Western fires won’t halt Westward ho

Westward expansion is a long term demographic trend in the US and the fires, at least at this stage, are unlikely to stop it.

We are confronting another year of Western state wildfires stretching now from Southern California to British Columbia and into Wyoming. These dry conditions and fires have leapt steadily northward over the last several years and now challenge a wide swath of developed and undeveloped land. The scale involved is vast with single fires almost covering the area of entire Eastern states. But in many ways these are a repeat of prior fires, which have plagued the West for decades, if not centuries. The great Tubbs fire of Sonoma County in 2017 mimicked a fire there 53 years before, the Hanly Fire of 1964. Both began near Calistoga and were propelled by powerful winds and went from there. The one in 1964 was less destructive because the area was less developed at that time. These fires show the reappearing pattern of Western state fires.

And the prognosis is bad. A variety of factors weigh in favor of the country having even worse fires. Increasing population is the greatest cause, with people causing 85% of wildfires. Now we can add drier summers and climate change to the problems of a region with a long history of major forest fires.

The wildfire problem is not, of course, happening in a vacuum. The list of interactions with the fires and other hazards like climate change could command a book. Nevertheless, we should note that fire smoke and Covid are a compelling interaction alone. Wildfire smoke is especially pernicious.  The fine particles in the smoke (PM 2.5) exacerbate lung problems and infect the whole body, including the blood and organs. There are a variety of studies on the topic, supporting these health results. The 2020 study in Reno Nevada found that smoke increased COVID casts by about eighteen percent.

NASA Warned Us

While the Covid Pandemic may, and I repeat may, be a once in a century event, the fires are not. A recent NASA study suggests that we may be at an inflection point in a long geological process. NASA used data from charcoal reconstructions to generate the study “NASA Models Earth's Fiery Past and Future” released on October 27, 2010. It shows the long term fire activity on Earth. In recent decades it shows a balance between human fire enhancing and suppressing activities. In the future, NASA expects that “Climate” will replace “Humans” as the primary driving force and significantly increase fire activity. This clearly was notice of the explosion in fire activity which we are now witnessing and suggests more to come.

The credit implications of these persistent disasters are broad. Fire destruction has long been insurable with standard homeowner’s policies. But, now many homeowners may now require a separate policy for wildfires. Even if they can get one, wildfires may fall into a category like a hurricane in Florida. And the costs may be entirely beyond the scope of private companies to provide.

The state of California created the FAIR plan as a backup for homeowner insurance and expanded it to provide basic fire insurance in areas with commercial property like vineyards. The smoke and fire conditions can be expected to be a long-term factor in housing all over the West but especially in grassy areas. Of course, real estate values are local, but the fires and smoke point to a negative price trend for the region, other things being equal.

Large Externalities are the Rule

For smaller towns with the characteristics of several that were recently consumed by fire, protection may not be possible. More generally, populated areas have received insurance even in the face of destruction. Fires are expensive, especially for the neighboring areas. A variety of studies have given order of magnitude estimates of the costs facing the states involved and the externalities. One study in EconPapers found:

"Our estimation shows that wildfire damages in 2018 totaled $148.5 (126.1–192.9) billion (roughly 1.5% of California’s annual gross domestic product), with $27.7 billion (19%) in capital losses, $32.2 billion (22%) in health costs and $88.6 billion (59%) in indirect losses (all values in US$). Our results reveal that the majority of economic impacts related to California wildfires may be indirect and often affect industry sectors and locations distant from the fires (for example, 52% of the indirect losses—31% of total losses—in 2018 were outside of California)."

These are large but sustainable costs for a state like California, especially because much of the costs were born outside of the state.

The fires we are seeing can be expected to drain substantial resources both for the states burning and for the country as a whole. But, if we ask -- do the economics of Western fires make Westward Ho become Westward Halt? The answer is no. At least not yet.

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