Trickle Down Effects of Katrina

Interesting piece in today's Washington Post highlighting just how interdependent markets in the U.S. really are and the havoc a disaster of Katrina's size can wreak.

Here's some of the ripple effects that can be expected from Katrina:

• Higher gas prices (duh)
• Higher natural gas and jet fuel prices, meaning higher airline travel prices, but...

"Cutthroat competition from new, low-cost airlines continues to prevent carriers from passing all those costs onto consumers. Now, airlines on the brink of bankruptcy, such as Northwest and Delta, could topple, with broad ramifications. Airlines and attendant businesses such as car rental companies employ 10 million, and account for 8 percent of the U.S economy..."

• Higher chemical prices, which trickle down to lots of everday stuff:

"More than half the chemical industry's capacity to make alpha olefins -- a key ingredient in shampoo -- is in Louisiana. Nearly half of the ethylene glycol -- used to make polyester -- comes from the region, said T. Kevin Swift, chief economist of the American Chemistry Council."

• Higher coffee prices: the port of New Orleans and it's warehouses are a significant point of entry for coffee imports.
• Higher oyster prices:  40% of oysters come from the Louisiana coastal waters.

"As for fish, retailers and wholesalers yesterday said consumers should probably cross oysters off their shopping list because the hurricane destroyed the oyster beds as well as the boats, docks, warehouses and processing plants that ship the bivalve."

• Higher prices of construction materials:  This has the potential to be a long-term effect and could really cool the new home construction market.
• Lower farm level grain prices:  With the port or New Orleans shut down, Midwest farmers can't export their grain crops.  Might be good for U.S. consumers but bad for U.S. farmers.
• Higher transport costs on all goods.

What are the long term projections for the overall effect on the economy?  I haven't seen any official forecasts from the government, but...

Relief may not be coming anytime soon. Ben S. Bernanke, chairman of President Bush's Council of Economic Advisers, warned consumers yesterday to expect to pay at least $3 for a gallon of gasoline for the next six to eight weeks.

With that in mind, Global Insight has lowered its economic growth forecast by 1 percentage point for the current quarter, to a still-respectable 3.5 percent. But the final three months of the year could see growth fall to 1.5 percent -- "weak," Behravesh said, "but not a recession."

Wow.

Comments

[Dave Schuler]

There are lots of other costs spread over the whole country. Loss of sales to businesses and individuals in the affected areas. Anybody with accounts receiveable from the affected area is probably SOL. I know for a fact that banks and insurance companies are incurring substantial IT costs scrambling to adapt to the situation.

[Paco NATHAN]

A Proposal:

One approach for some economic recovery - which may be in progress, but I haven't seen mentioned elsewhere yet - might be to consider an exchange program.

There's a huge region of affected areas following the tsunami in Southern Asia, which are now moving along in their recovery. They have a supply of direct expertise with disaster recovery on this scale, but a demand for people to help. Not just in terms of repairing the building damage, but the overall social context of recovering an entire region.

Meanwhile, along the US's Gulf Coast, we now have a supply of people who are displaced - many with vast skills, some with no homes or even no families left. Even if current rescue operations succeed well in New Orleans, the entire Gulf Coast will - in the near term of the next few years - have an enormous demand for people with expertise at rebuilding the infrastructure and social context after such a huge disaster.

Why not offset some of the cost of helping our Gulf Coast refugees by sponsoring some to go on exchange programs for internships in South Asia? There must be plenty of folks who immigrated from or have family in India, Thailand, Indonesia, Sri Lanka, etc., who could help coordinate. The goal would be to recruit refugees who have expertise (but no jobs or homes now) as architects, psychologists, medical doctors, urban planners, civil engineers, farmers, journalists, etc.

Overall costs for sponsoring an internship in South Asia would likely be less than costs for relocating in the US immediately. Those costs would be offset by the benefits of expertise gained by people local to the Gulf, who would likely return to their home region during the long-term recovery efforts.