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August 30, 2005
The cost of Katrina vs. Camille
I'm going to try to get out in front of the talking heads on this one. I predict that they'll start trying to assess the total cost of the storm, and then they'll compare it to past hurricanes without bothering to factor in inflation. Trust me on this one. The talking heads are mental dwarfs on parade.
Let's take the low-hanging fruit - Hurricane Camille. Hurricane Camille was the worst hurricane to ever make landfall in recorded history. It erased civilization from the Mississippi Coast with tidal surges 22-25 feet above mean tide and 200+ mph winds. It reduced brick hotels to concrete slabs and completely destroyed 6,000+ housing units. Estimates of the damage vary from $1.42 billion to $5 billion dollars.
But those were 1969 dollars, and that was 36 years ago. Because inflation changes the value of the dollar over time, dollar amounts need to be adjusted to compensate for inflation. Dollar amounts that aren't adjusted for inflation are referred to as nominal dollars. Once they're adjusted for inflation, they're real dollars.
So, let's attempt to adjust these dollar amounts for inflation. If we use this Inflation Calculator based on the Consumer Price Index, we see that the $1.42 to $5 billion range of 1969 dollars equates to $7.54 billion to $26.55 billion in 2005 dollars.
However, it's worth noting that this uses the Consumer Price Index, which is an average based on a market basket of economic goods and services. This basket of economic goods such things as hamburger, bread, and asparagus. However, much of the damage from a hurricane is to real estate, not asparagus. So, it might make more sense to use a rate of inflation more closely tied to real estate.
According to this site, the average U.S. home value in 1969 was approximately $26,000.00. In 2005, the average U.S. home value was approximately $260,000.00. So, if the majority of the damage from Hurricane Camille was due to damage to real estate, it is not unreasonable to assume that the damage in today's dollars would be between $14.2 billion to $50 billion dollars.
You can debate the original estimates, the rate of inflation used, etc., but look for the talking heads to ignore the fact that inflation exists. In short order, they'll be claiming that this is the most expensive natural distaster to hit the United States, etc., because Camille was only $1.42 billion, etc.
Katrina may, or may not, end up causing more damage, in terms of U.S. dollars, than Camille did, because the coast is (was) much more developed today, than it was in 1969. But, at least let's try to use "real dollars" when we compare the damage estimates to Camille.
Technorati tags:Hurricane Katrina , Katrina , Hurricane , Hurricane Camille , Camille , Harrison County , Biloxi , Gulfport
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Posted by Peenie Wallie on August 30, 2005 at 02:22 PM
Comments
Don't know if the 'Remember Me' is asking or requesting..... so I left that blank. ANYWAY glad SOMEONE finally said that. I have been waiting to see someone research that. It is very refreshing to see that SOMEONE had the time and intelligence to do so. Thanks. Gene
PS: very well written.
Posted by: Gene C. on September 14, 2005 at 10:38 PM