Economic Loss from Major Disasters - Personal Statement Example

Economic Loss from Major Disasters Introduction The term disaster refers to a public health event that is unusual and overwhelms the ability of the affected population to cope with their way of life. The World Health Organization refers to disasters as health risks or conditions, which like any other disease, would be a subject of systemic control, epidemiological analysis, and prevention, instead of merely being a humanitarian matter or an emergency medicine. It also stresses the factor of interdependence between catastrophic events and long-term sustainable development resulting in a conclusion that the two factors cannot be addressed when isolated. According to the studies conducted by Hopkins (2001), disasters can be classified as technological disasters, natural disasters, or complex emergencies. These categories are arbitrary and they refer to a natural hazard or phenomenon that is an immediate trigger. Furthermore, a major disaster may result from earthquakes, flood, hurricanes, major fires, or tornados. For a president to declare an event a national disaster or determine warrant for federal aid, it must be more than what the local or state governments can manage alone. The Federal Emergency Management Agency (FEMA) treats hazard mitigation as the measures taken to minimize recurring losses from disasters that would occur in the future. Additionally Hopkins (2001), stated that the ideological reasons for hazard mitigation are: prevention of future damage to property and deaths due to natural disasters, implementation of local or state mitigation plans, to ensure mitigation measures are taken into account during an unforeseen disaster and to fund mitigation measures which benefit areas of disaster that have been previously identified. Response versus recovery The relief that is required after an occurrence of the disasters depends greatly on the immediate objective of the people that are affected. According to the studies conducted by Xiao (2008), the immediate needs for these people include needs like rescue, food, clothing, and communication with their loved ones. After the passing of the direct dangers, the focus of the victims shifts to the process of rebuilding. This process is also referred to as the recovery stage where federal grants and loans can help enormously. Recovery costs incurred by the state or local governments may be beyond their capabilities to replace essential services such as repairing expensive sewage systems and water services. The government ends up spending most of its funds on such repairs instead of investing them in other sectors to boost the economy of the country. The federal government mobilizes the federal resources during occurrence of catastrophic disasters to assist in search and rescue, provision of water, food, shelter, electrical power, and other human needs. Xiao (2008) concluded that this incurs the government a lot of expenses that were unplanned or not included in the budget. Furthermore, the recovery phase of a major disaster is a long-term process that gives the state or local government a severe financial strain. For example, damage to uninsured infrastructure and public facilities can seriously overwhelm a large city and cause massive disruptions to the normal routine of the residents. Rationale for the public to participate in catastrophic disasters Disasters are viewed as extraordinary events that result in collective stress and disruption of the activities regarding the country’s economy. Furthermore, whether the disaster is man-made or natural, it seriously retards the process of development of a country. In reference to the studies conducted by Haque (2005), the community is the one that ultimately faces the resulting fury of a disaster. Therefore, the people that are stricken by this disaster should take action themselves and not depend entirely on the government to take responsive action after a disaster has struck. It is important for the public to be involved in disaster mitigation processes since Sahni (2001) noted that the public assists the local government or the state in partly paying for costs of rebuilding damaged infrastructures that belongs to the affected community. Federal Emergency Management Agency has a program called the FEMA Public Assistance program that provides assistance to tribal, local, and state governments, and some private nonprofit organizations enabling communities to recover and respond quickly to major emergencies or disasters that occur. This program provides hazard mitigation measures that minimize potential damage of facilities that may occur in future events. There is a presumption that disaster aid from the government should be constrained and this assumption arises partly from political processes in the U.S whereby disaster aid promotes political benefits. Sahni (2001) further noted that the main beneficiaries in this regard include the President himself via a sequence of local mayors and state governors who assist in distributing the aid, and finally individual and business beneficiaries. However, a primary question arises, namely, what is the importance of post-disaster aid from the government? Unfortunately, available literature provides minimal systemic analysis of principles regarding economic welfare that underline post-disaster aid from the public. The welfare economics under post-disaster government aid can be distinguished into an ex post and ex-ante welfare criterion. An ex-ante criterion involves a traditional view of risk-sharing benefits offered by markets that provide well-functioning insurance. Additionally Haque (2005) noted that, provided all entities and individuals in the economy act subjectively on the same probability for every catastrophic event, the risk-sharing via insurance markets eliminates idiosyncratic losses that otherwise motivates post-disaster aid from the government. To be clear the government’s emergency responses such as temporary shelter and food provision including medical aid will still be effected, but large-scale compensation from the government for physical losses would be considered unnecessary. This would enable the government to direct its funds in other sectors thus boosting the economy. On the other hand Haque (2005) noted that the ex post welfare factor arises when individuals and entities of the economy maintain subjective probabilities that are different for various catastrophic events. This results in differing individual purchasing of insurance for the event. According to studies conducted by the U.S National Research Council (1999), this insurance purchases would quite significantly differ from amounts purchased in a place with a subjective probability that is singly shared for the event. Thus when the actual event occurs, underinsurance of these individuals follows and hence a lump sum ex post relive from federal funding enhances economic welfare assuming the minimized dead-weight costs involving such government transfers. Possible opportunities for entities and the public to undertake cost-effective responsibilities in mitigating the underlying catastrophic disasters raises a level of complexity as they interact with government disaster aid, insurance markets and behavioral factors. While insurance markets provide correct incentives in regards to mitigation activity, government insurance markets that are subsidized may actively decrease the economic benefits associated with mitigation. In reference to the U.S National Research Council (1999), this will reduce the magnitude of the mitigation process that is done. Similarly, the post-disaster government aid reduces the incentive in carrying out the mitigation activities via the Samaritan’s dilemma. Disasters are viewed as extraordinary events that result in collective stress and disruption of the activities regarding the country’s economy. Furthermore, whether the disaster is manmade or natural it seriously retards the process of development of a country. The community is the one that ultimately faces the resulting fury of a disaster. Therefore the people that are stricken by this disaster should take action themselves and not depend entirely on the government to take the action. The highly emotional response to a disaster has long prevented the use of a cost-effective approach in making decisions regarding natural disaster relief and mitigation activities. The willingness of huge amount of money per single victim who is rescued from these disasters presents ethical issues due to unavailable modest funding for survival of large numbers of victims. The question involving “who should pay” can also arise and this is usually part of a political dialogue. For instance, as Xiao (2008) noted, if the answer to this question is that people in the hazard- prone areas should be the ones to incur for their losses, then the purchasing of insurance whether private or public in those areas would be one of the key requirements by the government. Whatever the source, a rapid expansion of the dollar size in regard to governmental post-disaster relief has greatly confronted the fiscal mandate and budgetary realities of reducing expenditures in many countries. Conclusion The major complication that arises is the existing interactions among four factors including: an increase in the severity of catastrophes, the upcoming trend of aid from the government, the incentives of the government and home owners not to be engaged in the mitigating activities of the underlying risks and substituting government insurance for the private insurance. In addition to this, it is clear that free post-disaster aid and subsidized government insurance has greatly encouraged development in the risky areas, thus encouraging the expansion of the dollar magnitude in regards to the resulting losses. It is thus important to review the welfare economics that are fundamental to the federal government to provide post-disaster aid and at the same time reconsider purchasing of insurance for the private market and mitigation options available to minimize these government expenditures. It is difficult to generate the support for new mitigating activities unless the mitigation process is justified in regards to economic and financial returns. From this assessment, it’s an advantage to note that mitigation can greatly save economic and financial costs in relation to conventional cost-benefit framework provided the federal government gets support from the public. References Haque, C. E. (2005). Mitigation of natural hazards and disasters: International perspectives. Dordrecht: Springer. Hopkins, A. (2001). Managing Major Hazards: The Lessons of the Moura Mine Disaster. Saint Leonards: Allen & Unwin. National Research Council (U.S.). (1999). The impacts of natural disasters: A framework for loss estimation. Washington, D.C: National Academy Press. Sahni, P. (2001). Disaster mitigation: Experiences and reflections. New Delhi: Prentice-Hall of India. Xiao, Y. (2008). Local labor market adjustment and economic impacts after a major disaster: Evidence from the 1993 Midwest flood. (Dissertation Abstracts International, 69-11.) Read More