Across the country in Georgia and South Carolina, the cameras captured still more devastating scenes: farm crops dried and withered in the state’s worst drought since 1986. But in the Southeast, as in Iowa, there was some sweeter, if little publicized, economic news: despite farmers’ woes, most of the buying public won’t be affected by the drought. Grain from other parts of the country should help even out supplies, and irrigation has helped preserve the peach crop. While the peaches will be smaller this season, the water shortage should increase the proportion of natural sugar in their flesh, producing a tastier and more consumer-friendly &Wt. Says Buck Bell, who operates a 3,000-acre farm in South Carolina’s Clarendon County: “If we didn’t [produce] anything this year, it probably wouldn’t have any great impact on consumers.”
Bell knows what many TV viewers do not. Mother Nature may have dealt an especially cruel blow to the nation this year. But consumers–and regional economies–probably will not suffer very long at her hand. The reason: government assistance, insurance payouts and, in the case of the Midwest, production boomlets that inevitably follow such disasters will help regional economies recapture their losses. And while no city can expect to turn a profit on floods and droughts, breathless predictions of damage estimates probably are inflated, says Paul Friesema, lead author of the book “Aftermath: Communities After Natural Disasters.” “Individuals are devastated by disasters, often in great numbers,” he says. “But communities bound back relatively fast.”
To be sure, this summer’s natural disasters have brought untold pain and suffering to many individuals. In the Midwest, some 45 deaths were attributed to the flooding. Damage estimates, which include property, income and agricultural losses, are in the $10 billion range. Last week officials were saying the drought cost more than $200 million in ruined crops in South Carolina alone. And the governors of both Georgia and South Carolina have requested that their states be declared agricultural disaster areas. Farmer Bell says he expects to salvage only about 30 percent of his late corn crops and 10 percent of his soybeans. Similarly, Rhett Wessinger, the owner of Wessinger Poultry Farms in Lexington County, S.C., is struggling to try to make up for the 1,200 birds he lost to the broiling heat one day recently. Says Wessinger: “Not only did it hurt the pocketbook but we had to tote ’em out.”
The stories may sound grim, but experts point out that the true impact of natural disasters must be viewed in context. The estimated $3.5 billion in flood losses that have been projected for Iowa are only a relatively small part of the state’s $55 billion economy. Moreover, taxpayers, insurance companies and the federal government will absorb most of the brunt. So resilient is the typical “devastated” community, says Friesema, that when experts look at 20 years of annual economic markers like sales-tax receipts, they often can’t tell when a particular disaster occurred. The nation’s midsection, where the economy has been booming for the past several years, is especially poised to absorb losses. As Edward Lotterman, an economist for the Federal Reserve Bank of Minneapolis, puts it: “This won’t be a straw that tips the Midwest back into recession.”
It could, in fact, actually provide some economic stimulus. Flood victims are already beginning to strip out old carpeting, buy new appliances and repair their homes; the rebuilding, in turn, will cause the region’s gross domestic product–the measure of its goods and services produced–to rise just as it did in Florida last year after Hurricane Andrew. Says James Annable, chief economist for the First National Bank of Chicago: “The GDP isn’t wealth; it’s production. You can raise it by knocking down houses and rebuilding them.”
That’s a piece of macroeconomics that Ron Stookey and his wife, Sue, don’t need a banker to tell them. When the couple’s business, Country Caboose Antiques of West Des Moines, took a beating in the flood, Stookey bought plywood, plastic, tape, paint, insulation, drywall, brooms and squeegees. He’s also hired a carpet cleaner and a carpet layer. “it sets us back,” says Stookey, “but we’re buying.” Meanwhile, one of the beneficiaries of spending from people like the Stookeys is Sutherland Lumber Co. up the road. To meet increased demand, the store is stocking up on thousands of additional sheets of drywall. Store manager Mike Swain predicts that the swift business should continue for the rest of the year. While people are buying raw construction items now, he says, they will be back in the fall and winter to buy finishing touches like fancy doorknobs and light fixtures.
Even subtler factors may reduce the damage estimates. Although Iowa businesses are expected to lose $300 million in revenues during the flooding, it’s important to remember that those revenues aren’t lost forever. A business that didn’t sell a pair of sneakers during the flood will still be able to sell them later. For some retailers, sales will be compressed into later months; flood-shy customers who don’t buy in July can easily empty their wallets in August. Then, too, some spending will be redirected rather than lost. Those who passed up buying a new television set during the flood may instead have purchased a pump for the basement. One retailer’s loss is another’s gain.
Some rural areas won’t be able to look to rebuilding to fuel their recovery; in almost all of South Carolina, for example, crops were lost rather than property. But victims will be able to tap other sources. A yet-to-be-determined amount of aid from government relief agencies ranging from the Federal Emergency Management Agency (FEMA) to the state of South Carolina Hay Hotline will help take up some of the slack for crop loss and infrastructure damage. Small businesses, however, may not fare so well; many could fall through the cracks of federal relief programs, and individuals will have to bear much of the burden of those losses. “This isn’t Bosnia, but neither is it Kuwait,” says Iowa state economist Harvey Siegelman. “We don’t have unlimited wealth to absorb these losses.”
For all the losers, some unlikely winners may also emerge from this summer’s disasters. One is the American consumer, run, lower at least for the short term. Rising feed costs brought on by crop failures could prompt livestock producers to thin out their breeding herds in the coming months. When meat supplies rise temporarily, retail prices could fall in the short run. And disasters, for all their tragic consequences, can have a positive effect on productivity. Siegelman says that in Iowa, one of the states hit hardest, flood repairs will boost a construction industry that was already running at full capacity. After all, what could be more American: if you can’t fight Mother Nature, at least you can make a buck off her.
