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 governor’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, Sandy’s precise ranking isn’t likely to matter to those who directly experienced it, losing property, livelihoods — 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, don’t be afraid to question the validity of the numbers—and to ask what purpose they serve.
Estimating disaster losses is an “imprecise science,” 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. “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,” 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 can’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. That’s consistent with the report in Newsday today, which states, “Cuomo said he will press the Federal Emergency Management Agency to foot the bill for most of the Sandy cleanup.”