Oregon Office of Economic Analysis

Unfortunately, in recent years our office has been researching the impacts of climate change and natural disasters much more than we’d like to. The combination of risks related to wildfires, droughts, the potential for climate refugees, let alone the specter of Cascadia, is increasingly important to acknowledge and discuss. Even so, today feels different. These fires are different.

The main difference today is the mounting physical destruction of property and evacuation of populated areas. In recent years much of our focus has been on the traditional economic impacts of natural disasters, but in other locations like hurricanes and flooding in the South, or the impacts of wildfires in scenic areas and short-term tourism disruptions. Right now we are getting the worst combination of these in Oregon. The fires aren’t just burning forests and filling our lungs with smoke. They are also destroying homes, businesses, and forcing large numbers of our friends and families to evacuate or be ready to do so at any moment. Additionally many major north-south and east-west connections through Oregon have been and/or continue to be closed, disrupting untold supply chains.

Whenever we find ourselves facing disasters, the most important issues aren’t economic in nature, they’re social and human. The lost lives, health concerns, and societal impacts are paramount, even as our office focuses more on the economics given our role. And while it is too soon to know the extent of damages from the current fires, what follows are a few thoughts and potential avenues for further research as we learn more.

Traditional Economic Dynamics

Natural disasters tend to impact regional economies, but rarely move the needle in terms of national data. Given that the entire West Coast is engulfed today this may potentially have bigger macro impacts than a single event like a hurricane. That said, the impacts are usually temporary in nature with the impacted region made economically whole within a year. Now, there are Katrina-sized exceptions and the losses are not evenly distributed across the impacted population and businesses.

The largest economic damage usually comes from the destruction of property (buildings, infrastructure, etc) which impacts the productive capacity of a regional economy. This destruction is not accounted for in GDP because GDP measures current production of goods and services. The burned houses, lost cars, and destroyed bridges were made years ago and counted for GDP growth back then. Perversely the rebuilding phase following a natural disaster does show up in GDP data as roads and homes are rebuilt. Furthermore, because we will rebuild using current products and technologies, the capital stock is somewhat enhanced or better off because we are replacing older equipment and buildings. Over the long-run this can support better growth and productivity moving forward.

We know our communities, particularly those along the McKenzie and Santiam rivers, and those south of Medford, have suffered significant damage already. Much of this will be rebuilt, and the traditional dynamics laid out above will apply. However a key question is to what extent we will fully rebuild all of our lost communities. There is a chance some of the damage will be permanent in that not all of the homes will be rebuilt, not all of the local businesses will reopen, and the like. Access to capital is key, in terms of financial assistance, disaster relief, a well-functioning insurance market, legal and regulatory forbearance, and so forth.

Additional Economic Impacts

In terms of the lost forests, there will be impacts on tourism and the timber industry. In terms of measuring the losses, the market value of timber is a natural place to start. Tourism impacts tend to be short-lived as travel rebounds fairly quickly in the months following disasters. On the other hand the timber industry impacts may be longer lasting as the fires may reduce the potential harvest levels for years to come.

The transportation disruption due to the wildfires will also bring significant costs, although they too are temporary. Closing major trucking routes delays shipments and disrupts supply chains. Local travel-related businesses in impacted areas lose gas, food, and accommodation sales, however some of these sales are picked up along alternate routes across the state that remain open.

Longer-Term Considerations

The scariest potential impacts for Oregon is that fewer households and investments may be attracted to the region moving forward. Oregon’s primary comparative advantage remains its ability to draw skilled workers away from other states. To the extent that local quality of life has been reduced, or if Oregon is perceived as a riskier or costlier place to live and do business, this advantage will be less pronounced. Increased risk lowers growth prospects due to uncertainty and higher costs. If these fears are realized, our office’s long-run outlook would need to be lowered.