Michael Mandel

In the aftermath of 9/11, one of the most surprising things was the resilience of the U.S. economy. The terrorist attack took out perhaps the single most concentrated productive area in the world (measured by payroll per square foot of land), without causing the 2001 recession to extend any longer.

The question now is whether the U.S. economy is resilient enough to bounce back from the disaster in New Orleans. Brad Setser has his doubts:

the loss of the economic activity of an entire city, however, is something new. The economic impact of Katrina should not be exagerrated, but neither should it be minimized.

His worry is the ability to operate the ports, which were supported by a city which is now empty.

Clearly, workers can be brought in and housed in temporary shelters, and if you pay people enough, generally you can find the workforce you need. Think Halliburton and Iraq. So the ports will get back online. And US grain can be stored elsewhere and stockpiled until the ports are back on line. There are always options. But they all increase the cost of getting the grain harvest out and on the world market.

And Mark Thoma of Economist's View points out that we may have used up the fiscal stimulus needed to counteract post-Katerina problems:

"I've been thinking, with the disaster in New Orleans, now would be a really good time for the Fed to create a housing boom. What's that? They already did and it may end soon? Oh. Nice timing. Never mind then."

"I know! This is that rainy day I've heard about. We can use deficit spending to help, then pay it off over time as we recover. What? Don't tell me the deficit is ... I see. Really great time to have such a large deficit. So any deficit spending used to help with the recovery will have to be limited?"


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