Damage of the Most Important Natural Disaster

¶ … damage of the most important natural disaster in the United States in the last hundred years, an article referring to Hurricane Katrina and, most significantly, to the extent of the damage, to the reconstruction possibilities and to the bearing these will carry on the U.S. fiscal policy and the U.S. fiscal deficit, the article Hurricane Katrina upends American fiscal policy is appropriate to explain relationships between governmental spending and overall fiscal policies, as well as the impact on national fiscal policy.

The article refers strictly to the impact on the U.S. economy and U.S. fiscal policy that Hurricane Katrina has brought about. As cynical as this may be, the logical relationship between Katrina, governmental spending, fiscal policy and, in the end, economic growth in the U.S., is quite simple to explain. The hurricane has brought about huge amounts of losses in the U.S. economy, losses that need to be counterbalanced by governmental policies, naturally financed by governmental spending. The articles refers to the programs that President Bush has referred to in his speech on September 15, most notably, tax breaks, educational and training grants and federal reimbursements.

On the other hand, Katrina will also bring about a reduction of the economic growth that the U.S. has been experiencing in the last couple of years. This is due mainly to a certain increase in energy prices and a threat of overall inflation (despite relaxing results in terms of growth in consumer prices). The article mentions the term stagflation as explaining inflation with a slow economic growth.

The article, analyzing the effects of Katrina on U.S. inflation, economic growth and fiscal policy, allows us to draw some significant conclusions in this sense, relying on the data presented and on the fiscal theories at hand.

As such, the first conclusion one may draw is that Katrina will certainly imply a large amount of reconstruction costs. These will have to be paid from the federal budget. The strain this will have on the U.S. fiscal deficit, quite impacted as it ha been ever since George W. Bush entered office in 2001, is enormous: the federal government will need to spend significant amounts of money out of its own not only to counterbalance the damage brought about by the natural disaster, but also to sustain the emotional and social stress, with programs such as the maintenance of Medicare at significantly high levels and the spending on educational programs. As such, one of the first impacts of Katrina is the strain it will bring on the U.S. fiscal policy.

On the other hand, governmental spending will be conducted in a sense which does not necessarily lead to economic growth. Indeed, governmental spending is hereby directed in covering the expenses brought about by the natural disaster rather than at developing new economical opportunities.

Third of all, destruction to energetic facilities is important because it reduces the offer on the domestic energy market and this will naturally lead to a certain increase in price level, hence, to inflationary pressures, especially on the energy market. This is why the article mentions stagflation, as inflationary pressures with a slowing of overall economic growth.