Deconstructing the Sandy Relief Numbers

LARRY HARRIS, professor of finance, USC’s Marshall School of Business.

This op-ed originally appeared in the Wall Street Journal on Jan. 11.

President Obama asked Congress for $61 billion for various relief programs following Hurricane Sandy. The Senate approved the full request late last month, but so far the House has approved just $9.7 billion, for flood-insurance claims. The House will soon vote on the remaining $51 billion in proposed aid.

Sandy was an unusually large storm that did substantial damage to the Eastern Seaboard. More than eight million people lost power and perhaps as many as 100,000 were left homeless. Thousands of buildings were destroyed or damaged along the coastline from Maryland to Maine.

Many people don’t appreciate how large these numbers are, in particular the size of the proposed relief. Consider some simple comparisons. The $61 billion aid package represents:

• $194 for each person in the United States (315 million);

• $530 for each U.S. household (115 million);

• 10.5 hours of work for each employed worker in the United States (244 million at the average private nonfarm hourly wage of $23.73);

• a year of wages for 1.3 million construction workers (average construction wage of $25.98/hour);

• $69 million per linear mile of coastline (890 miles from Maryland to Maine, of which only a fraction experienced significant damage), or $4.3 million per mile of coastline including all tidal areas (14,258 miles, of which 60% are in the relatively undamaged states of Delaware, Maine, Maryland and Massachusetts);

• $7,625 for each person who lost power, regardless of how long;

• or 331,000 new 2,311-square-foot homes at an average construction cost of $184,125 per home.

Expressed in these terms, the $61 billion proposed aid package may seem quite generous. Then again, that amount also represents:

• 8.7% of the funds originally appropriated for the Troubled Asset Relief Program in 2008 ($700 billion);

• 4.4% of the funds Congress has appropriated for the wars in Iraq and Afghanistan ($1.38 trillion);

• 5.6% of the $1.1 trillion federal budget deficit;

• 1.6% of the $3.8 trillion federal budget;

• 0.4% of the $15.4 trillion total federal debt;

• or 0.39% of the $15.8 trillion annual U.S. gross domestic product.

These comparisons may, for some observers, myself included, make the aid package seem less costly. Others may look at these numbers and ask: Why are we so generous?

The widespread damage done by Hurricane Sandy understandably touches people’s sympathies. Seeing media images of peopling losing their homes is very troubling for most of us, and rightfully so—our nature is to support those less fortunate than ourselves. For this reason, the federal government regularly appropriates aid for disaster relief. Congress will undoubtedly approve additional aid for the victims of Hurricane Sandy.

Now consider a few more comparisons of what the proposed $61 billion aid package represents:

• $792 for each child attending primary or secondary school in the U.S. (77 million children);

• the annual work of 1.1 million public-school teachers (average salary $55,350);

• 1.6 million university scholarships for full tuition, fees, room and board at private nonprofit universities ($37,971 per scholarship), or 3.6 million such scholarships at public universities ($17,136);

• five million years of food for a family of four (at $1,023/month for the USDA moderate meal plan), or 8.1 million years (at $627/month for the thrifty plan);

• the work of 1.1 million local policemen (average annual salary of $56,160);

• 61,000 miles of milled and resurfaced five-lane urban roadways with center turn lanes and four-foot-wide bike lanes ($993,000 per mile);

• 2.24 years of funding for the Justice Department ($27.1 billion/year);

• or 1.97 years of medical research funding administered by the National Institutes of Health ($30.9 billion/year).

Many, if not most, Americans would agree that these comparisons make the proposed aid package look relatively expensive.

Unfortunately, neither the federal government nor its taxpayers have bottomless pockets. Spending for any one purpose ultimately limits spending for all other purposes. Americans trust their congressmen to make wise spending decisions.

Weighing one-time aid for disaster victims against recurring support for education, security, justice, health and infrastructure is difficult. Good decisions cannot be based only on media images of suffering victims and damaged properties. They must be made by considering how taxes might otherwise be spent. Nobody can appreciate large numbers without meaningful comparisons that put them into perspective.

The United States is the wealthiest country in the world. Americans can afford to do more for their neighbors who have been touched by disasters than can any other country for its citizens. But government cannot do everything that Americans want it to do.

House Speaker John Boehner was right to tap the brakes on Dec. 31 when he postponed the vote on the Senate’s version of the Hurricane Sandy aid bill. The budgetary trade-offs that the country faces are too important to be done at the 11th hour without a well-informed debate.

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