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Floods, Snow, and Opportunity Cost

January 30, 2014
800px-Flood102405While I'm sure the national media is sorely disappointed, the snow disaster in the southeastern United States has not turned into a scene from a post-apocalyptic movie. In fact, people are using social media to help each other out.  But questions remain as to why the region was not better prepared for a snowstorm, which as every Minnesotan knows, is no big deal. But of course, Georgia isn't Minnesota, as explained here by Brian Barnett at Gizmodo. Barnett notes that since it rarely snows in places like Atlanta and Birmingham, it doesn't make sense for those places to keep a lot of snowplows on hand. Thus, when it does snow, there aren't many supplies at hand for dealing with it the way a place like Des Moines, Iowa might. Economists will recognize this as a matter of opportunity cost. It costs money and time to purchase, maintain, and store snow plows and piles of road salt. One must have employees trained and ready to plow snow if the need should arise. The problem is that the need almost never arises, so the cost of being ready is very high when compared to all the other things that money and time could be spent on. One could argue that it's smart to keep chains in one's trunk to deal with icy roads more readily, but even that is not without cost. The same was true when Colorado suffered once-in-a-lifetime  flooding during 2013. People asked "Why did these people build houses near these river?" The answer, again, is opportunity cost. Certainly, the people could have built homes further from the rivers, or on stilts, but many elected to build near the rivers because the rivers (we call them "rivers" but easterners would identify them as "creeks" or "small streams") are considered an amenity of the property. It's nice to be near a stream, and the owners decided the odds of a massive flood were so low that they did-not build "flood-proof" houses. And they were almost right. Indeed, one could have built a home in the flood-affected areas more than 100 years ago, and never had to worry about flood damage until 2013. The odds were simply that remote. So naturally, it wouldn't make much sense to drastically change one's real estate plan to deal with the small chance of being flooded out. It may have been prudent to buy flood insurance, of course, but again, in a place like Colorado with a measly 15 inches of precipitation every year (except when there's a 500-year flood), flood insurance is an exotic thing. People make these sorts of calculations all the time whether it involves flying on planes or buying a cheaper appliance and hoping it lasts 10 years. On the other hand, many Americans have gotten the idea that it's somehow possible to plan for everything, and to solve every problem. Some things can't be prevented, and even more things have no political solution at all. One of the benefits of living out West with its bizarre climates and lack of water is that we recognize that the physical geography of the world around us still matters. We can still only use as much water as runs off from the mountains, and if there's not enough, we're toast. If one gets caught in traffic in a hailstorm with baseball-sized hail,  one's car is probably destined for the junk yard. The market has done a lot to make all these things far more bearable, and nature is a lot more easy to deal with in a free economy than a controlled one. But sometimes, stuff still happens. This isn't to say that it's useless to plan ahead. Individuals can do much in this regard, and those that have are often helpful to those who have not. Meanwhile, the government of Georgia was worse than useless.

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