Doing the Math

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Figuring out how much economic damage results from a major disaster is a tricky business, involving considerable guesswork.


First comes the calculation of how much direct or structural damage the disaster causes. In the case of a major earthquake striking downtown L.A., experts essentially superimpose the amount of shaking energy a quake creates on top of the types of buildings in a given area often down to the ZIP code as well as soil types. They then run the results through a computer program that estimates the structural damage totals.


“The calculations are fairly crude and we have not really nailed down the parameters for dealing with large events,” said Tom Jordan, director of the Southern California Earthquake Center at the University of Southern California, which developed the model for a quake of up to 7.5 on the Puente Hills Fault beneath downtown L.A.


Once the amount of structural damage is determined, economists then try to gauge the indirect economic impacts: how long businesses are shut down, how difficult it is to move goods throughout the region and how many businesses fail.


While there might be immediate anecdotal reports, it takes months or even years for these impacts to show up in economic data. Local economists say they track several data points, including employment figures, personal income statistics, local sales tax data, business license fees, utility hookups, foreclosures, bankruptcies and even such indirect data as U-Haul moves.


“It’s very hard to model this in advance, since each disaster has its own unique characteristics,” said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.


As for the impact of shutting down the L.A. economy $1.2 billion per day Kyser said that’s a guess derived from the county’s total gross domestic product of roughly $400 billion per year and dividing it by the number of business days.

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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