The Disaster Profiteers: How Natural Disasters Make the Rich Richer and the Poor Even Poorer (29 page)

Now we finally can add the effect of disaster capital losses in this scheme. Look at the next graph. Three things are evident. One is that there is a dramatic drop in production for the same loss of capital,
D
k,
because the loss happens across the threshold on the steepest part of the production
curve. Second is that because returns to capital are negligible in the poverty trap setting, loss of capital has little effect. This finding might explain why it sometimes seems that poor countries don't suffer development setbacks as a result of disasters. Again, these invisible setbacks are like development in reverse. Because additions of capital don't help a great deal in a poverty trap, losing a great deal of capital doesn't matter much either.

This finding gels with an idea put forward by Stéphane Hallegatte and Michael Ghil, but not about poor countries.
4
They analyzed the effects that disasters have at different stages within the business cycle that is common in developed economies. It often is observed that businesses typically go through cycles in which good times follow low times follow good times, and so on. The cycle doesn't have to be boom and bust exactly, but a cycle is evident all the same. So you can ask: Would you rather have a disaster happen during a good time or a low time? Almost everyone, including me, would answer in the good time. But Hallegatte and Ghil suggest that the opposite is true.

They suggest that in good times, when things are going well, the economy is at full capacity and there is no excess capacity available. But in poor times, there
is
excess capacity. That may mean unemployed people sitting around waiting for work, idle machinery, empty retail stores, and the like. In boom times, the economy is already working at full tilt, and there is no one available to deal with a disaster. If a disaster happens in low times, there is capacity to deal with it.

The third and possibly most important insight the last graph gives us is that capital losses that would have little effect on a highly developed country well to the right of the threshold can throw a country near the threshold from a growth situation into a poverty trap. The steeper and more precarious the middle part of the S-shaped curve is, the more dangerous it is to be near it. If you have just been able to claw your way out of the poverty trap, you want to get as far away from the edge as you possibly can. Even a small step backward can send you down into the trap again.

The important point here is the difference between the factors that can put you into a poverty trap and those that can keep you there. A disaster can throw a society into the chasm of a poverty trap. Once there, the
mechanism by which individuals are kept from climbing out may have little to do with the disaster itself.

Of course, this same S-curve can apply to different people in the same country or different economic sectors in the same overall aggregate economy. Everywhere countries contain both poor people and rich people. Rich people live well to the right of the threshold; poor people live near the threshold or to the left of it. The poor experience losses from a disaster very differently from how the rich experience them.

Acknowledgments

This work would not have been possible without the persistent, almost relentless encouragement from my agent, Elizabeth Evans. I probably never would have begun the project at all were it not for discussions with her, and I certainly would not have finished it without her support.

I have been deeply informed by discussions on the subject of natural disasters with Sonali Deraliyagala, author of
The Wave,
with whom I teach and do research at Columbia University, and with whom I traveled to Myanmar to understand the effects of Cyclone Nargis on that country. I worked with Elisabeth King, now at New York University, on a project comparing natural disasters and civil conflicts from which—including many deeply meaningful conversations—I learned how similar yet different these two events can be. Before beginning this project I worked with Kye Borang on a project that looked at disasters along a human rights axis, and that work was the opening for thoughts about disasters and injustice that salted many themes in this book.

I benefited tremendously from extensive discussions and travel to New Orleans with Richard Garfield, currently at the Center for Disease Control, but formerly at Columbia's Mailman School of Public Health. I know no one more dedicated to understanding how to
respond to the trauma of the disaster moment and minimizing the threat to life that it poses.

I particularly want to acknowledge Stacy Parker LeMelle, with whom I traveled to New Orleans several times, and who, through her network of local friends and her skill and diligence at discovering key actors in the Katrina drama, gave me insight into that city and the trials of its people; it was an indispensable education to me. One person we met, Pastor Joe Cull of the New Orleans Police Department, who ministers to police officers in distress and alerted me to the high incidence of police officer suicides following Katrina, was a true inspiration.

Many students and others helped me assemble thoughts and words for this book. I particularly want to acknowledge Solomon Hsiang, Amir Jinar, Jesse Antilla-Hughs, Stephanie Lackner, Epsita Kumar, Valentina Mara, Svetlana Maronova, Leila Wisdom, Marissa Brodney, Semee Yoon, Belinda Archibong, Erin Stahmer, Brenden Kline, Elizabeth Thornton, Jessica Rosen, Meran Killackey, Saira Qureshi, and Phoebe Leung.

Notes

Please note that some of the links referenced in this work may no longer be active.

Introduction. Crossing the Feynman Line

1.
One example is Social Science Research Council, “Understanding Katrina: Perspectives from the Social Sciences,” June 2006,
http://understandingkatrina.ssrc.org/
.

2.
Daniel Kahneman,
Thinking, Fast and Slow
(New York: Farrar, Straus and Giroux, 2011).

3.
Daniel Kahneman and Amos Tversky, “Prospect Theory: An Analysis of Decision under Risk,”
Econometrica
47, no. 2 (1979): 263.

4.
Daniel Mendelsohn, “Unsinkable: Why We Can't Let Go of the
Titanic,
”
New Yorker,
April 16, 2012,
http://www.newyorker.com/magazine/2012/04/16/unsinkable-3
.

Chapter 1. Natural Disasters: Agents of Social Good and Evil

1.
The way in which this might come about is described in chapter 2.

2.
The best work done using these approaches is that of Amir Jina and Solomon Hsiang, and their study considers only tropical cyclones. Still, it is very compelling. See S. M. Hsiang and A. S. Jina, “The Causal Effect of Environmental Catastrophe on Long-Run Economic Growth: Evidence from 6,700 Cyclones,” working paper NBER 20352, National Bureau of Economic Research, Cambridge, MA, 2014.

3.
“Japan's Demography: The incredible Shrinking Country,”
The Economist,
March 25, 2014,
http://www.economist.com/blogs/banyan/2014/03/japans-demography
.

4.
The San Juan earthquake of 1944 destroyed essentially the entire city and took an estimated 10,000 lives.

5.
Mark Skidmore and Hideki Toya, “Do Natural Disasters Promote Long-Run Growth?”
Economic Inquiry
40 (2002): 664–687, doi:10.1093/ei/40.4.664.

6.
To be accurate, Schumpeter was born in what was at the time the Austro-Hungarian Empire and is now the Czech Republic.

7.
Joseph Schumpeter,
Capitalism, Socialism and Democracy
(New York: Harper, 1947).

8.
Drake Bennett, “Do Natural Disasters Stimulate Economic Growth?”
New York Times,
July 8, 2008,
http://www.nytimes.com/2008/07/08/business/worldbusiness/08iht-disasters.4.14335899.html?pagewanted=all
.

9.
Douglas C. Dacy and Howard Kunreuther,
The Economics of Natural Disasters: Implications for Federal Policy
(New York: Free Press, 1969), 270.

10.
Betty Hearn Morrow, “Stretching the Bonds: The Families of Andrew,” in
Hurricane Andrew: Ethnicity, Gender and the Sociology of Disaster,
eds. Walter Peacock, Betty Hearn Morrow, and Hugh Gladwin (New York: Routledge, 1997), 141–69.

11.
Online Etymology Dictionary,
http://www.etymonline.com/index.php?term=disaster
.

12.
John Stuart Mill,
Principles of Political Economy with Some of Their Applications to Social Philosophy
(1848; London: Longmans, Green, 1909),
http://www.econlib.org/library/Mill/mlP5.html#I.5.19.html
.

13.
See, for instance, Philip Brickman, Dan Coates, and Ronnie Janoff-Bulman, “Lottery Winners and Accident Victims: Is Happiness Relative?”
Journal of Personality and Social Psychology
36, no. 8 (1978): 917–27.

14.
An article in
Time
magazine describes Bonanno's work and that of others in the new field of bereavement research by suggesting that the new studies debunk a series of grief myths. Ruth David Konigsberg, “New Ways to Think about Grief,”
Time,
January 29, 2011,
http://content.time.com/time/magazine/article/0,9171,2042372-1,00.html
. The book was published as
The Other Side of Sadness: What the New Science of Bereavement Tells Us About Life after Loss
(New York: Basic Books, 2009).

15.
W. G. Sebold,
The Natural History of Destruction
(Munich: Carl Hanser Verlag, 1999).

16.
The
Economist
magazine defines
moral hazard
as “one of two main sorts of market failure often associated with the provision of insurance. The other is adverse selection. Moral hazard means that people with insurance may take greater risks than they would do without it because they know they are protected, so the insurer may get more claims than it bargained for.” The definition is available at
http://www.economist.com/economics-a-to-z/m#node-21529763
.

17.
Charles Percy Snow,
The Two Cultures
(1959; repr., London: Cambridge University Press, 2001).

18.
Public Religion Research Institute, “Believers, Sympathizers, and Skeptics: Why Americans Are Conflicted about Climate Change, Environmental Policy, and Science,” report, November 21, 2014, Washington, DC,
http://publicreligion.org/research/2014/11/believers-sympathizers-skeptics-americans-conflicted-climate-change-environmental-policy-science/
.

19.
CRED's web address is
http://www.cred.be/
.

20.
David Stromberg, “Natural Disasters, Economic Development, and Humanitarian Aid,”
Journal of Economic Perspectives
21, no. 3 (Summer 2007): 199–222.

21.
“Counting the Cost of Calamities,”
Economist,
January 14, 2012,
http://www.economist.com/node/21542755
.

22.
Geoffrey Ward, review of
This Republic of Suffering: Death and the American Civil War
by Drew Gilpin Faust,
New York Times,
January 27, 2008,
http://www.nytimes.com/2008/01/27/books/review/Ward-t.html?_r=0
,

23.
His son was killed by Confederate soldiers who were stranded behind Union lines after a battle and had disguised themselves as Union soldiers by wearing the uniforms of dead soldiers.

24.
Eric Klinenberg,
Heat Wave: A Social Autopsy of Disaster in Chicago
(Chicago: University of Chicago Press, 2002). See also “Dying Alone: An interview with Eric Klinenberg, author of
Heat Wave: A Social Autopsy of Disaster in Chicago,
” University of Chicago Press website, 2002,
http://www.press.uchicago.edu/Misc/Chicago/443213in.html
.

25.
David Laskin,
The Children's Blizzard
(New York: HarperCollins, 2004).

26.
William Bronson,
The Earth Shook, the Sky Burned
(San Francisco: Chronicle Books, 1996).

27.
National Oceanic and Atmospheric Administration,
A Study of Earthquake Losses in the San Francisco Bay Area–Data and Analysis,
report prepared for the Office of Emergency Preparedness (Washington, DC: U.S. Department of Commerce, 1972).

28.
Gladys Hansen and Emmit Condon,
Denial of Disaster: The Untold Story and Photographs of the San Francisco Earthquake and Fire of 1906
(San Francisco: Cameron, 1989).

29.
Centers for Disease Control, “Deaths in World Trade Center Terrorist Attacks—New York City, 2001,”
Morbidity and Mortality Weekly Report
51, Special Issue (September 11, 2002):16-18,
http://www.cdc.gov/MMWR/preview/mmwrhtml/mm51SPa6.htm
.

30.
Diane Coyle,
GDP: A Brief but Affectionate History
(Princeton, NJ: Princeton University Press, 2014).

31.
Thomas Piketty,
Capital in the Twenty-First Century,
trans. Arthur Goldhammer (Cambridge, MA: Belknap Press, 2014).

32.
Joseph Stiglitz, Amartya Sen, and Jean-Paul Fitoussi,
Mismeasuring Our Lives: Why GDP Doesn't Add Up
(New York: New Press, 2010).

33.
Friedrich Schneider, “Size and Measurement of the Informal Economy in 110 Countries around the World,” paper presented at a Workshop of Australian National Tax Centre, Australian National University, Canberra, July 2002,
http://www.amnet.co.il/attachments/informal_economy110.pdf
.

34.
“Sex, Drugs and GDP: Italy's Inclusion of Illicit Activities in Its Figures Excites Much Interest,”
Economist,
May 31, 2014,
http://www.economist.com/news/finance-and-economics/21603073-italys-inclusion-illicit-activities-its-figures-excites-much-interest-sex
; Sarah O'Connor, “Sex, Drugs and GDP—How Did the ONSZ Do It?”
Financial Times,
May 2014,
http://blogs.ft.com/money-supply/2014/05/29/sex-drugs-and-gdp-how-did-the-ons-do-it/
; Angela Monaghan, “Drugs and Prostitution to Be Included in UK National Accounts,”
Guardian,
May 29, 2014,
http://www.theguardian.com/society/2014/may/29/drugs-prostitution-uk-national-accounts
.

35.
The Big Mac Index,
http://bigmacindex.org/
.

Chapter 2. The Geography of Wealth and Poverty: Knowledge and Natural Disasters

1.
John L. Gallup, Jeffrey D. Sachs, and Andrew D. Mellinger, “Geography and Economic Development,”
International Regional Science Review
22, 2 (1999): 179–232.

2.
Daron Acemoglu and James A. Robinson,
Why Nations Fail: The Origins of Power, Prosperity, and Poverty
(New York: Crown Business, 2013).

3.
C. Mayhew and R. Simmon,
Earth's City Lights,
October 23, 2000. Retrieved from National Aeronautics and Space Administration (NASA) Visible Earth:
http://visibleearth.nasa.gov/view.php?id=55167
.

4.
By
proxy
we mean a factor that can be measured that is directly related to something of interest that cannot be measured directly. The properties of tree rings, for instance, are used to obtain information about past temperatures but do not measure temperature directly.

5.
William Spence, Stuart A. Sipkin, and George L. Choy, “Measuring the Size of an Earthquake,”
Earthquakes and Volcanoes
21, no. 1 (1989): 58–63,
http://earthquake.usgs.gov/learn/topics/measure.php
.

6.
Many basic textbooks describe plate tectonics. A good college-level book with excellent illustrations is Stephen Marshak,
Earth: Portrait of a Planet
(New York: W. W. Norton, 2014). The Wikipedia site at
http://en.wikipedia.org/wiki/Plate_tectonics
is quite comprehensive and cites many good references.

7.
R. A. Rohde, “Saffir-Simpson Hurricane Intensity Scale,” NASA Earth Observatory, November 2, 2006,
http://earthobservatory.nasa.gov/IOTD/view.php?id=7079
.

8.
Flood
means the result of heavy rains inland, sometimes called freshwater flooding, as distinct from flooding due to storm surge from the ocean.

9.
The explosion of Krakatoa Island killed about 36,000 people in the tsunami that followed its eruption; that explosion was the loudest sound made on Earth in modern times and was heard as far as 3,000 miles away.

10.
Incorporated Institutes for Seismology, Education and Outreach,
http://www.iris.edu/hq/programs/education_and_outreach
.

11.
The Coriolis force (strictly an effect, not a force) operates on any rotating body. On Earth, it causes anything moving across the face of the planet in any direction other than exactly east or exactly west to be deflected from its intended path. So if a small, not-so-fast airplane were to start off in London heading due south to Accra, the capital of Ghana (on the same line of longitude), it would probably land in Senegal on the coast of West Africa. Accra moved east as the airplane made its journey due south. In a frame of reference in which the Earth is fixed, the airplane appears to be deflected westward. The exact opposite happens in the Southern Hemisphere. Consider the same airplane trying to fly north from Johannesburg to Cairo. More details can be found at HyperPhysics,
Coriolis Force,
a resource hosted by the Department of Physics and Astronomy at Georgia State University,
http://hyperphysics.phy-astr.gsu.edu/hbase/corf.html
.

12.
No cyclones form at the equator or for about five degrees of latitude (300 miles) on either side. The reasons for these two blank zones differ. In the equatorial belt, the Coriolis effect is too small to cause rotation of the disorganized “stormlettes” that initiate cyclones. In the South Atlantic, sea surface temperatures are a little too low for cyclone formation, and high-level vertical wind shear is too strong to permit the formation of cyclones (the top more or less blows off), and the inter-tropical convergence zone of strong evaporation and cloud formation doesn't come far enough south there.

13.
National Oceanic and Atmospheric Administration (NOAA)/National Weather Service, “Saffir-Simpson Hurricane Wind Scale,” May 24, 2013;
http://www.nhc.noaa.gov/aboutsshws.php
.

14.
Another common way to describe this is through the idea of an
observation window.
You can think of it as the period of time during which a phenomenon has been observed. So, for instance, we need to observe the weather in Paris for only a few years to know that it commonly rains there, but to know how the El Niño affects how much it rains, we would need to observe for many decades because the El Niño recurs every three to seven years and we would want to have observed its effect several times.

15.
Ross S. Stein, “Earthquake Conversations,”
Scientific American
288 (2003): 72–79. Also published in
Our Ever Changing Earth, Scientific American, Special Edition
15, no. 2 (2005): 82–89.

16.
Tokuji Utsu, Yosihiko Ogata, Ritsuko S. Matsu'ura, “The Centenary of the Omori Formula for a Decay Law of Aftershock Activity,”
Journal of the Physics of the Earth
43 (1995): 1–33.