Calculating the costs of the hurricane damages, particularly in Puerto Rico, a U.S. territory, is no easy task, says a Virginia Tech expert.

“The size and complexity of disasters influence how long it takes to assess the impact of disasters, and hurricanes are particularly time-consuming. For example, it takes more time to determine the impact of wind vs. water damage across assets than when a hail-storm damages automobiles," said Jadrian Wooten, an expert in economics at Virginia Tech.

After Hurricane Fiona, Puerto Rico was left without power for 1.5 million people and no water for thousands, government officials will soon be taking stock of the damage. Puerto Rico officials describe the damage as “catastrophic.”

The cost of rebuilding hurricane-damaged areas is often seen as positive investment for economies. Not so, according to Wooten. “Those people would be falling victim to the broken window fallacy. It’s an easy trap to fall into, mostly because it’s an optimistic take on a negative event. The parable of the broken window was introduced by Frederic Bastiat in his essay ‘That Which We See and That Which We Do Not See.’ The argument goes that destruction is good for the economy because the money spent on repairs results in new production.”

Wooten continues, “Bastiat, however, points out that ‘destruction is not profitable’ because the money spent on repairing destroyed property is actually replacing something that was lost and not going toward creating additional value. The money spent after a natural disaster may increase GDP, but it does not increase national wealth. Had all of the original infrastructures survived, the additional money could have been used to create more or better services for people in the area.”

Wooten adds that this burden of building-destruction-rebuilding is much heavier for areas that incur multiple natural disaster as with Puerto Rico, which suffered Hurricane Maria in 2017 and a 6.4 earthquake in 2020.

About Wooten
Jadrian Wooten is collegiate associate professor at Virginia Tech within the Department of Economics and is the author of Parks and Recreation and Economics. Read more about Wooten’s takeaway from Hurricane Fiona and its devastating and unknown costs in his Monday Morning Economist newsletter.

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