The Cost of Natural DisastersI. Examples of recent natural

The Cost of Natural Disasters
    Good afternoon. Today we’ll talk about natural disasters and their effects. The world’s industrial supply chains were only just recovering from Japan’s earthquake and tsunami in March when a natural disaster severed them again in October. An unusually heavy monsoon season swelled rivers and overwhelmed reservoirs in northern Thailand.
    The deluge cost $40 billion, the most expensive disaster in the country’s history. J.P. Morgan estimates that it set back global industrial production by 2.5%.
    Such multi-billion-dollar natural disasters are becoming common. (1) Besides the Japanese and Thai calamities, New Zealand suffered an earthquake, Australia and China floods, and America a cocktail of hurricanes, tornadoes, wildfires and floods.
    Although deadly quakes are rarely blamed on human activity, it is fashionable to blame weather-related disasters on global warming. (2) However, a recent study by the Intergovernmental Panel on Climate Change, expressed little confidence in any link between climate change and the frequency of tropical cyclones.
    The world has succeeded in making natural disasters less deadly, through better early-warning systems for tsunamis, better public information about evacuation plans, tougher building codes in quake-prone areas and encouragement for homeowners to adopt simple precautions. Adjusted for the Earth’s growing population, the trend in death rates is clearly downward.
    However, there is no doubt the economic cost of natural disasters is rising. (3) This is because a growing share of the world’s population and economic activity is being concentrated in disaster-prone places: on tropical coasts and river deltas, near forests and along earthquake fault lines.
    Whether the economic toll of disasters is rising faster than global GDP is unclear, since a wealthier world naturally has more wealth at risk. Still, the incidence of spectacular, multi-billion-dollar catastrophes seems certain to rise.
    Development by its nature also aggravates risks. As cities encroach on coasts, wetlands and rivers, natural barriers such as mangrove swamps and sand dunes are obliterated and artificial ones such as dykes and sea walls, are erected to keep the water out. (4) The result is to put more people and property in harm’s way if those barriers fail.
    As cities on river deltas extract groundwater for industry, drinking and sanitation, the ground subsides, putting it further below sea level and thus requiring even higher dykes.
    People originally settled in river deltas precisely because regular flooding made the land so fertile. Those cities have continued to grow because of the natural economic advantages such concentrations of human talent hold for modernizing societies. Even when poor people moving to cities they are increasing their risk of dying in a mudslide or flood. (5) But the risk is more than compensated for by the better-paying work available in cities. And in rich countries, coasts are gaining population simply because people like living near water.
    Perverse incentives are also at work. In America, homeowners on flood-plains must have flood insurance to get a federally backed mortgage. But federal insurance is often subsidized and many people are either exempt from the rule or live in places where flood risks have not been properly mapped. Some do not buy disaster insurance, assuming they can count on federal aid if their home is destroyed. Once the government declares a disaster, it pays 75%-100% of the response costs.
    As a consequence of these skewed incentives, people routinely rebuild in areas that have already been devastated.
    This is not all because of incentives. People have a tendency not to price rare, unpredictable events into their decisions, even if these may have catastrophic consequences.
    If human nature cannot be changed, government policy can be. (7) That is spending more on preventing disaster so as to cut its costs. According to the World Bank, roughly 20% of humanitarian aid is now spent responding to disasters, whereas a paltry 0.7% is spent on preventive measures taken to mitigate their possible consequences.
    Next I would like to use the Netherlands as an example.
    Some 60% of the country is either under sea level or at risk of regular flooding from the North Sea or the Rhine, Meuse and Schelt rivers and their tributaries. In 1953, a combination of a high spring tide and severe storm over the North Sea overwhelmed dykes, flooding 9% of its farmland and killing 1,800 people. The country responded with a decades-long program of "delta works" to guard estuaries from storm surges, while raising and strengthening dykes.
    But the success of those defenses has made the consequences of failure even greater. Protected by the delta works and dykes, the land stretching from Amsterdam to Rotterdam has heavily industrialized and now provides most of the country’s output. The northern and southern parts of the Netherlands are far more safe but are economically less attractive. People are moving to the western part of Holland because it’s where the economy grows.
    In 1993 and again in 1995 heavy river flooding inundated the countryside and nearly rose above dykes in population centers, forcing the evacuation of more than 250,000 people. (9) The country ,as a result began instead to make its cities and countryside more resilient to floodwaters. In 2007 it launched its ￠2.3 billion "Room for the River" project. At 39 locations, dykes are being moved inland, riverbeds deepened and fields now occupied by farms and households deliberately exposed to floods.
    The Dutch approach also has limits. It is costly. Farmers were paid market value to leave the polders. To do this in a more densely populated city or industrial area would be prohibitively expensive.
    All right, we’ve just looked at the increasing economic cost of natural disasters, why preventive measures may turn out to be even more damaging and the example of the Netherlands. Any questions?