itself, and Nature does too.
In the classic organizational behavior book "The Peter Principle: Why things Always go Wrong", author Lawrence J. Peter shows that in any organization, people always rise to their level of incompetence, and stay there. But the Peter Principle applies in private life as well. We all tend to drive faster and faster until we get a ticket (or an accident), we eat more and more junk food until we have a (hopefully non-fatal) coronary event that drives us to a healthy diet, and we invest more and more money in beautiful beachfront property until Nature rearranges the coastline with a storm surge, a tsunami, or a landslide. We seem to have short memories, and we think the inevitable catastrophe will never happen to us.
Here in Utah, we had a record snowfall in the winter of 1983-84 that melted and ran into the lakes downstream, raising them to record levels. Many people lost homes and businesses that were located in the 100-year flood plain. In Salt Lake City, the City Creek overflowed the culverts that carried it under downtown urban development, and it was diverted down a makeshift channel made of sandbags running along State Street. A man in a business suit, walking along the street saw something flash in the water, reached in, and grabbed what was probably the only trout ever caught on State Street.
The government responded, breaching the railroad causeway that was damming some of the excess waters from reaching the Great Salt Lake. The move was controversial because the government decided which businesses would be flooded and which businesses would be saved. Afterwards, they went even farther, investing millions of tax dollars in a pumping station and pipeline to the desert, which has never been needed (or even tested), since that once-in-a-lifetime snowfall and warm spring.
True, the resulting damages and the construction project helped the local construction industry-- but the loss of wealth in homes and businesses was permanent, whether to individuals, or whether transferred to insurance companies. Economists who talk of the "broken window" effect (like Bloomberg's article) are disregarding the value of the original window. Common sense tells us that an economy does not really grow by reinventing the wheel, or by repeatedly repairing the same broken window. It's like the war effect on an economy-- production increases to compensate for the horrifying destruction, but war is not a net economic benefit, or a wealth enhancer, except to profiteers.
Insurance companies will charge more for large windows located near golf courses, or for people who smoke, or for other known risk factors. While people affected by Superstorm Sandy are struggling to restore power, roads, and other infrastructure, we should help all we can, but we should not be deluded into thinking that the repair of the damage is a net gain to the economy-- because it is not. A shiny new car that replaces one swept away, is still a net loss, because the materials and labor that built two working cars has resulted in only one that operates. The loss of the first was a tragic waste of labor and materials, and the second a doomed effort just to try to get back to where we were.
I am not saying that Sandy hitting New York City was a foreseeable risk. Certainly not on the level of rebuilding New Orleans' 9th Ward, 12 feet below sea level, anyway. But we should not kid ourselves into thinking that what has happened once, can never happen again, or that the lessons learned were without cost. Ben Franklin famously wrote that "Experience keeps a dear school, but a fool will learn in no other." It takes an even bigger fool to say that flunking the class is a net economic benefit, and then repeat the course bigger and better (with all our friends).