Release date: Sept. 6, 2005
Contact: Elaine Justice at 404-727-0643 or elaine.justice@emory.edu

Katrina Economic Effects Worse Than 9/11, Says Emory's Chirinko

The economic after-effects of Hurricane Katrina are likely to outweigh those of 9/11, according to Emory economist Robert Chirinko. While both tragedies disrupted vital sectors of the economy, "the list is longer for the Katrina tragedy: petroleum refining, petroleum and gas distribution, and shipping."

"In the case of 9/11, the economic damage could be repaired quickly because of the 'soft' nature of the businesses and their assets. By contrast, the assets affected by Katrina are 'hard,'" says Chirinko, which makes them more difficult to repair and replace. "It may take months to repair the refineries and dredge the channels that have been damaged during Katrina. These are vital sectors whose production is not easily replaced in the near term, so the effects will be substantial and prolonged."

An additional negative is that, while New Orleans is much smaller than New York economically, "the former is a key center of finance and commerce for part of the southern United States," says Chirinko. "Moreover, New Orleans seems completely disabled, while New York was only severely damaged. So there will be some additional disruptions to economic functions in this part of country, though these 'soft' assets should be able to repaired more quickly."

In short, "the supply impacts of Katrina are likely to vastly outweigh those of 9/11. This will put upward pressure on prices, as one has already seen with gasoline," he says.

"From an economic perspective, there is a bright side for the economy (no wonder economics is called the 'dismal science')," says Chirinko. "The relief and rebuilding efforts will surely inject stimulus into the economy," says Chirinko. "The $10.5 billion recently authorized by Congress is the tip of the iceberg of this demand stimulus."

"On balance, the near-term effects (4-6 months) will be to depress U.S. economic activity, but then the rebuilding effort will actually be a positive stimulus," Chirinko says. He predicts the Katrina tragedy will not lead to a recession, just a slowdown in growth for the aggregate economy. "All of this ignores the devastating effects on the local economies in and around New Orleans and Gulfport and, of course, the incalculable human costs."

As for the Federal Reserve, "their hands are largely tied here," says Chirinko. "The primary mission of the Fed is to control inflation. With prices rising and output falling in the near term, the Fed will surely not cut interest rates to stimulate the economy. They are on a currently projecting path of increasing rates, and perhaps these increases will be halted during the balance of the year."

Reach Chirinko at 404-727-6645 or rchirin@emory.edu.

Emory University is known for its demanding academics, outstanding undergraduate college of arts and sciences, highly ranked professional schools and state-of-the-art research facilities. For nearly two decades Emory has been named one of the country's top 25 national universities by U.S. News & World Report. In addition to its nine schools, the university encompasses The Carter Center, Yerkes National Primate Research Center and Emory Healthcare, the state's largest and most comprehensive health care system.

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