Hurricane Katrina and Economic Implications Hurricane Katrina

Hurricane Katrina and Economic Implications

Hurricane Katrina and the Economic Implications

The events of the incident and the economic backlash

The 2005 Hurricane Katrina that ended up encompassing the cities of Texas, Mississippi and Louisiana can be termed as one of the most deadly hurricanes to hit the United States of America and left millions of people in absolutely despair along with serious economic implications for the entire country to cope up with. The government and administration of President Bush ended up allocating almost $105 billion to stabilize the country and the hurricane-hit regions. The hurricane disrupted not just the lives of people but also left them helpless and worried about the fulfillment of their basic needs as there was a disruption in the supply of many commodities like Oil, cotton and other food supplies.

The Hurricane left almost 600,000 people in New Orleans absolutely jobless. The estimated loss that the Hurricane left on the economy of Mississippi and Louisiana went up to $150 billion which was quite a massive amount. The huge drop in income left the aggregate demand and expenditure in the economy to nearly nothing because people could barely afford to continue their daily lives with the extent of devastation. The people had no money to pay taxes either which left the government with no taxation income either. These states were known to be the poorest regions in the United States of America with high rates of unemployment even before the disaster and this just aggravated the whole problem.

The production of a variety of things was also severely affected such as that of oil production and the shortage in the supply now that the Gulf States were in such conditions. The oil platforms could not be located as they had sunk or could not be found anymore. There was a massive reduction in the amount of oil being produced by the country. Even the supply of gas was disrupted and this supply shock led to the prices shooting up because there was much more demand than could be met because of the shortages created. The mines of food crops such as cotton, corn and beans were destroyed and the exports could not take place which also hindered the export income as the country was heavily reliant on the exports of these produces (Herman).

Leadership steps taken by the State

What precautionary measures were taken before the disaster hit?

The East Coast of the country where Hurricane Katrina basically hit was one which was already prone to such disasters and it was predictable that such a disaster can occur in the region. However, before the Hurricane actually hit, there were many precautionary measures that the state did take into effect so as to minimize the effects and control as much damage as they could. Under this was the reassessment of the safety and security plans in case of an emergency along with better establishment of radio connections and proper allocation of food and water facilities to improve the accessibility of the basics to help people in such cases. There was widespread purchase of supplies for emergency undertaken as well as restructuring the communication lines. The police and fire departments were prompted to be ready for any such situation that calls for their help. These were just some steps taken as precautionary measures before the disaster occurred.

How successful were these precautions?

These proved to be quite effective and were favorable in the sense that at least the country was taking some measures on their part foreseeing what is ahead. Although, this was not exactly too helpful because the disaster was destructive nevertheless and left everything in jeopardy but the state knew how and what they had to do to try and make up for the losses taken place.

What measures were taken after the hurricane occurred?

There were several other measures that the state took after the storm had hit to get things back in control and stabilize the economy and help people recover from their loss. The insured losses from the damage of the hurricane totaled up to $40 billion which was a huge amount but was a step towards the recovery process. Along with this, almost 200,000 people had been left homeless and completely abandoned and this formed one of the major concerns for the states to provide these people with shelter. The reconstruction of homes took up much of the state's resources and although this was a slow process, it was the state's utmost priority. Since there were no businesses left in the states, there was no prospect for employment either and this added to the despair of people. The people who were mortgage holders had no way to repay back their borrowed amounts and the bad debts and defaults of the banking sector therefore increased alongside. (Silverman)

The state encouraged the oil mine owners to resume their production process as the energy production level had fallen by massive percentages. Along with the resumption of production, it would provide the people with some employment and some income generation as well. Since in the short-term there was a shortage of supply for oil, gasoline and natural gas, the state made its efforts towards resuming that as soon as possible and got most of them started back up. The GDP level obviously fell because of no income accompanied with the higher price level. The federal government however, kept focused on spending most of its resources on the reconstruction and revival of the industries so that the economy could get rolling back and people's faith and hopes are restored. The trade routes were also reopened for the country to indulge in the exchange of commodities once again for the inflow of funds.

What did the policy makers in the country do to fix the problem?

The policy making agencies in the country took action by lowering the interest rates to make it easier for people to start borrowing and spend on interest sensitive goods. In this way, people would start investing again on capital goods, consumer durable goods and the restructuring of their homes. It would act as the restoration of hope in the economy and give rise to borrowing financed spending.

Analysis

There are a few impacts that should have been considered too which were firstly of the inflation that was already existent and that would come in from the energy prices as well. Since there was a gap between the supply and the demand, the higher prices would eventually lead to inflation in the economy and the energy prices would affect the overall price level of other commodities in the market as well. Also, since there were such low interest rates being offered to the people, this would in turn increase the level of money supply in the economy creating the effect of too much money chasing too few goods which could greatly damage the economy instead of helping it back up.