Economic fallout of Katrina will be huge and varied

Even an economy as huge as that of the United States cannot easily absorb the damage wrought by the likes of Hurricane Katrina, and the effects are being felt already in ways that are both fully expected and quite surprising.
Individual consumers are going to have to tighten their pocketbooks to make ends meet and Congress and the administration are going to have to take steps to keep the economy from staggering under the load of increased federal spending and inflationary pressures.
Why Ohio?
The day after Katrina hit, Ohio was getting national attention as the state that had the highest overnight rise in gasoline prices, 50 cents a gallon. The decision to gouge may come back to haunt Ohio retailers as the General Assembly asks the question "Why us?" and looks for legislative responses to profiteering. Other states with more experience in dealing with price spikes at the time of weather-related crises have some price controls in place -- Florida, for instance, prohibits increasing the price for gas already in a station's tanks; prices can be increased based on higher wholesale costs for subsequent deliveries.
But sticker shock at the gasoline pump was only the most immediate symptom of the economic turmoil Katrina will cause.
Trickle down
Higher energy costs affect everything. Area grocers report that fuel surcharges are being added to the deliveries they must receive every day, and higher transportation costs will eventually be passed on to consumers of groceries and durable goods. Those costs are added every time raw materials or finished products are moved from point A to point B.
Meanwhile, the Congressional Budget Office estimates an additional 400,000 people will be unemployed through the rest of the year and that national economic growth will be trimmed by 0.5 to 1 percent.
An example of how insidious Katrina's reach into the economy can be is the lay off of 70 workers at Winner Steel Co. in Sharon, which is running out of liquid hydrogen that is produced in New Orleans.
Members of Congress estimate the cost of Katrina at $150 billion to $200 billion. Relief efforts are burning through $2 billion a day, and President Bush has just asked Congress for $51.8 billion in emergency aid, a second installment on top of the $10.5 billion already approved.
Re-examination process
Adding that amount to a federal budget deficit that was projected to be smaller than first feared, but was still going to be above $300 billion, is untenable. Congress is going to have to re-examine some of its largesse -- we might suggest it start with Alaska's $250 million bridge to nowhere, which was the biggest piece of pork in the highway bill. And it's going to have to delay making some of President Bush's tax cuts permanent.
Congress still has 11 spending bills that are supposed to be completed by Sept. 30 and the cost of Katrina will have to be factored into almost every one of those.
The Congressional Budget Office sees one economic bright spot in coming months. The massive rebuilding in Louisiana, Mississippi and Alabama may actually boost some parts of the economy. We, however, have long been sensitive to the balance of trade deficit, and we can't help but wonder how many tens of billions of dollars for construction materials and appliances to replace what was lost to Katrina will come from overseas -- especially from China. (Which will then use the proceeds to buy even more of the U.S. Treasury notes that are issued to cover the budget deficit.)
As we said, the economic effects of Katrina will be widespread and will be felt in ways that can only be imagined at this early date.

Don't Miss a Story

Sign up for our newsletter to receive daily news directly in your inbox.