The Macroeconomic Effects of Hurricane Katrina

Hurricane Katrina was a devastating storm that struck in parts of Southern Louisiana, Mississippi, and Alabama on August 29, 2005. Aside any other natural disaster, hurricane Katrina deeply affected the economy. Katrina can be translated into the aggregate demand and aggregate supply structure of study. It damaged labor and capital, ultimately affecting the economy's ability to produce goods and services. The measure of economic output is GDP; it measures new production. The destruction of the capital stock caused by hurricane Katrina is not part of the GDP measurement (Gordon 323-324). The loss of labor as well capital reduced the world's ability to produce new goods and services. The average state has about 2 percent of the economy's capital stock. Louisiana has only 1 percent and half of that was destroyed by Katrina. In September 2005 the United States economy lost 400,000 jobs due to Katrina. The monthly average job creation was reduced by 30,000 jobs for the rest of the year 2005 (www.katrina.noaa.gov).

Macroeconomics considers the performance of the economy as a whole, focusing on inflation, economic growth, trade performance, changes in employment and unemployment. Should Hurricane Katrina be blamed for stirring up inflation? The price of gasoline soared immediately before, during, and after Katrina. Sadly, the prices of other imported goods like bananas, coffee, chicken, corn, and more skyrocketed due to the supply interferences and higher transportation costs. Residents could not afford to build or rebuild their homes as the price of lumber increased because suppliers knew the demand would be high. The prices of the imported goods led to higher energy cost, which caused a major threat to the economic growth. Economic growth supplies the resources for people to enjoy better living standards and opens doors for people to find a job. Many homes were destroyed by Katrina due to storm flooding and wind causing the affected residents to temporarily remain in other unaffected cities.

What exactly did the United States Federal Reserve Board (Fed) do to keep the inflation under control, did they raise or lower interest rates post Katrina? The Feds chose to ignore the current economic brunt due to Katrina's disaster and imposed a boost in interest rates. They recognized the hindrance due to higher energy prices, dislocation of economic activity, employment and production raising rates to target wages and living standards of the working class. The Feds also saw it as a way to prevent the chances of government expenditures in the reconstruction of areas devastated by Katrina and the economic stimulus striking an increase in the real wages of American workers. Ultimately working people had to bear the full burden of increased fuel prices and the general destruction caused by Katrina. In this matter the fiscal and monetary policy would be pointless in trying to steer the economy in a path to full employment (wsws.org).

The unemployment rate in Louisiana alone climbed tremendously post Katrina. The Louisiana Department of Labor reported the unemployment rate in September rose to almost 12 percent, classified as the highest unemployment rate in Louisiana since January 1987. A total of 251,000 employees were displaced due to the New Orleans Metropolitan Statistical Area's devastation caused by Katrina. Several of Mississippi County's were affected by unemployment at an estimate of over 80 percent amongst the 3 county's that were devastated by Katrina. Unfortunately, these regions were not able to recover from the aftermath of Katrina before entering the 2008 recession. The nation's unemployment rate rose to 5.1 percent after Katrina, definitely asserting that Katrina distressed the labor market conditions very shortly after the storm. Many jobs were vacant along the Gulf Coast in the efforts to reconstruct the damaged structures, but the work was only temporary shifting the workers right back into the unemployment pool once the rebuilding efforts were complete (blog.gulflive.com).

Most hurricanes usually affect the direct area impacted, but Katrina impacted the entire United States economy. The significant energy assets along the Gulf Coast caused the largest national economic fallout as an incredible 30 percent of the nation's oil supplies flow through the state of Louisiana. The normal level of output dropped due to lost labor hours and capital. The growth rate can recover quickly, but the output will remain low until it returns to normal levels. About 10 percent of the nation's refining capacity come from the Gulf Coast causing gas prices to rise. It was speculated that Katrina would unlikely trigger a national recession, sadly three years later the recession hit the nation doubling the likelihood for the Gulf Coast to recover any faster. The Bureau of Economic Analysis (BEA) calculated that those storms openly reduced the fixed capital stock by $55.1 billion. Hurricane Katrina's effects can be compared to the September 11, 2001 terrorist attacks. The economies of southern Louisiana and Mississippi will definitely suffer long-term effects. Employment, rebuilding, and national economic growth are just a few economic activities that needed to be recovered in those affected regions (www.katrina.noaa.gov).

Increased spending for urgent storm relief will counteract most of the losses due to the storm. The government spent $2 billion a day on hurricane relief tools. Contracts were made for millions more for new interstates