Economic & Social Consequences
by Loren Cobb
Update: Friday, 2 Sept 05
It is now clear that the effects of Katrina are severe. They are not quite as bad as it seemed they might become when I wrote the original TQE 130, the day before Katrina made landfall in Louisiana, but the situation has been deteriorating ever since the hurricane hit on Monday. Here are some salient points:
1. Thousands may already have died
The problem with early mortality reports is, as we saw with the Tsunami of Christmas 2005, that no reports come from the regions that have been hit the hardest. There has been total silence from too many rural areas of Louisiana and Mississippi for my comfort. I fear the worst have done since before the hurricane hit and I note that the are now singing the same tune: there is a strong possibility that thousands of people have already died.
2. Survivors are facing starvation, bad water, and illness
Food supplies are only just now reaching some 40,000 survivors in New Orleans, according to television reports. Sanitation systems have failed, city-wide. Raw sewage and dead bodies are floating in the flood waters. People cannot boil their drinking water, due to an absence of fuel. We can expect that water-borne illnesses such as dysentery will increase the death toll of Katrina, especially among children and the elderly. The scale of human misery in the Big Easy is hard to comprehend.
3. Security slowly being established in New Orleans
It is now four days after the hurricane, and the National Guard of Louisiana has only just now begun to re-establish security in New Orleans. There are continuing reports of looting, rape, burglary, robbery, and general lawlessness. People are desperate, and the National Guard is trickling in. Where they have set up a presence, they are effective. Too much of the city remains unprotected.
2. ONE MILLION are displaced and homeless
Perhaps the most striking psychological aspect of the human cost of this catastrophe is the fate of so many displaced people. It is psychologically extremely difficult to abandon hearth and home, and even more difficult to remain for months or years in temporary housing amidst uncertainty and financial stress. Not all of the estimated one million displaced people will have homes to return to. We can anticipate that an enormous number of people will be suffering in silence about this for years to come.
3. US gasoline prices may hit $4.00 per gallon
Essentially all offshore petroleum platforms and drilling rigs in Katrina's path were damaged. Some will come back on line within a few months, but others may need a year or more to recover. Worse, eight or nine refineries along the Gulf Coast were damaged. At this time we do not know the extent of the damage, but we anticipate many months during which little or no gasoline will be produced by these damaged refineries, representing some 9% of US gasoline production. This strongly suggests a sharp rise in gasoline prices at the pump, perhaps to as high as $4 per gallon, in the near future.
Why do I anticipate a price for gasoline at the pump of $4 per gallon? Because the demand for gasoline is "inelastic" compared to other commodities. Price elasticity is a measure of how demand responds to changes in price. Demand for an inelastic commodity, like gasoline, does not decrease much per unit increase in price. In fact, according to one source, the short-term price elasticity of gasoline is about .20. This implies that it will take a 45% increase in the price of gasoline to achieve a 9% reduction in demand for gasoline in the short term, or $4.00 per gallon. (The arithmetic is easy: 9% / 0.20 = 45%)
Indirectly, this short-term price increase in gasoline will hasten a series of changes in consumer behavior to improve the efficiency of their use of fuel. Those who are ready to buy new or used cars will shift their attention to more fuel-efficient models. Car-pooling will increase. Home-buyers will be hesitant to purchase homes far from their places of work. All of these changes will gradually improve the fuel efficiency of the US economy.
In the longer term, there is no apparent reason why gasoline prices should not settle back down to the vicinity of $2.50 per gallon, as refineries are repaired.
At this point I do not expect that Katrina will cause a recession in the US economy. I expect a mild slow-down, but no recession. The economic effects of the damage to infrastructure will last several years, but they will be increasingly offset by capital spending on repairs.
4. Total damages may exceed $100 billion
This astronomical sum is possible even likely because so much costly infrastructure was damaged, in addition to residential homes and buildings. Oil refineries and offshore platforms are not cheap to repair or replace. Levees, port facilities, bridges, hospitals, office towers, sanitation facilities: the big-ticket damages will mount very rapidly. The sheer area covered by Katrina as it plowed inland is enormous, and so is the number of people affected.
Another significant datum: the total exposure of all insurance companies to losses in New Orleans alone is about $110 billion. Based on this figure, and the devastation we are seeing this week in New Orleans, I think we can predict $50 to $100 billion in damages for New Orleans, and another $25 to $50 billion for all the rest of the affected areas put together. So, at this point, I think the estimated range for total damages by Katrina is from $75 to $150 billion. No matter how you look at it, that's a lot of money.
One indirect consequence of this toll of damages will be increased insurance premiums, as actuaries come to grips with the new level of risks that the insurance industry faces. On balance I consider this to be a positive development, even though our insurance bills will be higher, because it is absolutely critical for a modern economy to have an insurance industry that accurately estimates its true risks.
5. The National Guard shows how it could have been
I have often written that the future of the military will be in disaster relief and humanitarian operations, in addition to border security and the suppression of would-be warlords. In this disaster we are seeing how effective the National Guard can be when they show up in time. Before the Guard arrived in New Orleans we saw a steady plunge into anarchy and chaos. After the Guard arrived in each neighborhood, calm returned and emergency services began again.
The failure to deploy adequate troops in a timely fashion is an object lesson for all would-be politicians: prepare for disaster! Prepare, plan, exercise, evaluate, then do it all over again until it works. That was Mayor Rudi Guliani's approach in New York City prior to the attacks of 9/11/2001, and all that work paid off brilliantly when put to the test.
Having finally arrived, the National Guard is proving what they can do, even in an emergency of this magnitude. To my eyes, this is proof that there will be a vital role for citizen soldiers in uniform, operating under military discipline, for many years to come even if, as I anticipate, the risk of major war decreases substantially over the next 20 years.
Sincerely your friend,
Note: Please send comments on this or any TQE, at any time. Selected comments will be appended to the appropriate letter as they are received. Please indicate in the subject line the number of the Letter to which you refer!
There are 11,000 members of the Louisiana National Guard. Approximately 3,000 of them are in Iraq. The idea that the war in Iraq is affecting the ability of the guard in Louisiana to deal with this catastrophe, while popular on left wing web sites, is, to put it bluntly, crap.
Has anyone heard the status of Friends in New Orleans? Please let us know if you hear. [If you write to tqe-comment at quaker.org then this news will be published on this site. editor]
Craig, Greensboro (NC) Friendship Monthly Meeting.
The Manilow Fund and Barry Manilow are matching donations for Hurricane Katrina victims, $2 for every $1 donated. Click here for details [and read the following comment! editor].
Ted Goertzel, Camden, NJ.
I note that the Manilow fund is not listed with the organization Give.org, which means that they do not provide information to the alliance on how their money is spent. They are also not listed on any currently existing lists of organizations that have officially pledged to give money or offer assistance for victims. This does not mean that your money wouldn't be tripled, and that it wouldn't reach the victims, but rather that you have no assurances you are not falling victim to a typical Internet scam.
The Manilow fund has chosen not to publish information about how they spend their money, so you will never know what happened to your money. Why take a risk when there are so many legitimate organizations?
Louise asks how we can help. I checked the NPR site, which referred me to FEMA, which listed various organizations including Church World Service (of which Philadelphia Yearly Meeting and Friends United Meeting are both members).
AFSC is also accepting financial contributions, but I suggest we work with a primary agency such as CWS rather than everyone sending help and money to different places.
Click here to go to the contribution page of Church World Service, or use this USPS address:
There are many agencies needing financial support also, such as the American Red Cross, which has a wonderful history of providing support in times of need. I don't think we should limit where financial assistance should go. Each agency has its needs and its own area of expertise for providing that assistance. Just a thought.
Mary Anne Crowley.
I'm writing to convey some information and thoughts to Friends who are concerned with developing an appropriate and useful response to Katrina, and to sharing information on Friends in the affected area.
Humphrey Costello, Starkville (MS) Friends Meeting.
Thank you for your help in networking worldwide about the aftermath of Hurricane Katrina here in Louisiana and on the Gulf Coast. I have been swamped with correspondence since that first timid note you've posted in your newsletter for us and am sorry to be so long in getting back to you. Those initial three hours on the computer are but a fond memory now twelve days later!! Feel free to post any or all of this email on your site.
We have been busy and have a number of things to report:
To date, we have accounted for about 2/3 of the regular folks from New Orleans Friends Meeting. Everyone we have located is safe with either friends or family. There is a regularly updated list at their website (fmno.quaker.org).
At the regularly scheduled Meeting for Worship with Intent to Conduct Business at Baton Rouge Friends Meeting on 09/11, a minute was written establishing a bank account whereby monetary donations can be sent to directly assist the Quakers in Louisiana, Mississippi and Alabama affected by the storm. The information for this account will be posted on our yearly meeting website (scym.org) and our monthly meeting site (batonrougefriends.net) as soon as the account is opened (hopefully within 48 hours). We invite F/friends everywhere to reach into their pocketbooks and trust our clearness committee to spend their gifts wisely. That committee has two people on it from NO Meeting and two from BR Meeting and they will oversee all requests for assistance.
Everyone in the Baton Rouge Meeting is fine. Electricity has returned to all our homes and we are pretty much back to normal, except that many of us are still raking sticks and leaves blown around by Katrina. We had no flooding and no injuries.
Because the retreat center we usually rent is filled with evacuees, our Quarterly Meeting (Bayou Quarterly Friends Meeting) will be relocated in early October to the home of Pam Daigle Arnold, clerk of BR Meeting. Our Quarter includes Galveston, Bryan-College Station and Houston TX and Baton Rouge and New Orleans in Louisiana. It is clearly true that way does open when one is quiet enough to listen for guidance from God. Some of the New Orleans people are in the BR area already and others may be able to get here for the weekend so we are looking forward to a fun-filled homecoming.
Individually, we are each doing many small parts of the giant job of helping the displaced New Orleanians. From helping at the shelters (now housing humans and animals but not together saved from the rising waters) to answering emails to housing evacuees... every little bit helps and we appreciate the prayers of our wider Quaker family. Please check our websites for updates and thank you, everyone, for being there for us. In the Light,
Pam Daigle Arnold, Clerk of the Baton Rouge Friends Meeting. [Received 12 Sept 2005]
Editor's Note: The original text of TQE 130 is, as they say, OBE (overtaken by events). We are keeping it on the website as a reminder of how our thoughts were moving as Katrina approached New Orleans. LC
It's 3pm on Sunday, 28 August 2005. News broadcasts still show a category 5 hurricane named Katrina drawing a bead on the city of New Orleans. The human and economic consequences of this event, if it does happen, are so severe that I have decided to dedicate this entire TQE letter to an analysis of what may happen.
Immediate Humanitarian Impact
Over the next 24 hours, Hurricane Katrina may lose power, and may turn away from New Orleans. If it remains at its current strength and on its current course, then the outlook is grim. Here is why:
Every hurricane causes a "storm surge," which is higher than normal water levels near the eye of the storm. A category 5 hurricane can be expected to cause a storm surge of at least 18 feet. Katrina, with winds of 175 mph, may have a surge of 25 feet (7.7 meters). That is easily enough to cause Lake Pontchartrain to flood into the city, which occupies a bowl well below sea level. The flood level, measured from the street, could reach 20 feet. Deaths could easily run into the thousands among the people who failed to evacuate the city.
Windspeeds over the city may exceed 100 knots, driving huge waves before them. The waves will do extraordinary damage to every building in the city. Many buildings will be totally lost.
The pumps that normally keep New Orleans dry will be submerged and covered with silt. Water and sewage systems will fail. The levees that were designed to keep flood waters out of the city will keep this flood in, for weeks if not months. It will not be pretty.
Television news broadcasts about Hurricane Katrina are carefully not mentioning the possibility of tens of thousands of deaths, to avoid panic and because there are so many unknowns that could change the impact of the storm. Nevertheless, US government studies and disaster exercises lead to this conclusion. American RadioWorks, which produces many stories for National Public Radio, reported this conversation with disaster officials in New Orleans, in 2002:
The Port of Louisiana
The port facilities at the mouth of the Mississippi River, known as the Port of Louisiana, is the fifth biggest in the world in terms of tons of trade exceeded only by Singapore, Rotterdam, Shanghai, and Hong Kong. It is the salt-water terminus of the enormous system of inland waterways that extends over the basins of Mississippi, Missouri, and Ohio rivers. Some shipping can be diverted out through the St. Lawrence seaway, or down the Erie Canal to New York, but most of our fresh-water shipping is dependent upon the Port of Louisiana.
Essentially all of the cranes in the port will be under water in the storm surge, their superstructures exposed to hurricane-force winds in excess of 140 knots, with waves to match. How many will survive? I have no information on what their design specifications may have been, but it is difficult to imagine that they will escape without damage. The port is likely to be crippled for months.
Offshore Oil Production
In 2004, Hurricane Ivan damaged 31 offshore oil rigs. Production did not return to normal for four months. Hurricane Katrina is not only stronger and bigger than Ivan, it is also taking better aim at oil rigs in the Gulf. We can expect domestic oil production to take a significant hit, causing gasoline prices at the pump to take yet another jump just days from now.
Hurricanes bring rain, lots of rain. This one will dump an awesome amount of water onto a zone that drains directly or indirectly into the Mississippi River. Therefore, the river itself is threatened not merely by a storm surge coming up from the south, but also (after a day or two of delay) by flood waters from the north. Levees that will already have been damaged by the storm surge may not be able to withstand another, even more massive flood.
As John McPhee predicted decades ago, somewhere between the Atchafalaya Wildlife Refuge and New Orleans the levees may give way, pouring all the excess rain water into the lowland zone to the west of the Mississippi River. In the McPhee scenario the levees will be so badly damaged that the Mississippi will irreversibly find a new path to the Gulf of Mexico, leaving the State of Louisiana and its great port forever changed. [Note: The McPhee scenario did not occur, and the Mississippi River still runs in its channel editor, 31 Aug 05.]
If IF we see tens of thousands dead in New Orleans, the city flooded and reduced to an alligator-infested swamp, the Port of Louisiana wrecked, the Mississippi River diverted into the Atchafalaya basin, and the economy of the entire Midwestern section of the USA choked for lack of passage to the Gulf of Mexico, then there will be economic consequences.
If, when the stock market opens tomorrow morning, Hurricane Katrina is still on course and just as strong as it is now, then things will get pretty exciting down in the trading pits of New York and Chicago.
Hurricanes are notoriously fickle beasts, whose behavior regularly confounds the prognosticators. Let's hope that Katrina weakens and moves away from its predicted course, thus rendering all of the above moot.
Sincerely your friend,
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Publisher: Russ Nelson, St. Lawrence Valley (NY) Friends Meeting
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Copyright © 2005 by Loren Cobb. All rights reserved. Permission is hereby granted for non-commercial reproduction.