Preparednessdaily.com

From The Market Ticker

Amazing, really.

The screaming about how Sandy will wind up being a “net positive” for the economy is nothing more than a rehash of the old, tired and long-disproved “broken-window” fallacy.

That’s the premise that when one has a terrible thing happen the repair costs are additive to GDP but ignores the costs that were imposed in the first place, such as the destruction of wealth embodied into those windows.

This sort of nonsense is common and often used as justification for both natural disasters and even wars, since war tends to trash infrastructure, and people point to the usual ramp job in the economy that happens when war ends as justification.

Bah.

When war is “good” economically that change occurs due primarily due to the death of large swaths of the working population!  This reduces competition for jobs which in turn tends to drive up wages.  In other words it shifts the supply/demand curve on labor; if there was a lot of slack in the labor market prior to the war (e.g. WWII) this can provide a boost as all those unemployed people are now dead.

Of course if you’re one of the dead you probably disagree that this was a “good thing”, but it does provide an example of why economics is often called “the dismal science.”  I often question the applicability of the word “science” in the same sentence, however, with people like Krugman and similar, who are more-akin to practitioners of some odd moon-dancing cult than anything approaching scientific inquiry, and the basis of my objection begins with their willful refusal to validate their claims against the basic laws of arithmetic!

“Recovery” from Sandy will certainly be a problem economically, but hammers should be applied to the heads of those in both the private sector and governments who failed to plan and thus planned to fail.  I remain stunned — and appalled — at failures among critical systems in places like hospitals which were unable to remain operating during this storm when cut off from utility power.  It’s one thing to blow it as a business; the penalty for that is bankruptcy.  But when life-safety is involved and quasi-government “approval” and “licensing” is at-issue criminal charges must issue against those individuals and firms who couldn’t be bothered to spend the money and plan for entirely-expected threats to operational continuity, as the entire premise of their alleged offering to emergency medical services is predicated on that continuity!

Alternatively, let’s cut the crap and drop all the government “shields” against people going after these jackasses for everything they have.  The utter idiocy of “licensing” medical facilities and making representations that actual life-safety measures are reasonable in face of now-overwhelming evidence that nobody gave a good damn ought to be front-page news in every paper across the nation.

It won’t be though.

Nor will it be in the financial markets.  Everyone talks about “redundancy” in the context of 9/11, but that’s crap too.  In point of fact in 1992, when I lived and worked in Chicago, a contractor accidentally sunk a piling too close to an old freight tunnel at Kinzie Street resulting in the Chicago River flooding the underground levels of a huge number of buildings, including the Chicago Merc and CBOT.  The old tunnels had been converted to run fiber-optic lines among other things and so-called “watertight” doors were either removed or compromised over the years.  That disaster led to requirements that actual geographically-diverse backup facilities be constructed and certified to be operational if needed for such allegedly-necessary things as financial exchanges!  That was more than a decade prior to 9/11, yet not only did we wind up with disrupted financial markets on 9/11 now it’s happened again despite so-called “redundancy” that was required more than, at this point, twenty years ago.

Reality is that storms happen.  And before people start screaming about “Glo-bull warming” and lose their ability to comment on this Ticker, let me point out that this storm, while bad, doesn’t even measure up in historic terms.  Rather what this shows is that so-called “100 year flood” levels are, well, statistically valid for a once-in-a-hundred-year event — which is about what we just had.  If you built your infrastructure to 11 feet above sea level for NYC based on this “100 year flood” 30 years ago, when there hadn’t been a flood to that level in 70 years, guess what — time’s up!

There’s no reason on God’s Green Earth for any facility in today’s world that has a requirement to remain operating to have its switchgear in a basement where it can be flooded, with no means to isolate and reroute power, and/or a generator that either can be flooded out, a fuel system that can be shorted out, or a power distribution system for the building (including the elevators!) that can be turned into slag by water intrusion.  Facilities planners and building managers love those sub-basement utility closets as they’re “cheap space” that has little economic value in terms of rentable square feet, but they forget that the lack of value applies both ways and when they predicate the value of all the square feet above that sub-basement on the provision of power through that nice cubby hole down in the bottom of the building you damned well better make sure that it doesn’t turn into an electrified shark tank at random, even if unlikely, times.

We also need to take a serious look within the property and casualty insurance space at what look an awful lot like intentional losses.  Anyone who left a car in an underground garage in NYC in Manhattan as Sandy approached should have their claim denied as certainly as if they had set it on fire intentionally.  While that almost-certainly won’t be done to people it should be; it was utterly predictable that any vehicle left in a place less than 25′ above sea level was going to be turned into a sunk boat, and I saw an awfully-large number of cars that were effectively intentionally abandoned in NYC.

In line with this I will put out a consumer alert here and now: Be extremely careful buying any used car for the next two to three years and demand hard proof that it was not in the flooded parts of the nation during Sandy. 

There are a lot of very-unscrupulous people who will take a flooded vehicle, “rehabilitate” it and then resell it without disclosing what happened.  This is radically illegal but happens all the time.  You never want to buy such a car as they’re not worth a dollar; the water gets into the wiring harness and inevitably destroys it from the inside, invisibly but with utter certainty.  I fully expect that these cars will show up everywhere through the nation over the next two or three years, and everyone who buys one is going to get screwed.

As we recover from the damage let’s not forget that hurricanes are random events but do not occur without fair warning measured in days.  Those institutions such as hospitals that lost power due to generator failures had plenty of time to test the backup facilities “in anger” and failed to do so; they should be held fully to account for these failures.  Those institutions, especially government institutions such as the NYPD and NYFD facilities that the NYPD and NYFD refused to evacuate in advance even though they were in the flood zone, must also be held to account, and you should take full notice of the fact that the supposedly “smartest guys in the room” in fact are at least as stupid as the average facility manager, and in many cases proved beyond a shadow of a doubt that they are more stupid.

In other words, plan to take care of yourself and do not rely on government, because if there is one thing we know it is that government is an utter expert at cocking up anything it touches, and Sandy is just the latest example.