Normalization is definitely necessary if you don’t want to fool yourself. For example, the New Madrid earthquakes, up to magnitude 8.2, occurred in 1811. The death toll and economic damage was quite different than if it had happened in 2011 – more people, more buildings, more assets in general.
Zhang writes about normalization:
“Exposure to the tornado damage can increase over time due to population change and economic growth. Meaningful statistical inference requires the use of normalization methods that transform losses so that they have the same exposure. A recent study by Simmons et al. (2013) examine the use of various normalization methods for U.S. tornado damage based on the SPC database. They find that different normalization methods lead to quite different results, but normalized tornado losses generally experience a downward trend.”
So, what does Simmons have to say?
“A normalization analysis begins by asking a deceptively simple question: what damage would result if extreme events of the past occurred under the societal conditions of 2011? To answer this question, we employ a methodology of loss normalization that has been well developed over the past 15 years and applied to economic losses for events as diverse as US hurricanes and earthquakes, European floods and windstorms, tropical cyclones in India and China, and Australian extreme weather events…A first adjustment is for changes in inflation…”
OK. Here’s their Figure 1, inflation adjustment only:
Already we can see there is no upward trend since 1964. They go on to write:
“The basic form of a normalization uses base year economic damage (i.e. the index that was presented in the previous section), and applies as relevant, inflation, population, wealth (or housing unit) multipliers…”
Since tornadoes are smaller than hurricanes, they go on to use county data rather than national. And the result?
"The results are quite similar across the three methods. A linear trend fit to each of the three series indicates that normalized damage decreased by 35–63% from 1950 to 2011, depending on the series.
Normalized tornado damage in the United States: 1950–2011