Don’t Let Puerto Rico Fall Into an Economic Abyss

A house in ruins in Puerto Rico. Credit Hector Retamal/Agence France-Presse — Getty Images

Almost nothing on the planet, short of nuclear weaponry, destroys economic value as rapidly as a mega-hurricane. In Puerto Rico, decades of economic progress were undone in 12 hours by Hurricane Maria.

With millions lacking electricity or potable water, avoiding a humanitarian disaster should be President Trump’s top priority. But these immediate needs are just the beginning of Puerto Rico’s long road to recovery. As Congress considers an aid package in the days and weeks ahead, it’s important to grasp the truly extraordinary scale of the storm’s economic devastation.

Hurricane Maria was an absolute monster. By our calculation, the average exposure in Puerto Rico was winds of 123 miles per hour. Normally, only small areas get slammed, and indeed some locations suffered through Category 5 winds of 158 m.p.h. But what stands out about Maria is that if you were anywhere in Puerto Rico on Sept. 20, you would have been experiencing something that felt like passing through a strong Category 3 hurricane. There was nowhere to hide.

Scouring an entire territory the way Maria did is not normal. Of the more than 13,000 cyclone events around the world since 1950 (an event is one hurricane or typhoon hitting one country), only five topped Maria in their overall average intensity, according to data gathered for a 2014 study one of us did with Amir Jina of the University of Chicago.

In all five cases, those strikes were on much smaller islands (Guam, Hong Kong and the Northern Marianas) making it easier to achieve high-intensity scores per area of land affected. More notably, all five were in the Pacific Ocean, whose wide, warm expanse gives cyclones a long runway to intensify. In more than 60 years of data, no Atlantic hurricane was a disaster as epic as Maria slamming into Puerto Rico.

What will this cost Puerto Rico’s economy? History is a useful guide. A study one of us did with Daiju Narita of Hokkaido University showed that assets in the United States are far more likely to be destroyed in a cyclone than assets in a comparable event in other wealthy nations, like Japan, Hong Kong or Australia. This is, in part, because of the fragility of our infrastructure, which looks more like that of poorer countries, like India or China. This was certainly the case with the Puerto Rican power system, run by a utility which filed for bankruptcy this summer. The island’s electric grid was all but destroyed by the storm. We were not prepared, and that is going to cost us.

But sadly, the largest costs are yet to come. Research with Professor Jina shows hurricanes can have a strong effect on economic growth over the following decades. Historically, a 1-in-10 cyclone event slows per capita income growth in the affected country to the point that it is 7 percent poorer two decades after the storm. This is on par with losses from an average financial or banking crisis.

Maria’s impact may be much worse. To determine how much worse, we used an econometric model of the costs of cyclones over the past 60 years and applied it to the characteristics of Hurricane Maria and the pre-storm economic conditions in Puerto Rico. We calculated that Maria could lower Puerto Rican incomes by 21 percent over the next 15 years — a cumulative $180 billion in lost economic output. Supposing that Puerto Rico had been on track to sustain its 0.8 percent real per capita annual growth between 2009 and 2015, then we would expect to see Maria undo all those gains and then some. It could now take 26 years for the next generation to get back to where we are today, assuming that per capita growth rate would have continued.

In percentage terms, the loss to the Puerto Rican economy is on par with the most heavily hit states during the Great Recession. For Puerto Rico, Maria could be as economically costly as the 1997 Asian financial crisis was to Indonesia and Thailand and more than twice as damaging as the 1994 Peso Crisis was to Mexico — but this time on American soil.

But this doesn’t need to become Puerto Rico’s destiny. Sufficient, timely, sustained and well-designed disaster relief from Washington can help mitigate Maria’s impact. The island’s electrical grid needs to be rebuilt from scratch, and fast, to deliver lifesaving services now and to enable broader recovery and reinvestment in the months ahead. Thousands of buildings need to be repaired or replaced.

Timely assistance can help ensure that this construction can happen without bankrupting families and small businesses, which would deprive Puerto Rico of private investment and household spending at the very moment it’s most needed. Research has shown that people tend to leave storm-battered areas if there’s not prompt outside support to rebuild and reinvest. If there is that support, people are more likely to remain.

The Puerto Rican government has little ability to finance reconstruction of roads, power communications and other infrastructure, and these will need to be built differently, because Maria is certainly not the last storm we will see. Smart investments now can reduce the economic damage the next time.

Attempting to grasp the true scale of devastation in the wake of Maria is mind-bending and heartbreaking. As Congress considers a Hurricane Maria aid package, it should not ignore these numbers. It is in everyone’s interest to try to keep Puerto Rico’s economy from falling into the abyss. And most important, we have a mutual duty to one another as Americans.

Solomon Hsiang, an associate professor for public policy at the University of California, Berkeley, and Trevor Houser, a partner at the Rhodium Group, are the directors of the Climate Impact Lab.

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