Friday, May 02, 2014

Natural Disaster Preparation and Fuel Inventories

After Hurricane Sandy, coastal residents faced power blackouts and fuel shortages and a subway system that didn't operate.   Life without electricity and mobility is nasty.  To cope with such short term consequences, households need electricity and fuel.  My brother bought himself a backup power generator and today the NY Times talks about the new gasoline storage reserve  that will hold gasoline in inventories and sell when the next natural disaster takes place.  Must  I say it?  This is the "small ball" of climate change adaptation.  These are the extra marginal costs we pay to adapt and they really aren't that large for urbanites.  A University of Chicago economist might ask why government must hold these inventories? Why wouldn't the free market speculators bear this risk?  A critic of free markets would argue that the speculators will "price gouge" when the low probability disaster takes place?   This would be true if there is only one speculator but why won't there be many speculators competing against each other for this lucrative business?
Note the learning that has taken place.  In the aftermath of Hurricane Sandy,  the people of the NYC region take self protective steps to lower the cost of the next shock.   This is the micro economics of resilience.  Urbanites can achieve this because of our access to markets.   Our ability to anticipate future challenges is our major asset in adapting to climate change.