9/11 and Katrina

A local newspaper reporter just called asking for comments on the economic consequences of 9/11, 4 years later, then on the economic consequences of hurricane Katrina.

I suspect my comments would be pretty mainstream...9/11 had a limited short-term impact...the impact, even short-term on the financial sector, was small, because of those firms already had, and were able to use, facilities in existence for emergencies. The long-term impace has been, I think, essentially zero. Given the macroeconomic policies of the federal government and of the Federal Reserve, we're about where we would have been had the terrorist attacks never happened.

Katrina may be another thing altogether. We're faced with the temporary loss of a substantial percentage of domestic crude oil and natural gas production and of oil refining capacity. If that capacity is off-line for any substantial amount of time, the US economy will suffer. (As George Friedman wrote on his blog Stratfor, one issue will be the ability of firms in those industries to bring back their skilled workforce, that "requires homes. They require stores to buy food and other supplies. Hospitals and doctors. Schools for their children. " This suggests that an immediate return of families unlikely. But an immediate return of the workers, housed and otherwise supported by their employers, sending money back to their families does seem possible, if we're willing to do it. The question is whether the capital can be brought back on line reasonable quickly, and I don't think we know.

In addition, Katrina has disrupted the transportation chain, outward for agricultural products and inward for other categories of agricultural products (bananas, coffee). This could lead to temporary disruptions to agricultural exports and therefore to agricultural incomes, and some temproary price spikes for a few products.

The reporter asked about local impacts. Two major industries here are steel production and oil refining. If the local firms are not already operating at or near capacity, then there's an opportunity for a short-term local boost in employment and income. My sense, however, is that in both industries firms are producing up against their limits (I'm almost certain that's true in oil refining, and pretty sure it's the case in steel). Nationally, construction (especially residential construction) has been booming, leaving little slack there as well. (One thing is that the reconstruction efforts micht offset the end of the coastal real estate bubble, by shifting construction employment to New Orleans.)

Longer term, the issue is whether, and how rapidly, the capacity of the Gulf region can be brought back on-line. And we do not now know the answer to that question.