Hurricane Sandy by the numbers

People in high places are competing to put a dollar number to the deadly ruination visited upon the Northeast by Hurricane Sandy.

Today at a press conference, New York Governor Andrew Cuomo estimated the damage done to his state by Hurricane Sandy at $33 billion and to the region at $50 billion. The governorأ¢â‚¬â„¢s estimate exceeded that of disaster modeler EQECAT, which put total insured losses at $10 billion to $20 billion and economic losses at $30 billion to $50 billion on Nov. 1. The EQECAT numbers dueled with the projections of AIR Worldwide, another risk modeler, which pegged insured losses at $7 billion to $15 billion at about the same time.

Given the densely populated area it struck, Hurricane Sandy may end up being the most destructive natural disaster in U.S. history. Of course, Sandyأ¢â‚¬â„¢s precise ranking isnأ¢â‚¬â„¢t likely to matter to those who directly experienced it, losing property, livelihoods أ¢â‚¬â€‌ and in some cases loved ones. Upwards of 72 people died from the storm in New York and New Jersey. But as elected officials, risk modelers, the media, and others continue to quantify the storm, donأ¢â‚¬â„¢t be afraid to question the validity of the numbersأ¢â‚¬â€‌and to ask what purpose they serve.

Estimating disaster losses is an أ¢â‚¬إ“imprecise science,أ¢â‚¬آ‌ economist Kevin L. Kliesen wrote in a 1994 Federal Reserve Bank of St. Louis article. As a disaster subsides, on-the-ground observers tend to overstate dramatically the damage done. أ¢â‚¬إ“Some estimates in the immediate aftermath of Hurricane Andrew put the damages as high as $60 billion, two to three times its projected final total,أ¢â‚¬آ‌ Kliesen writes. The early estimates of damage done by the 1993 flood of nine Midwestern states and the 1994 Northridge (California) earthquake committed the same error, he points out.

Obviously, chaos and confusion reign during and after a natural disaster; we canأ¢â‚¬â„¢t be expected to calculate with any accuracy the damage done by a natural disaster as it winds down. This is not unique to disaster scenarios: chaos and confusion also tend to undo us when we attempt to make economic estimates during placid, windless spring days. Kliesen hypothesizes that we tend to exaggerate the damage done because buildings and infrastructure often appear to be complete losses at first glance. Later, when waters recede, some of these complete losses are found to be repairable. Also, he cites academic work, which argues that politicians have an economic incentive to overestimate losses because that gives them leverage over obtaining federal disaster dollars. Thatأ¢â‚¬â„¢s consistent with the report in Newsday today, which states, أ¢â‚¬إ“Cuomo said he will press the Federal Emergency Management Agency to foot the bill for most of the Sandy cleanup.أ¢â‚¬آ‌

In parsing the damage wrought by a natural disaster, Kliesen counsels that we separate the costs of a natural disaster from the losses that stem from one: They are two separate concepts, he writes. Losses describe the destruction of wealthأ¢â‚¬â€‌أ¢â‚¬آ‌the physical assets that help generate income,أ¢â‚¬آ‌ he writes. أ¢â‚¬إ“These assets include levees, roads, bridges, utilities, factories, homes, buildings, farmland, forests or other natural resources.أ¢â‚¬آ‌ One can either calculate the lost income that these assets help generate or the decline in the assetsأ¢â‚¬â„¢ values. أ¢â‚¬إ“To count both is to double count,أ¢â‚¬آ‌ he writes.

Costs, Kliesen continues, are what an economy pays to أ¢â‚¬إ“replace, repair or reinforceأ¢â‚¬آ‌ destroyed assets.

Calculating disaster losses accurately requires fair estimates of the value of destroyed or damaged assets. Do you peg the estimate at its replacement value or its present discounted value? He continues:

Endless other issues also arise. How do you measure the decline in property values that sometimes occurs in the vicinity of the disaster area? What prices and production should you attach to crops that were washed away before harvest, or livestock that were unable to gain weight during severe weather? Finally, how do you calculate the expected lifetime earnings of individuals who perished?

Calculating the direct losses from a hurricane, tornado, or earthquake is relatively simple compared to calculating the indirect losses from toppled bridges and flooded tunnelsأ¢â‚¬â€‌the lost economic output, the sacrificed retail sales, lost tourism, lost tax revenue, and wages that would have been earned. Reporters donأ¢â‚¬â„¢t always ask politiciansأ¢â‚¬â€‌but shouldأ¢â‚¬â€‌whether their estimates of economic loss include indirect losses like these. They should also ask them how they calculated the figures.

Another economic contour to natural disasters worthy of discussion is the percentage of losses that were insured. In the 1989 San Francisco earthquake, insured losses tallied only $960 million. The estimate of total losses was $7.6 billion to $12.6 billion, Kliesen writes.

How big was Sandy? If insured losses do not exceed the EQECAT estimate of $10 billion to $20 billion, it will be (by that measure) a smaller event than 2008′s Hurricane Ike, which racked up $21.1 billion in insured losses (2011 dollars) in the U.S. and the Caribbean, or the 1994 Northridge earthquake.

Insisting on accurate and timely estimates of disaster damageأ¢â‚¬â€‌and criticizing those who exaggerateأ¢â‚¬â€‌is not a journalistic parlor game. Only by gauging who has been hardest hit and in the greatest need can resources be best distributed. Numbers count.

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