Academic journal article ABA Banking Journal

Economic Consequences of Hurricane Katrina

Academic journal article ABA Banking Journal

Economic Consequences of Hurricane Katrina

Article excerpt

IN SPITE OF THE SUFFERING of so many afflicted, the macroeconomic consequences of Hurricane Katrina should be close to nil within one year's time.

The standard paradigm for natural disasters is that an initial brief period of stymied economic activity ultimately gives way to reconstruction efforts that will fully compensate for the initial economic loss. Katrina is likely to follow this basic script, with a few idiosyncratic departures determined by its particular circumstances.

First, Katrina's magnitude is in a league of its own. Insured damage assessments, now estimated at $35 billion, exceed all previous hurricanes, earthquakes, and even the pay-out of 9/11, which tipped the scales at $32 billion. Uninsured losses, however, are expected to be disproportionately higher this time, putting total property damage over $150 billion. This means that both the initial adverse economic impacts and subsequent rebuilding will be more severe.

Second, reconstruction efforts in New Orleans are being delayed by flooding and access difficulties. Estimates put this delay at months, which means the adverse consequences will be extended in time. Rebuilding and repairing some fraction of the 360,000 houses in the affected area, for example, will have to wait.

Third, the port of New Orleans is the largest in the Gulf of Mexico, based on cargo volumes, which adds a wider logistical dimension to the economic impact. Exports from the port (e.g., machinery, grain, paper) and imports (e.g., oil, rubber, steel) will all be interrupted for a time. …

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