How many disasters can we take at once? The short answer is that while the US is continuing to rebound nicely as the economy restructures, it’s still a very delicate process. Unemployment is low in much of the nation, or at least a lot lower than we have seen for a long time. But the process is uneven, bypassing rural areas and older workers unable or unwilling to essentially start over with entirely new careers.
Upsets like major storms are enough to put the whole process in jeopardy, especially when there are two right in a row. This should be the year when everything changes, but it hasn’t been working very well. A lack of leadership and a general sense of drift isn’t helping us take off. The storms? Big enough for a solid recession, without a doubt.
Let’s start with the numbers. Hurricane Harvey affected about 10 million people, a solid 3% of the population of the country. Houston is more than just the fourth largest city in the nation – it is the center of all chemical production and home to a large number of basic industries which make a lot of other things possible. They are also likely to essentially lose about two months of production by the time this is all over, which is to say take out about 0.5% of GDP. That’s on top of the estimated $180 billion in damage.
Irma affected far more people. The populations of Georgia and Florida will all have some effects from this, about 30 million in total. That’s a solid 10% of the population, but it will likely take a lot less time to get back to work. Let’s say the average affect is a month lost, or about 1% of GDP total. The damage estimates will not be in for a while, but it’s probably similar to Harvey at around $200 billion.
Florida was ready for a storm like this, more or less. It wasn’t the crazy 1,000 year plus event that came in the form of four feet of rain like Houston endured.
All told, we’re looking at 1.5% of GDP taken out in 3Q17, which is definitely enough to trigger a recession. This estimate can be wildly high and there is still likely to be a problem. But that is hardly the end of it for us.
Damages on this scale are going to bankrupt or at least stress large parts of the insurance industry. Will there be a financial crisis triggered? Probably not, but the difficulties will contribute to the downturn. Since most of the damage is flooding, it will be up to the US government to step in and provide quick action to start the rebuilding process.
This is where the problems are going to start.
It’s not just that our government is dysfunctional, it’s that the ideology in place will trigger a serious reaction to the tab which is almost certain to be on taxpayers. It will probably run on the order of half of the tab, at least $200 billion. That will not go well. It’s bad enough as it is, but the inevitable process of screwing around and delaying reconstruction will lengthen the process of standing around and staring at each other before the hard work of rebuilding and putting millions to work starts in earnest.
Given that this is all in the run-up before the holiday shopping season, there is the potential for more self inflicted damage to the economy. We can reasonably expect that even without a serious financial crisis.
It may seem unreasonable that hurricanes can trigger a recession, but these were two very serious hurricanes affecting a total of 13% of our population – and a lot of critical industry. It’s a lot for any nation to swallow all at once.
Combining this with a general lack of leadership and a recovery getting a bit old at eight years in length and we are definitely due for a recession. It won’t be long or deep, but it will be a pause. How we recover is going to have a lot to do with the final chapter of resetting the nation after the Managed Depression of 2000-2017.
This should reasonably be the Year Everything Changes, but it seems like we had to go through one more round of disaster before we got out of it. Barring anything more this hurricane season, and there is still time, we should have a solid pause before genuinely moving on.
Of course, we still don’t have very positive leadership, unity, or a sense of direction. But that may come outside of our elected officials. If we have learned anything lately it’s that our politics terribly lags reality rather than lead it. We’re still waiting for that to change.