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Features May 2004: Volume 1, Number 2
   

The Cost of Catastrophe

Interview by Raymond Hardie

 
     

One year ago, Hurricane Katrina struck Louisiana. Eighty percent of New Orleans was flooded, 1,071 people were killed and 650,000 displaced. The hurricane damaged 875 schools, destroyed 217,000 homes and 18,750 businesses, left behind 118 million cubic yards of debris and cost the state $37 billion in damages.

@UCSD magazine sat down with Economics Professor Richard Carson to ask him what place economics has in planning for disasters? His on-the-road lecture on Hurricane Katrina, with professors Ken Melville and Richard Somerville of Scripps Institution of Oceanography, proved one of the most popular in the UCSD Near You series.

The magazine interviewed Professor Carson this summer, shortly before he stepped down from chair of the Economics Department.

Magazine: What do you think contributed to the devastation of Katrina?

Professor Richard T. Carson: The wetlands in front of New Orleans had progressively disappeared over time. If you look at the Gulf Coast, the big cities, Houston, Mobile, New Orleans, all are actually inland and used to be fairly well protected. But now the wetlands between New Orleans and the Gulf have disappeared and so the city is not as protected as it once was.

M: Why did the wetlands disappear?

Carson: In some cases it was oil and gas development. One of the bigger causes is simply the Mississippi River is so controlled that now it doesn’t naturally replenish the wetlands. And then there was the big boondoggle water project, the Mississippi River-Gulf Outlet. Known locally as Mr. Go, the project moved more dirt than the Panama Canal and cost billions of dollars. It’s a storm surge that does most of the damage in a hurricane and the evidence right now suggests that the storm surge, which took out the Industrial Canal Levy, went straight up this shipping channel.

M: Are you saying that this much of the catastrophe was due to bad economic decisions?

Carson: If you look at the Mississippi River-Gulf Outlet, there were people who made a lot of money, both on the construction and on the land that bordered it. It costs the government over $20 million annually just to dredge and maintain the locks and yet it collects only a million dollars in shipping tolls because almost no deep-sea ships use the channel. Any economic analysis of this project when it was being built would have shown that it was a huge loser.

M: So why was it constructed?

Carson: Because billions of dollars were spent making it and that money went into the hands of various construction companies, and politicians and their supporters. An economist, particularly in the field I’m in, which is environmental economics, hopes to be able to identify the projects that are bad from the public’s perspective, in the sense that they cost a lot more than any possible benefits they could generate. But these types of projects continue to be built because there are groups that personally benefit a lot and because the public puts up the money.

M: What does economics tells us about the reaction of government to the aftermath of Katrina?

Carson: First we see that government is willing to spend enormous sums of money after a disaster, but not spend fairly small investments before a disaster. And that’s a common recurring theme.

M: What relatively small investments beforehand could have prevented Katrina?

Carson: A set of floodgates built across the Mississippi River-Gulf Outlet would have stopped the storm surge before it hit the levy. That’s a fairly inexpensive project on the order of tens of millions of dollars, when we’re looking at costs afterwards, of billions of dollars. Also, we could take action to restore the wetlands. That’s on the order of a few billion dollars. These decisions are easy to put off, but when catastrophes occur the government has to deal with the consequences and that’s very expensive.

M: So it’s easier for the government to be reactive rather than to invest?

Carson: Right.

M: You talk about restoring wetlands. How would that help guard against hurricanes?

Carson: Over 80 percent of the damage in any hurricane is from the storm surge, which is this large wave of water that’s pushed in front of the hurricane flattening everything in its path. As the storm surge crosses the wetlands, they absorb huge amounts of water and energy. If the storm surge starts out at 30 feet by the time it has crossed 30 miles of wetlands, it’s probably half that size.

M: Are you saying that a city like New Orleans with wetlands in front of it had a natural barrier against hurricanes?

Carson: Yes, New Orleans is located where it is because it was once protected by the wetlands. There are cities along the Gulf Coast of Mississippi that are much more exposed than New Orleans.

M: Some of your conclusions seem to include data beyond economics.

Carson: Yes, I often work with biologists and engineers. That’s one of the interesting things about being an environmental economist. You’re the one who assesses what the trade-offs are, and the engineers and biologists tell you what’s possible. That interdisciplinary collaboration is also what made the UCSD Near You event with Ken Melville and Richard Somerville of Scripps interesting.

M: What does Katrina teach us, not just about Katrina but about public policy?

Carson: Unfortunately, we’ve seen other natural disasters that have all the semblances of Katrina—a lack of coordination between the relevant agencies, and a failure to commit enough resources, early to the problem, before it really develops. For instance, in the aftermath of hurricanes the only way to restore law and order quickly is to bring in the National Guard or some military unit that can move quickly. But no governor wants to claim that they’re giving up control of their state, and the federal government doesn’t want to come in unless they can claim that they want to control everything. There’s a fairly simple solution, which is that the federal government provides either military troops or the National Guard from another state and puts them under the command of the governor of the impacted state.

M: What are the underlying economic principles that can be applied to these natural catastrophes?

Carson: For economists, natural disasters are no different from stock markets or insurance. You’re really just making a financial calculation of what the risks are and how much you should spend in advance. Oftentimes, economists advise governments on how much prevention they should engage in. At the extreme level, you can always prevent fires by cutting down all the trees, and you can prevent damage from hurricanes by building enormous walls but you have a lot of tradeoffs. At some point governments say, we want to put money into our schools and roads. Economists are very comfortable integrating these tradeoffs into the standard financial framework.

M: You’ve recently spoken out against the need for a new airport in San Diego. Why do you think we don’t need one?

Carson: I think we can make Lindbergh field work. It’s the least bad of the available alternatives. Where I think the airport story went astray was that some of the initial work they relied on was just simply bad and wrong.

M: How do you mean bad?

Carson: It would not pass muster with professional economists. They did a study that showed there was going
to be tens of billions of dollars of economic losses associated with air cargo not being able to be shipped out of Lindbergh. But, as it is now, most of San Diego’s air cargo goes to LAX,
or Ontario. Also March Airfield in Riverside County has a huge amount of capacity for air cargo. Would any business in San Diego care whether their FedEx pickup went from FedEx’s Mira Mesa distribution center to Lindbergh or drove an hour further to March? The answer is no, as long as the prices they were paying stayed the same.

M: What about the increasing passenger demand?

Carson: Clearly the number of passengers is going to go up. I work on this for Boeing, to improve the methodology for forecasting the demand for commercial aircraft. But the airport authority has made an unrealistic assumption that as income goes up 10 percent, people will take about nine percent more trips. But would you fly 10 percent more if your income went up? People are more constrained by how much time they have off work. They may change where they fly, but the total number of trips, at this point, is fairly unresponsive.

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UCSD's Department of Economics
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Richard T. Carson, Jr.
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UCSD's Hurricane Experts
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"Government is willing to spend enormous sums of money after a disaster, but not spend fairly small investments before a disaster."