September 2, 2005

by Reb Yudel
DeLong: An Economist Views With Dismay

Brad DeLong's Semi-Daily Journal: On Hurricane Katrina--for Marketplace Radio

I guess I was naive.

I thought that in the wake of Katrina's passing we'd see flotillas of helicopters, fleets of boats, and public health and public safety professionals from all over the country giving booster shots and restoring order within hours. I expected to see rapid, active, and aggressive disaster-recovery response from rescue assets prepositioned nearby but out of the reach of the hurricane.

After all, having a hurricane hit a city is nothing new. New Orleans's vulnerability as a bathtub waiting for the ocean is obvious. Louisiana is crucial to America's oil industry, and New Orleans is--was--an incredibly valuable touristic and cultural jewel.

But it appears that such was not the case. One hospital ship is scheduled to leave Baltimore tomorrow, rather than a week and a half ago.

The effect of the Hurricane Katrina catastrophe on the broader economy is still a question mark. We don't know, yet, how much damage was done to the Gulf Coast oil sector. Refineries are shut. Drilling platforms are missing. And we don't know, yet, what other hurricanes will come roaring through.

Current estimates are that Hurricane Katrina has destroyed something like $100 billion of American wealth. Almost all of these losses will fall on the perhaps 1 and a half million refugees. Figure average wealth losses of $70,000 per affected household. Then figure it'll take several months to begin to rebuild and reknit economic activity in Louisiana, Mississippi, and Alabama. That's an extra $10,000 lost per household. Insurance won't cover more than a fraction.

When rebuilding starts--assuming that New Orleans can be pumped out in a reasonably short period of time, and that businesses are willing to risk rebuilding--the lower Mississippi should see lots of work to be done. That is, provided that the federal government, state governments, and businesses are willing to finance it.

If the Gulf Coast oil sector is in good shape, it won't be that many months before measured real GDP is about what it would have been had Katrina never come ashore.

But the GDP number won't count the $100 billion or so of destroyed wealth. The already-poor lower Mississippi Valley will be much poorer for a long time to come. People who were office professionals will be construction helpers. People who were middle class will be working class. People who were working class will be working poor--for seasons if not for years. And that's if the reconstruction effort goes well.