How Much Economic Damage Will the Japanese Earthquake Do?

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Houses swept by water in Natori City. Source:Reuters/Kyodo


There is an anecdote that Robert Heinlein recounts in one of his novels, about meeting someone who had suffered through a major earthquake in California, and asking him how long the earthquake had lasted.

"It's still going on," the young man replied calmly.

Watching this disaster unfold on television, I can't help think about that line.  The worst of the disaster is now over.  But the catastrophe is only beginning.  We still don't know how many people have died--and will die, before we can get to them.  And even after we have pulled the last body from the wreckage, there will be economic aftershocks for years to come.

It's impossible to know, at this point, how much this disaster will cost.  But the 1995 Great Hanshin earthquake near Kobe cost over 6,000 lives and about ¥10 trillion--which was about 2.5% of GDP, and about $100 billion dollars.  The rebuilding took seven years.

The epicenter of that earthquake was much closer to a major city.  Kobe, with a population of 1.3 million, was just 12 miles from the epicenter of the 1995 quake, while Sendai, the worst-affected city this time, has slightly fewer people and was about 111 miles from the epicenter. That's the good news.  The bad news is that the 1995 quake was only about a 7 magnitude*, while the earthquake that just hit was an 8.9.  Earthquake magnitude scales are logarithmic--meaning that a 5.0 earthquake releases about 32 times the energy of a 4.0 earthquake, and results in ten times the ground shaking.  So while 8.9 doesn't sound that much bigger than 7.2, it's a much bigger beast.  This was one of the largest earthquakes in recorded history.

And yet, there's another silver lining.  It is true that this earthquake is the worst in Japan's known history, and it will do a lot of economic damage.  And all the evidence is that it is going to take a terrible toll in human lives.  But while the economic damage might actually be the worst in Japan's history, that will be in large part because Japan is richer than ever before. The toll in human lives is going to be much less than something like the Great Kantō Earthquake of 1923, which cost over 100,000 lives.  Japan's wealth means that it will suffer more economic damage, because it has more valuable stuff to lose.  But it also means that Japan has the resources to minimize the damage.

The 1995 earthquake, which caused hundreds of thousands of buildings to collapse, caused greater awareness in Japan about the inadequacy of their building codes--not even so much the modern codes, as the buildings left over from the 1960s and before.  So the Japanese have been making their buildings stronger.  But wealth also gives them immense resources to cope with the problems in affected areas: money to buy food and other emergency supplies, health care workers and engineers who can be sent into the area to treat the injured, and fix broken systems such as sewers and power.  The less of its time your workforce must spend just earning enough to feed itself, the more resources your society can throw into crises like this.  Meanwhile, of course, Japan has lots of infrastructure to get emergency workers and supplies where they're needed, and to take people out--roads and airports and cars and all the money they need to run them.

So while this may well be the biggest disaster that has struck Japan, it won't be the most disastrous.  Though, of course, that's small comfort right now.



* there are multiple earthquake scales, which give different--but not very different--results
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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