How to increase long- and short-term risk to the American economy.

America and Americans are today blessed with the world’s largest and strongest economy.

Suppose you wanted to put that economy and that world standing at risk? How would you go about it?

Some argue that’s exactly what China is attempting to do, through a combination of currency manipulation and unfair trade practices. But that reasoning is likely flawed. Others suggest our efforts to lend other nations a helping hand through financial assistance or favorable trade agreements compromise our economy. Experience dating back to the Marshall Plan puts the lie to this latter argument. Some see a risk in heavy-handed government regulations. But the fact is our economy is remarkably free of the corruption and graft seen in other countries. Our environment is clean and over past decades has grown ever cleaner. The challenges posed by such aspirational regulations have inspired American innovation, leading to advances in clean energy technologies, renewable energy technologies such as solar and wind, agricultural technologies, improved water resource management, a robust financial sector, the strongest currency in the world and much more. We’ve not lost but gained a global competitive edge by this approach. European nations – individually, but also collectively, through the European Union – tend to see things in much the same way.

Speaking of the Europeans, nature itself imposes another risk. The first European explorers landing here initially expected a paradise on Earth. They had a latitude-theory of climate that held weather was favorable near the equator and grew more hostile at higher latitudes. Since Europe was generally at a higher latitudes than the colonies, it was a foregone conclusion that the Carolinas, Virginia, even New England would offer a more favorable climate than Europe.

Talk about optimistic! In the four hundred years since, we’ve learned the hard way that the Americas face punishing cycles of flood and drought, hurricanes comparable to those of the western Pacific, as many winter storms as northern Europe and Russia, a surfeit of violent thunderstorms, and a virtual lock on the world’s strong tornadoes. In short, we live with arguably the harshest weather regime on Earth. Here too, the greater risk has prompted greater innovation. Today our directly weather-sensitive economy such as agricultural production ranks among the world’s best. What’s more, every aspect of our economy is indirectly weather sensitive – every business, however high-tech or virtual, is subject to weather-related property loss of disruption. Even there, we’ve successfully minimized the risk over recent decades through clever risk management.

As a result, today our biggest weather-related risk is not the weather itself, but the risk that we’ll take our eye off it – that we’ll reduce resource commitment and attention to the community responsible for weather warnings. The insurance sector – property and casualty insurers, as well as reinsurers, understand this risk better than most. They’re basically in the business of redistributing risk, but at the same time seek to reduce the risk overall, through mitigation strategies such as better land use and building codes, and through reduction of repetitive loss. Not surprising, then, to find a leader in this sector leading a call for maintaining federal agency budgets. An op-ed published yesterday by The Hill[1] provides a recent example. (The Hill is an American political journalism newspaper and website published in Washington DC since 1994, with more than 24,000 print readers, giving it the largest circulation of any Capitol Hill publication.) The brief article merits reading in its entirety, but here is the bottom line:

…One of the basic underpinnings of our economy is the weather and climate infrastructure that supports the business community, the weather community and American citizens.

 Proposals to reduce the value of these programs at NOAA and NASA are contrary to promoting economic activity and the employment related to it. If we are to commit resources to infrastructure, we should be strengthening, not weakening, these programs that are essential to our daily lives, and the businesses we rely on for jobs and depend on as consumers.

 How do we increase the long- and short-term risk to the economy? We put the handcuffs on ourselves.


[1] Frank Nutter, the lead author took the initiative here, and shouldered responsibility for shepherding the process through; Mary Glackin and I were privileged to help out.


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