Sand deposited by superstorm Sandy fills the streets of Jersey Shore, N.J. © Mike Groll, AP Photo

Sand deposited by superstorm Sandy fills the streets of Jersey Shore, N.J.

Is this any way to run an economy?

In an efficient economy with a rational political class, I'd be recommending shares of cement makers such as Cemex (CX), pump-makers such as Flowserve (FLS) and engineering companies such as Chicago Bridge & Iron (CBI) as post-Hurricane Sandy rebuilding plays.

But instead, casting a despairing eye on U.S. politics, I'm suggesting stocks such as Lumber Liquidators (LL) and Home Depot (HD). (For more on my reasons for buying Lumber Liquidators now, see "16 stocks for the rest of 2012.")

Investing in infrastructure to prevent some of the damage from the next Sandy would be the smart thing to do. But I think our political system is way, way past doing the smart thing.

In 1798, South Carolina Rep. Robert Goodloe Harper could fend off French threats to seize American ships unless the U.S. paid a bribe with the heroic "Millions for defense but not one cent for tribute."

Today, our motto is more like "Millions in insurance payouts for new hardwood floors but not a cent for infrastructure."

Counting the cost

What will be the cost of Hurricane Sandy?

In human life, more than 80 have died as a result of the storm.

The consensus estimate of physical damage seems to be around $20 billion, although I've seen figures as low as $7 billion and as high as $50 billion. The actual total is very dependent on how much damage needs to be repaired in New York's 108-year-old subway system. Big damage there could easily push the price tag past $40 billion. (By contrast last year's Hurricane Irene cost $10 billion. Katrina in 2005 is estimated at $100 billion.)

Jim Jubak

Jim Jubak

About $7 billion to $8 billion of the damage from Sandy is covered by insurance, estimates say.

The worst damage in Manhattan, where I live, came when a 13-foot storm surge swamped the southern end of the island. A giant transformer station at East 14th Street exploded, knocking out power to most of lower Manhattan. The water filled the Brooklyn-Battery tunnel, poured into the foundations of the under-construction World Trade Center complex and then backed up in the train tunnels under the Hudson River. And, of course, water poured into the New York subway system. Early estimates were that it could take a week or more to pump out the system and restore full service. (Some trains did start running today.)

The damage wasn't limited to Manhattan. The storm knocked out power to 8 million households. Power outages and flooding caused sewage-treatment plants throughout the region to fail, dumping untreated sewage into rivers. In Howard County, Md., for example, the storm sent 2 million gallons of sewage an hour into the Little Patuxent River. In Atlantic City, N.J., Hurricane Sandy ripped a huge hole in the city's famed boardwalk. A fire in the Breezy Point area of Queens turned 111 houses into damp cinders. Hoboken, Newark and Jersey City, N.J., all flooded. Hoboken's mayor estimated that 20,000 people were stranded in their homes by floodwaters. Waves and high winds pushed the damage as far west as Chicago. In West Virginia, Hurricane Sandy turned into a killer blizzard.

Nor was the damage limited to the United States. Hurricane Sandy destroyed 15,000 homes in Cuba. In the Dominican Republic, 17,500 people were forced from their houses. More than 17,000 people in Haiti were forced to flee.

Shots of row after row of cabs in Hoboken, submerged to their windshields, were reminders that the damage from the storm wasn't limited to the destruction of property. Livelihoods, like each of these cabs, took brutal blows. In fact, the economic damage from Sandy may turn out to be even greater than the physical damage.

The storm could cut economic activity in the fourth quarter by $25 billion, according to IHS Global Insight. Wells Fargo put the hit to output at $30 billion. Some of this activity isn't lost to the U.S. economy; it is simply delayed, with Sandy reducing the gross domestic product by as much as 0.2 percentage point in the fourth quarter and then adding to growth in the first quarter of 2013.

Prevention is costly

Some of this damage could have been prevented. And some of it, on the economic numbers, is and was worth preventing. But deciding what is worth doing -- in economic terms -- is a matter of assumptions and arguments. And the bigger a project's price tag, the louder the arguments become.

So, for example, the winds from Hurricane Sandy had barely died down before the talk about building sea gates intensified in New York. A 2004 study by the Storm Surge Research Group at the State University of New York at Stony Brook recommended building three sea gates -- at the upper end of the East River near the Throgs Neck Bridge, under the Verrazano-Narrows Bridge and at the mouth of the Arthur Kill between Staten Island and New Jersey. That project would cost an estimated $10 billion. And at the time and for years afterward, the biggest argument against spending that money was that no hurricane had made landfall directly in New York City in more than a century.

Sandy has changed this calculus. (As New York Gov. Andrew Cuomo has put it, after Irene and Sandy, New York seems to be experiencing a hundred-year storm every year or two.)

But I doubt that it has changed the calculus enough -- yet.

For spending $10 billion to make to economic and political sense, you have to assume that indeed something has changed in the global climate and that rising sea levels and warming of the air and water are combining to increase the frequency of big storms and make them more devastating when they occur. As you can tell from the silence about climate change from the presidential campaigns this year, we're nowhere near a consensus on that issue. Heck, we're not even having an intelligent discussion about it.

(For an intelligent discussion of the statistics of climate change see Chapter 12 of Nate Silver's new book, "The Signal and the Noise: Why So Many Predictions Fail -- but Some Don't," which you can find on Bing. There are also scientists who worry about the effect of sea gates on the natural flushing of pollutants in New York's coastal waters and the effect on aquatic ecosystems. My guess is that if we ever decide to build sea gates, it will be done in a moment of panic and the attitude toward these objections will be: "Aquatic ecosystems be damned. Full speed ahead.")

If we go down the price list, we pretty quickly get to territory where the cost of doing something to improve infrastructure -- and not just in New York and environs -- gets very reasonable compared with the cost of doing nothing.

Reasonable projects

The Metropolitan Transportation Authority, which operates the subways, has begun to spend money -- $34 million in its recent budget -- to raise ventilation grates, to design entrances to keep floodwater from entering the system, and to increase pumping capacity. The agency could easily have spent more if the perennially strapped system had more to spend. Talk to any business in any borough of New York still without subway service about how much that would be worth to them.

Consolidated Edison, our electric utility, estimates that installing submersible switches and moving high-voltage transformers above ground level would cost at least $250 million. In the aftermath of Sandy, that seems like a bargain. The utility has spent about $24 million on changes like these in flood zones since 2007.

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