The Economic Impact of the California Wildfires

In 2017, California’s wildfires were predicted to cause $85 billion in damage. In 2018, California’s wildfires have operated with a devastating relentlessness, causing not only property damage to businesses and homes but also a tremendous loss of life. With tens of thousands of individuals displaced and unable to return home, the true economic impact of the wildfires has not yet been seen — but could be substantial.

In and of themselves, wildfires are expensive. It costs billions of dollars to continuously fight the wildfires that ravage California. There are a number of indirect expenses, as well:

  • Tourism loss: California’s economy relies upon tourism for a significant chunk of its revenue. When the state is experiencing wildfires, it can’t bring in this regular income.
  • Lost jobs: Employees that lost their jobs during a wildfire aren’t only experiencing their own economic difficulties; their jobs are no longer paying into state and federal taxes.
  • Closed businesses: Some businesses will never be able to recover from a disruption in their operations, even with their insurance payouts in place. These businesses will never contribute to California’s revenue again.
  • Real estate values: As Californian wildfires continue, real estate values may be impacted. Plummeting real estate values leads naturally to fewer real estate taxes as well as a weak economy overall.

In addition to this, there are issues such as temporary decreases in consumer spending, health issues for those who have survived Californian wildfires, and aid to displaced households. When California experiences a wildfire, entire areas need time to recover and rebuild, with many suffering devastating losses of life in addition to property damage.

The situation in California is likely to continue, as it will elsewhere; the environment as a whole is extremely favorable to wildfires. Not only is it becoming hotter and dryer in California as a whole, but drought has made it so that there’s an ever-increasing amount of fuel available in the state for wildfires to continuously burn. Increased development of California has further made it more likely that fires will intrude upon civilization, as well as more likely that the fires will be able to continue burning.

Costs have been steadily rising regarding Californian wildfires and businesses that are located in and around the wildfire areas will need to be especially conscious not only about their spending but also their risk. While insurance can cover some of these related costs, it may not be able to cover all of the costs fast enough for a business to recapture its profit and continue to thrive.

While California can improve upon its fire suppression methods, there’s little it can do to completely prevent wildfires. Wildfires are unpredictable, spread quickly, and can spread in ways that aren’t easily anticipated. Some Californian politicians have floated the idea of making these wildfires the federal government’s responsibility rather than the state’s responsibility due to the economic impact these wildfires have on the country, as well as how similar these wildfires are to other federally governed natural disasters.

Meanwhile, the California economy as a whole may eventually suffer significant damages from continuous damage and risk. The real estate markets and commerce are likely to be impacted, which will ultimately impact the country’s economy given enough time. California has, by far, the largest economy within the United States and anything that impacts the Californian economy will eventually impact the United States. It remains to be seen how significantly the wildfires will grow from year to year.

Though the wildfires in California have been among the most notable, they are not the only risk. Throughout the United States, heat waves and dry seasons are causing wildfires with alarming regularity, and each of these wildfires has the capacity to spread well beyond their origin. Wildfires are going to see increasing prevalence, and will likely lead to both localized and global economic damage as they continue to spread.

Regards,

Ethan Warrick
Editor
Wealth Authority

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