Hurricane Irene's Aftermath: An Economic Stimulus or a Washington Battlefield?

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Hurricane Irene flooding in New JerseyFor most of the past week, Hurricane Irene has cast a blustery shadow across the news spectrum, unleashing a deluge of stories about bottled water sales, media hype and the best songs for a hurricane playlist. However, now that the storm has passed, it's time to get back to discussing the country's most damaging unnatural disaster: the economy. Yet, even in this seemingly talked-out topic, Irene is making her impact felt, as economists and pundits across the country are debating whether the hurricane will help America's bottom line or drive it further into the red.

On the surface, the answer seems fairly clear: Irene hadn't even hit South Carolina on Friday when The New York Times' Nate Silver began estimating the billions of dollars in damage that a hurricane could do if it directly hit, nearly hit, kinda hit, or simply blew kisses at New York City.

(As a side note, if a Category 5 hurricane slammed into the Big Apple, Silver estimates that the costs would total more than $16 trillion -- roughly $2 trillion more than the current U.S. deficit and over eleven times the city's yearly GDP. Granted, this has never happened, and was certainly not going to happen last week, but -- as Silver noted -- it could happen, particularly in movies directed by Roland Emmerich and starring Jake Gyllenhaal.)

As it happened, Irene's damage -- while considerable -- was far less than the worst-case scenarios that Silver and other alarmists had predicted. The full costs of the storm are still unknown, but most analysts estimate that insured losses will range between $3 billion and $7 billion, a fraction of the $45 billion in damage that Hurricane Katrina wreaked upon the Gulf Coast and far less than the $14 billion that many were expecting. Part of this comes from the nature of the damage: Homeowners' insurance doesn't cover flooding, and the fact that Irene was initially categorized as a hurricane means that -- in some states -- insurers can charge policyholders higher deductibles.

In response to the better-than-expected news, the share price of several major insurers -- including Allstate (ALL) and Travelers (TRV) -- rose on Monday.

A Silver Lining?

When it comes to the larger economy, Irene could provide a hefty stimulus. Analysts are already predicting a big jump in construction and home-furnishings spending as beleaguered homeowners rush to repair and replace property that was destroyed in the storm. Economist Peter Morici estimates that this short-term consumer spending boost will total roughly $20 billion, and suggests that it may have some long-term positive effects. To begin with, he predicts a multiplier effect of about $16 billion as post-disaster spending works its way through the economy. What's more, as business owners replace destroyed property, Morici estimates that there may be a long-term economic improvement of more than $10 billion.

Other analysts agree; David Kotok, chairman of money management firm Cumberland Advisors, notes that his company is now predicting that fourth-quarter GDP growth may go as high as 3%, fueled by "Billions [that] will be spent on rebuilding and recovery."

Unfortunately, much of this growth will be dependent upon the political climate. Cumberland assumes that, among other things, "Washington may set aside the usual destructive and divisive partisan political wrangling and act in the interest of the nation." If this is the case, Kotok emphasizes, federal financial assistance will rush to troubled areas, quickly stimulating rebuilding efforts.

However, if the recent debt ceiling debate demonstrated anything, it's that "neither snow nor rain" nor the best interests of the country can slow down Washington's partisan wrangling. When it comes to post-Irene rebuilding, the battle lines have already been drawn: House Majority Leader Eric Cantor (R-Va.) is demanding other federal budget cuts to offset disaster assistance spending, and FEMA is in the middle of a funding crisis that -- barring quick action -- will undoubtedly delay some rebuilding efforts. Meanwhile, GOP presidential candidate and U.S. Rep. Ron Paul (R-Texas) reiterated his argument for killing FEMA altogether.

For voters still reeling from this summer's destructive debt ceiling debate, it's clear that the storms are far from over.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

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24 Comments

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fit1stnow

Google the "broken window" theory in economics...it will prove this article rubbish.

September 02 2011 at 4:18 AM Report abuse rate up rate down Reply
destin023

I'm gonna pat myself on the back & say I'm smarter than all these guys. I wrote about the needed economic boom this storm would create if a lot of damage occurred. It was brushed off by the HuffPoo crowd as a non thought. I remember Hugo created a large stimulus for the state of SC when it hit back in '89. Private sector spending coupled with gov't emergency funding & private insurance money are a great combination to jumpstart large purchasing trends. What Washington can't figure out maybe mother nature can..

September 02 2011 at 12:03 AM Report abuse rate up rate down Reply
Mike & Carol

I am not a rocket scientist, but if we can put every non working person to work repairing the damage from the latest storms...wouldn't it get done faster and cheaper....people need jobs and companies need people that want to work....The government needs to put their money where our mouthes are...........rebuild America.....NOW

September 01 2011 at 9:13 PM Report abuse rate up rate down Reply
brucedab

YOU SCARED YET? DEPENDS ON HOW MUCH HELP YOU EXPECT FROM OUR FEDERAL BELIEVERS.. WE ARE ALL ONE OR THE BEST ONE WINS TO H... WITH OUR DEMOCRATIC BELIEFS...

September 01 2011 at 6:42 PM Report abuse rate up rate down Reply
channabar

This is the same logic used when telling us that food stamps and unemployment create jobs and stimulate the economy. Shows a complete lacking in fundamental economics: how to create / grow wealth. The phrase "opportunity cost" comes to mind. Yeah, the construction industry will get a bump, but the money spent to replace what was lost cannot and will not be spent on things like new cars, clothing, etc. Bottom line, we spend the money to get back to what we had, not to create more throughout the economy.

September 01 2011 at 5:06 PM Report abuse +1 rate up rate down Reply
1 reply to channabar's comment
fit1stnow

you are one of the few posters to understand economics...

September 02 2011 at 4:23 AM Report abuse rate up rate down Reply
baydolphins2003n

I watch the weather channel during storms and don't recall any serious threat to Vermont bering mentioned. everyone was so fixated on what would happen to NYC, that the real threat (the rain) went ignored

September 01 2011 at 2:58 PM Report abuse rate up rate down Reply
bam2microa

More on Republicans. Just keep putting the People of America last. Let's save their reward for November 2012 and show them the unemployment line.

September 01 2011 at 1:12 PM Report abuse -5 rate up rate down Reply
2 replies to bam2microa's comment
dabrownman

There is real hope an change coming to Washingtoin DC in 2012 and not the kind some Jive Turkey told you he was bringing to town with his circus performers and carneys.

September 01 2011 at 5:36 PM Report abuse +1 rate up rate down Reply
Mike & Carol

They don't care...they get the best deal ...no work ,but continue to be paid....get the bums off the payroll ....NOW

September 01 2011 at 9:16 PM Report abuse +1 rate up rate down Reply
motorbikes

I think this what is called shovel ready jobs that were promised, we in Vermont sure do have a mess on our hands. Especially when the state depends more on tourism than anything. Life won' t get to normal for quite the while.

September 01 2011 at 7:02 AM Report abuse +3 rate up rate down Reply
1 reply to motorbikes's comment
dabrownman

Sadly the kind of shovel ready jobs Obama was lying about were the kind where you better be ready to get out of the way of the socialist crap he was shoveling your way.

I hope you guys can get back on your feet and that we are doing what ever we can to help you rather than hurt you further.

September 01 2011 at 5:41 PM Report abuse +1 rate up rate down Reply
t5479216

(As a side note, if a Category 5 hurricane slammed into the Big Apple, Silver estimates that the costs would total more than $16 trillion -- roughly $2 trillion more than the current U.S. deficit and over eleven times the city's yearly GDP.

September 01 2011 at 2:49 AM Report abuse +2 rate up rate down Reply
1 reply to t5479216's comment
dabrownman

The entire net worth of everyone in the USA is 117 Trillion, not including real estate and personal property. Anyone who would spend 1/10th of their net worth to rebuild a socialist whack job haven like New York deserves to be broke,

September 01 2011 at 5:32 PM Report abuse rate up rate down Reply
shelleyshou

Unfortunately, much of this growth will be dependent upon the political climate. Cumberland assumes that, among other things

September 01 2011 at 2:07 AM Report abuse rate up rate down Reply