Magazine article Economic Trends

The Economy in Perspective

Magazine article Economic Trends

The Economy in Perspective

Article excerpt

A low probability event moves center stage ... The Tuesday, August 30 New York Times carried the front-page headline, "Hurricane Slams into Gulf Coast ... "New Orleans Escapes a Direct Hit." We now know that the optimistic reports were premature; New Orleans was later devastated when levees holding back floodwaters collapsed, releasing walls of water onto the city The ensuing paralysis of its critical infrastructure brought hunger, death, desperation, and lawlessness. Catastrophes of this magnitude are so rare that many people regard their probability as essentially zero. But as the New Orleans disaster reveals, our civilization relies on the interacting operation of several large-scale, complex infrastructure systems. When key elements of one system cease to function, disruptions can spread into the others. Through these linkages, events that appeared remote can become more likely.

We now know that Hurricane Katrina destroyed or impaired critical parts of the area's industrial infrastructure, especially its energy infrastructure. The Gulf Coast region contains sea ports, oil refineries, drilling rigs, and pipeline hubs that send petroleum products and natural gas to customers throughout the United States. Katrina's damage to the power grid, shipping facilities, and refineries has already sent energy prices spiraling upward. But surely that picture is incomplete. People whose business and responsibilities concern the nation's economic performance want to understand the implications of Katrina's destruction for the short, intermediate, and longer term.

In the short term, there is little doubt that the storm will harm the nation's economy through its effect on energy prices. Before Katrina hit, high energy prices already were thought to be taking a toll on consumer spending for other goods and services. But the truth is that it will take some weeks to assess the full extent of the damage to the energy infrastructure and months before it can all be repaired. Consider that the storm destroyed warehouses that contained essential supplies and that skilled labor will be scarce. Moving people and material through the area will be challenging.

Unpredictably, U. …

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