By James McCusker
Courtesy to the Bellingham Business Journal
The disastrous fires still ravaging our state have destroyed forests, homes, and businesses, devastated families, and taken the lives of brave firefighters. The battle to contain and extinguish these fires is still being fought in the smoke and heat by a growing army of professionals and volunteers.
The immensity of the fires and their widespread destruction and damage, along with the costs in dollars and human lives of the firefighting efforts, will undoubtedly have lasting effects on people’s lives as well as the economy. Accounting for all the costs isn’t easy.
As one example, if you have ever seen the movie, “Twelve O’Clock High” — and it is frequently shown on TV — you get a pretty good idea of the purpose and human cost of the U.S. daylight bombing effort in Europe during World War II.
Less familiar is the set of over 300 government-printed volumes called the “Strategic Bombing Survey,” which used captured statistics, military reports, and even interviews with manufacturing plant managers to evaluate the impact of the Allied bombing effort.
What is included in the survey, but left out of the movie, is that the daylight bombing raids which were central to the drama, mostly using Boeing B17s, were largely ineffective in curtailing German war production, and certainly not cost effective. This was especially true of the Schweinfurt ball bearing factory raids deep in into Germany, beyond the range of Allied fighter protection for the bombers, that were so central to “Twelve O’clock High.” Despite the visible damage done to targets, despite the bravery and sacrifice; despite the losses of bombers, crew members, and critically needed pilots, the bombing had little effect on the availability of ball bearings for German military vehicles or aircraft. (A later shift to Nazi oil supplies had a more decisive impact.)
The Strategic Bombing Survey did an excellent job of accounting for the costs and results. In the end, though, there was no accounting system that could measure the human losses in any comparable way. There still isn’t.
In the aftermath of natural disasters, like forest fires, tornadoes, earthquakes, and floods, we would expect at least the known costs would be accounted for and show up in our Gross Domestic Product (GDP). In the past they often did but perversely appeared to have a positive impact.
The reason why natural disasters seemed to boost the economy was the structure of the national accounts that form the basis of GDP. It began and remains primarily an income statement for all America, recording transactions and calculating national income and economic output.
Lacking a real balance sheet, though, the GDP system had difficulty dealing with the costs of natural disasters. From an economics standpoint, a disaster, natural or man-made, produces initial losses that are reductions in asset value. If your garage burns down, for example, the loss is equal to the market value of the building and its contents. The problem was that there was really no place to “book” this loss in the GDP accounts.
What would show up the GDP more noticeably, though, would be the materials, labor, and other construction costs to replace the garage. These would appear as increased sales and payrolls but, again, identified geographically or regionally as related to the disaster. The recovery then showed up clearly as a construction and income “bounce” while the initial loss that caused it did not.
These accounting issues were well known in the Bureau of Economic Analysis (BEA), the group within the U. S. Dept. of Commerce responsible for the GDP accounting system. A number of factors, though, caused a more intense focus on the economic costs and effects of natural disasters. These factors included increased density of shoreline development and population, the expansion of housing into previously undeveloped, forested areas, a growing dependence on federal assistance in disaster management and relief, and a still-puzzling apparent increase in weather-related disasters.
The BEA has been improving its coverage of the economic impact of natural disasters, and, as just one example, for the past six years it has included an estimate of economic losses in its calculation of the nation’s net savings.
Improvements like this are warmly welcomed by economists and analysts even though there is still a lot of work ahead to produce a meaningful balance-sheet approach to disaster accounting.
It is important to remember, though, that when it comes to disasters, economic accounting systems, no matter how precise, can only take us so far. Accounting values aren’t the only values in town; and certainly not the only ones in our hearts. In the end, just as in portrayals like “Twelve O’clock High” and in real-life, the human costs are left for us to carry, not count.
James McCusker is a Bothell economist, educator and consultant. He also writes a column for the monthly Everett Herald Business Journal.