What if Hurricane Hugo never happened? 

Flood Money

If Hurricane Hugo hadn't ripped into the Southeastern Seaboard in September of 1989, there would be more Spanish moss in downtown Charleston. Or at least that's the story one horse-and-carriage guide likes to tell tourists. According to him, the gale-force winds blew the moss out of trees near the water, and much of it now growing around the Battery has been imported, restrung, if you will. Also, if Hurricane Hugo hadn't happened, well, a decent chunk of Pat Conroy's latest novel South of Broad would be a series of blank pages as a portion of the book's third act is devoted to the event.

But we digress. That's trivializing this matter. Hurricane Hugo killed more than two dozen people, and that's serious.

At the time Hugo slammed into this port city before blowing itself out in the Appalachians, it was the costliest storm the country had ever seen. Downtown Charleston was ripped by 108-mph gusts. On the harbor, storm surges rose more than 10 feet. In its aftermath, the federal government declared more than half of South Carolina's 46 counties disaster areas, and official economic estimates pegged the widespread damage at more than $5 billion.

In Hugo's aftermath, Charleston was rebuilt with help from big insurance payouts and public assistance. Some believe that without the post-Hugo influx of cash, the Holy City wouldn't be the worldwide charm it is today.

Local real estate developer John Hassell remembers those days well. In fact, he says Hugo helped him have one of the his best years in the business.

Back then, the real estate industry in South Carolina had been slowing down because of a 1986 change in tax law that took away some advantages, like tax deductions, to owning a second home (think beach houses). And the change had hit the Charleston area particularly hard. So sales were slow in the real estate market.

Then the storm hit.

"What happened after that — of course, it was an off-time as far as the real estate business was concerned — we were just like a bunch of zombies walking around," Hassel says. "We didn't know what to do because our product had been destroyed ... everything sort of came to a standstill."

But that only lasted for so long. With every disaster comes an opportunity. Hassell talked to some real estate brokers in Florida who had been through a recent hurricane, and they assured him things would start to move again in the real estate business in the fallout of the storm. So Hassell rounded up some investors and started buying large undeveloped parcels of land on the Isle of Palms so they could flip them.

"We got on the phone and started calling people, and they were aware of the values before the storm, and so what we were selling these lots for what was a good bit under market ... and so they were good buys, and people did believe that eventually things would heal, and the island would be fixed up, and sales would be brisk eventually," he says. "In 1990 I ended up having one of the best years as a broker that I'd had in Charleston."

Then the insurance money came in.

One of the places where payouts in Hugo's aftermath had a lasting impact is the Isle of Palms, according to Hassell. Palm Boulevard, for example, was once lined with old houses. A lot of them were at ground level and had been wiped away by the storm.

"The insurance money came in and a lot of those houses were destroyed," Hassell recalls. "Before you knew it, the insurance money started paying off, and you could see it in the new houses and the repairs of those that were still standing. A year later, Palm Boulevard looked better than it ever had." He adds: "It's sort of like starting with a clean slate, being able to create something new and better."

Public assistance and insurance money post-Hugo wasn't the only thing that transformed the area, however, according to Jeremy Browning, who directs the Charleston Habitat for Humanity, a Christian housing organization. During the immediate years following Hugo, housing nonprofits were experiencing something of a boom in Charleston. They were flush with cash from private donations by individuals and businesses who had newly discovered the Holy City.

"There was a media spotlight on Charleston as there tends to be after a storm, and it continued for a few years," Browning says. He adds that it encouraged investment because people saw opportunity. For instance, where Florida used to be the go-to place on the Southeastern coast for retirees, Browning says Hugo flashed a spotlight on Charleston as an affordable place to retire.

"I think some aspect of Hugo probably helped people go 'Oh, Charleston,'" he says. "Because if you go back to the '70s, Charleston was kind of a passover town."

According to Browning, growth in Charleston might have been slower if the storm had never hit.

When it comes to concrete economics, the idea that Hugo gave the Holy City a positive economic shock was examined in a 1992 University of South Carolina business school paper called "Wealth and Income Effects of Natural Disasters: An Econometric Analysis of Hurricane Hugo."

"An irony of natural disasters is that although they destroy physical wealth, they often dramatically raise economic activity during reconstruction," stated the authors, USC professors Frank Hefner and Douglas Woodward. The researchers found that some sectors of the state's economy experienced surges during the reconstruction, and that economic jolts were kickstarted by injections of billions of dollars in insurance money and public federal aide.

Like any other natural disaster, the immediate economic effects of Hugo were negative, the authors wrote, adding that it's well known from economic theory that shocks — anything from stock market panics to wars — affect economic behavior.

One hypothesis, called the "permanent income hypothesis," suggests consumers will spread the shock's income loss out over a period of time, Hefner and Douglas wrote.

The authors added: "However, regional economic activity during the Hugo reconstruction period appeared to rise dramatically — especially for the retail and construction sectors. This was the obvious result of large and sudden financial flows to communities through disaster relief and insurance claims."

In the Palmetto State, about $2.9 billion came in the form of reimbursements for structural damage, including federal flood insurance and private claims, the authors found. And in the claim game, it turned out individuals here ended up faring worse than businesses. Individuals were reimbursed about 45 percent for damages, while businesses recouped about 80 percent of their losses. Public assistance, a tab that ran $541 million, largely went to pay for military and government rebuilding efforts. And while there were gaps in individual and business reimbursements, public aid paid 100 percent of the damage costs to government property. All told, there was $3 billion in unreimbursed losses form the storm, with about half of it coming from the forestry and agricultural industries.

During the rebuilding, however, retail and construction saw a short-term economic upswing. If you could hold a hammer in Hugo's aftermath you were a carpenter. If you could hold a paintbrush you were a painter. People from all over the Southeast flooded into Charleston looking for jobs in construction. Those workers spent money at local retail establishments, buying gas, food, clothing, beer.

The post-Hugo financial gain didn't escape the eyes of state budget forecasters at the time who believed, optimistically, that the effects of Hugo's cleanup might actually bring the state a net financial gain by the end of that fiscal year.

But, in the end, the USC researchers concluded in their report that any income gains from Hugo were neutral, despite surges in certain economic sectors.

That was probably exactly what paleolibertarian Austrian economics theorist — and possibly one of the authors of Ron Paul's more inflammatory and racially-charged newsletters — Murray Rothbard might have predicted.

Three months after the hurricane hit, the antigovernment firebrand published an article in The Free Market, a monthly publication by the Ludwig von Misses Institute, which promotes Austrian economics. Titled "Government and Hurricane Hugo: A Deadly Combination," the piece was a takedown of the idea that federal taxes derived from those outside the hurricane's path should have paid for aid.

"What is the ethical principle that insists that South Carolinians, whether insured or non-insured, poor or wealthy, must be subsidized at the expense of those of us, wealthy or poor, who don't live on the southern Atlantic Coast, a notorious hurricane spot in the autumn?" he asked. Rothbard chastised the state's compulsory evacuation plan and local government curfews, called for the abolishment of FEMA, and ripped into quickly-passed legislation to outlaw price gauging in the wake of the storm.

"The local authorities did the work of Hurricane Hugo, intensifying its destruction by preventing people from staying at or returning to their homes, and aggravating the shortages by rushing to impose maximum price controls," he wrote. In other words: if the government had just stayed the hell out of Hugo, everybody would have been better off. And, well, maybe more people might have died.

Obviously how different Charleston might look today without that 1989 storm is a category 5 hypothesis. But here's one thing to think about: At one candidate forum during the wild and wacky Republican primary for Tim Scott's Lowcountry congressional seat this year, all 15 Republicans present said they would have voted against a bill to give federal disaster relief to states damaged by Hurricane Sandy. That's a striking commentary on the role of government in current GOP politics: 24 years after Hurricane Hugo, all of the candidates who were running to represent Charleston's coastline in Congress said they wouldn't vote for hurricane relief.


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