ver the last year, we have been studying how the physical impacts of climate change might affect the financial markets and Americans’ welfare. We were surprised to learn that even where municipalities know they are in harm’s way, they can readily borrow money for future infrastructure because the market knows that if climate-related disasters happen, the city or county will be bailed out. If true, this is a costly path. Not only will climate change hurt our welfare, but the practice of federal bailouts will amplify those dangers. We are already seeing warning signs. Natural disasters cost the United States $95 billion in 2020, double the 2019 level, in part because the country saw a record number of Atlantic hurricanes. The Federal Emergency Management Agency (FEMA), on the front lines when disaster strikes, has plausibly become the nation’s most important administrative agency.

Effective disaster policy requires striking a balance. On the one hand, humanitarian responses are essential in a just society, and research shows those most affected by disasters have the least ability to absorb and rebound from shocks. When disaster strikes, government must stand ready to help. On the other hand, the act of helping can invite danger — when people know a government bailout is likely, they might build valuable houses near the ocean and avoid the full consequences of their choice if that house get flattened by a hurricane.

Getting that balance right is rapidly becoming a central political challenge surrounding climate change. In new research, we develop the foundation needed to strike a politically viable balance that can help make the country safer over the long haul. In particular, we look at the federal budget and the programs implicated by climate-related disasters. How much does the federal government spend rebuilding communities once they are hit, and how does that funding compare with investments in resilience that would actually lower the nation’s exposure to climate change? Simple rebuilding can create the perverse incentives that invite danger.

Like many profound yet simple questions, this one is hard to answer because the relevant agencies and programs are diverse and spread across the federal government and states. We looked at disaster assistance programs, where FEMA dominates, along with infrastructure investment programs (e.g., at the Army Corps of Engineers) and federal insurance schemes for flood and crops.

All told, as best we can tell, the ratio of recovery to resilience spending is about seven to one: For every $7 spent on straightforward disaster recovery, only about $1 is spent on resilience against future hazards. For a nation about to experience substantial impacts from climate change, that ratio is probably way out of whack — overweighting spending for rebuilding in ways that don’t address the underlying need for a lot more resilience. This imbalance is particularly striking in light of evidence that money spent on resilience has a huge economic return — $6 of benefit for every dollar of expense.

Read the full article about disaster resilience by Sadie Frank, Eric Gesick, and David G. Victor at Brookings.