Katrina and the Waves

As Edward suggests below, the macroeconomic effects of Katrina are just now becoming known, much less felt or sorted out.

One item that will be much more widely reported is that in addition to all of the petrochemical industry located there, New Orleans was the linchpin of the Port of South Louisiana. The port is the largest in the United States by tonnage, and the fifth largest in the world. Only Rotterdam, Singapore, Shanghai and Hong Kong are larger.

Stratfor reports, “Fifteen percent of all US exports by value go through the port. Nearly half of the exports go to Europe.” Anything from Montana to Ohio that’s sent to the world in bulk passes down the Mississippi River and past New Orleans. Virtually all of it is loaded onto oceangoing vessels at the PoSL. The port is expected to be closed for at least three months. This is a significant disruption in world trade.

The refinery outage is a serious issue. Even if they were not damaged by the storm, their staffs are probably scattered throughout the region, and not all will have survived. The refineries are also built to be run continuously and brought offline rather slowly. The rapid shutdown and long-term power outage may have done more damage than the storm itself. And they were all running flat-out before the storm to meet high demand.

The big question is consumer spending and demand. If gas prices take enough household income to cause cutbacks in other areas, what will that mean for the American economy? How sharp a drop in growth should we expect? And can the global economy run without the great engine of American consumer demand?

We may be about to find out.

This entry was posted in A Fistful Of Euros, Not Europe and tagged , by Doug Merrill. Bookmark the permalink.

About Doug Merrill

Freelance journalist based in Tbilisi, following stints in Atlanta, Budapest, Munich, Warsaw and Washington. Worked for a German think tank, discovered it was incompatible with repaying US student loans. Spent two years in financial markets. Bicycled from Vilnius to Tallinn. Climbed highest mountains in two Alpine countries (the easy ones, though). American center-left, with strong yellow dog tendencies. Arrived in the Caucasus two weeks before its latest war.

15 thoughts on “Katrina and the Waves

  1. “And can the global economy run without the great engine of American consumer demand?”

    I don’t even think this is a question with the global imbalances, clearly it can’t, at least not in the way it has been. But I think we need to be very cautious and take this a day at a time. I think from what you say it will be the balance of payments that will be hit, since presumeably incoming goods can be diverted to other ports.

    OTOH I just can’t believe what I am seeing in NO at the moment. I think this is not the moment to go into how all this could have been allowed to happen, both in terms of preparation, and socially, but afterwards it looks like there are a lot of hard questions to be asked.

  2. If U.S. consumers spend less money on stuff because they spend it on gasoline instead, their standard of living has gone down. But to an outside observer, they are not spending less, merely making different consumption choices. The manufacturing and retail sectors suffer, but the oil sector reaps profits. (Scarcity has driven the retail price up, but the production costs remain the same.)

    If U.S. consumers merely re-allocate their spending, the velocity of a dollar ought not to change. If they start saving out of fear that things will get worse before they get better, or out of fear of future unemployment, then there will be global consequences.

  3. Also Doug I’m watching Jesse Jackson live from Louisiana on the link that Rupert kindly provided in comments to your first post. Now obviously he has a political axe to grind, but still, even allowing for this he is making some very valid points. In particular National Security. This could have been a terrorist attack. Since 09/11 the US should have been prepared for something like this. It just happens this is natural, but where is the preparation?

    The folks of all parties down there seem pretty hopping mad right now.

    Also interestingly Jackson raises the question of global warming. Clearly this is controversial, but I’m glad someone is at least raising it.

    I recommend watching this it really is very informative, both about events and sociologically etc.

    http://www.wwltv.com/perl/common/video/yahooPlayer.pl

  4. Actually, Edward, I think for those of us away from the scene it is precisely the time to start going into how this could have happened. The Times-Picayune had a series in 2002 on exactly this situation. Every aspect of this disaster has been completely predictable and generally was predicted. The only thing uncertain was that it would be this storm and not some other one.

    At the federal level, some very specific choices have been made by the Administration and the Republican Congress that have made things worse. Work at the 17th street levee (site of the biggest breach on the lake side) would have been finished two years ago except for budget cuts at the federal level. That money was spent in Iraq.

    If we let the present administration get away with “this is no time for politics” now, then there will never be a time for politics, for accountability. This administration was happy to reap the benefits of 9/11 and to campaign on the war as a partisan wedge issue. The administration and the Republican party have zero credibility in saying this is not a time for politics.

  5. WWL is very good. They’re also clear-channel AM on the radio dial, so on clear nights you can hear them all the way up to Ohio and far into west Texas. They’re broadcasting and blogging from Baton Rouge right now, but they’ll probably be some of the first folks back in.

    The Times-Picayune blog is also very good; don’t know if I’ve cited it before:

    http://www.nola.com/newslogs/tporleans/index.ssf?/mtlogs/nola_tporleans

    Belle Waring asks the same question and provides a salty answer:

    “Say what you like about casting blame for the unfolding tragedy in NO, the bare facts of the matter are these: America suffered a serious attack on Sept. 11, 2001. That was four years ago. I think we had all assumed that in the meantime a lot of wargaming and disaster-mitigation planning and homeland security gearup had been going on. If this is what the Federal and State governments are going to come up with when the suitcase nuke goes off in D.C., then we are well and truly fucked.”

  6. I think Jesse Jackson is part of the problem, not the solution.

    I watched a New Orleans tv station over the internet from early
    Sunday morning till late that evening. Sunday morning being when
    I realized a that a disaster was unfolding. The station did, I thought,
    a good job. Very calm, very reasoned — a non-stop message to leave.
    The traffic out of the city was orderly. There didn’t seem to be
    any panic on the roads and very little confusion. Within twelve hours
    over a million people had left. Since two-thirds of New Orleans
    population is black, most of the people who left were also black.

    The people who were left, about one hundred thousand, were the elderly,
    the disabled, the sick, the foolish, and the black underclass.
    The black underclass is poor but other adjectives also apply. The
    most disturbing things I saw on the tv on Sunday had to do with the
    Superdome. The Superdome was the only provision the city government
    had made for those who could not find transportation. Everyone in
    New Orleans who couldn’t find a way to get out on their own was supposed
    to go to the Superdome. Some actually did. Two tv reporters were
    trying to interview people in line and I was surprised by the negative
    attitudes revealed. Those attitudes, already present before any
    hurricane had hit, pretty much guaranteed a bad experience for
    all concerned. From the look of it, if I’d been there I’d have
    hestitated to go to the Superdome. And not because of doubts about
    the physical structure.

    Here’s New Orleans mayor, Ray Nagin, theory about what went
    wrong and why it’s happening:

    Quote:

    And I am telling you right now: They’re showing all these reports of
    people looting and doing all that weird stuff, and they are doing that,
    but people are desperate and they’re trying to find food and water, the
    majority of them.

    Now you got some knuckleheads out there, and they are taking advantage
    of this lawless — this situation where, you know, we can’t really control
    it, and they’re doing some awful, awful things. But that’s a small majority
    of the people. Most people are looking to try and survive.

    And one of the things people — nobody’s talked about this. Drugs flowed
    in and out of New Orleans and the surrounding metropolitan area so freely
    it was scary to me, and that’s why we were having the escalation in murders.
    People don’t want to talk about this, but I’m going to talk about it.

    You have drug addicts that are now walking around this city looking for
    a fix, and that’s the reason why they were breaking in hospitals and
    drugstores. They’re looking for something to take the edge off of their
    jones, if you will.

    And right now, they don’t have anything to take the edge off. And they’ve
    probably found guns. So what you’re seeing is drug-starving crazy addicts,
    drug addicts, that are wrecking havoc. And we don’t have the manpower
    to adequately deal with it. We can only target certain sections of the
    city and form a perimeter around them and hope to God that we’re not overrun.

    End-quote.

  7. Doug mentions the 17th street levee but actually it was upgraded just
    recently.

    Quote:

    No one expected that weak spot to be on a canal that, if anything,
    had received more attention and shoring up than many other spots in
    the region. It did not have broad berms, but it did have strong concrete walls.

    Shea Penland, director of the Pontchartrain Institute for Environmental
    Studies at the University of New Orleans, said that was particularly
    surprising because the break was “along a section that was just upgraded.”

    “It did not have an earthen levee,” Dr. Penland said. “It had a vertical
    concrete wall several feel thick.”

    End-quote.

    See http://www.balloon-juice.com/?p=5448

    Camile, incidently, the last cat 5 hurricane to hit the Gulf Coast,
    was in 1969.

  8. My dad (who lives in Baton Rouge) said that there had been another evacuation not too long ago (within the last three years) and that similar conditions had developed within the Superdome quite rapidly.

    As the old southern adage has it, there is no education in the second kick of a mule.

    The people in charge of evacuation plans saw what had happened and learned … absolutely nothing.

    Before I learned this bit of information, I thought that a breakdown after 48 hours of no electricity, no running water, too many people, too little information and too little administration was completely predictable. But finding out that it had happened before!

    That New Orleans has a significant crime and public order problem even in the best of times is known to practically everyone within eight hours’ drive of the city. Factoring that into disaster planning seems an elementary concern. But obviously it wasn’t.

    Also, on the 17th street canal breach, I’m pretty sure that it was the Times-Picayune blog (permalinks not really working) that said the levee there had been improved recently but had not had time to settle properly. This might have made it more vulnerable to scouring, and thus the breach, once it was overtopped. The work, iirc, was supposed to have been finished more than a year ago but had been delayed because of budget cuts. That money went to Iraq.

    Incidentally, I’ve read at least one report saying that Katrina’s storm surge on the Missippi coast may have hit 40 feet. Camille’s was 24 feet.

  9. At the federal level, some very specific choices have been made by the Administration and the Republican Congress that have made things worse. Work at the 17th street levee (site of the biggest breach on the lake side) would have been finished two years ago except for budget cuts at the federal level. That money was spent in Iraq.

    The levee problem is decades old, as laid out in both Scientific American(2001) and Civil Engineering Magazine(2003). Everyone was aware the NO could be obliterated by a cat 4/5 hurricane, but the political will simply wasn’t there. The original levee wasn’t constructed to withstand Katrina, and *none* of the recent projects on tap were capable of doing that either. That sort of engineering takes decades. And politically there’s blame to pass around to everyone. Local politicians, local businesses, the Lousiana voter, Congress, and every presidential cabinet from 1960. Take your pick.

    As for Jesse Jackson, he is an opportunist of the most shameless degree. He is using the New Orleans disaster to push his never ending racial quota cause:
    ‘Jackson questioned why Bush has not named blacks to top positions in the federal response to the disaster, particularly when the majority of victims remaining stranded in New Orleans are black: “How can blacks be locked out of the leadership, and trapped in the suffering? It is that lack of sensitivity and compassion that represents a kind of incompetence.”?

    This is going to become one of the dominant meme’s over the next few weeks and months and that’s very unfortunate. I guarantee some terrorists are taking notes and licking their chops. A major American city just gets destroyed and not 3 days pass and the knives are out, soon to be followed by the lawyers. It’s truly depressing.

    And did anyone see Kanye West, Times Magazines ‘Smartest Man in Pop Music’, on the Katrina fundraiser? “George Bush doesn’t care about black people.” Scroll down. Wow.

  10. And there was this interesting post at The Corner:

    MORE NO BACKGROUND [Rich Lowry ]
    I asked my Louisiana professor guy who wrote in yesterday two questions: 1) why seemingly so little preparation in NO?; 2) what to make of the mayor down there? Here’s what he wrote back:

    1) I think no one in the area ever thought that a storm of this magnitude would ever really strike New Orleans. A friend of mine at Tulane usually rode these storms out by opening his front door and sipping bourbon while watching the waves of rain pass. Fortunately he did not stay this time. The problem with planning is the same as the problem with flood control that I wrote to you about yesterday. There are simply too many competing agencies asking for the same dollars and jealously guarding their political turf. More importantly, no one anticipated the complete social breakdown that has occurred among those who refused or were unable to evacuate. The breakdown appears to be the culmination of decades of weak, at best, law enforcement with Orleans Parish that looked the other way at a lot of the crime that occurred in areas like the Ninth Ward, because the officers themselves were scared to go into many of the housing projects. Also, until within the last ten years the state police were not allowed by the city government to operate within the parish (the city’s boundary is contiguous with the parish boundary). Some of this goes back to when Huey Long amended the state constitution to take control of the city from the elected city government; most, unfortunately, is the result of much more recent corruption (witness the recent indictments of many close aides, including family members, of the administration of former mayor Marc Morial). There were rumors flooding the state yesterday (Thursday) that the unrest and looting had spread to Baton Rouge and Lafayette, where many of the refugees who fled prior to the storm were located. I even received a forwarded email written by a Rapides Parish Sheriff’s deputy (the parish I live in) that warned about the flood of refugees heading our way from the Ninth Ward and to be prepared for anything. The rumors were false, and the Sheriff has said to disregard the email; it was unofficial and the sender will be dealt with when the Sheriff returns (he spent the day in New Orleans observing the deputies he sent to aid in rescue efforts.

    2) People outside of New Orleans had high hopes when Nagin was elected. He was not a part of the competing political machines in the city. His background was as an executive in a cable company. He has done a good job at ferreting out corruption and trying to change the system, but he had not been able to really change the culture of the police force. When he took office the New Orleans Police Department had only just quit accepting convicted felons as officers. Unfortunately, he appears to have been overwhelmed by the force of events and the complete loss of the city’s infrastructure. After 9/11 New York City, outside of Lower Manhattan, still had all of the basic city services; New Orleans as of Monday afternoon essentially had none, and neither he nor the governor exhibit the leadership needed. I was never a fan of the former governor Mike Foster, never voted for him, but I want him back. He would have taken his own boat to New Orleans and personally arrested the looters on Monday, shooting those that ignored him. That may sound callous, but it is what is needed. Governor Blanco this morning finally realized that, declaring war on the looters. That should have been done Monday afternoon.

    Sorry this is so long, but in Louisiana there are no quick easy answers, due to the nature of politics here. I hope this was helpful.

  11. New Orleans: A Geopolitical Prize
    By George Friedman

    The American political system was founded in Philadelphia, but the American nation was built on the vast farmlands that stretch from the Alleghenies to the Rockies. That farmland produced the wealth that funded American industrialization: It permitted the formation of a class of small landholders who, amazingly, could produce more than they could consume. They could sell their excess crops in the east and in Europe and save that money, which eventually became the founding capital of American industry.

    But it was not the extraordinary land nor the farmers and ranchers who alone set the process in motion. Rather, it was geography — the extraordinary system of rivers that flowed through the Midwest and allowed them to ship their surplus to the rest of the world. All of the rivers flowed into one — the Mississippi — and the Mississippi flowed to the ports in and around one city: New Orleans. It was in New Orleans that the barges from upstream were unloaded and their cargos stored, sold and reloaded on ocean-going vessels. Until last Sunday, New Orleans was, in many ways, the pivot of the American economy.

    For that reason, the Battle of New Orleans in January 1815 was a key moment in American history. Even though the battle occurred after the War of 1812 was over, had the British taken New Orleans, we suspect they wouldn’t have given it back. Without New Orleans, the entire Louisiana Purchase would have been valueless to the United States. Or, to state it more precisely, the British would control the region because, at the end of the day, the value of the Purchase was the land and the rivers – which all converged on the Mississippi and the ultimate port of New Orleans. The hero of the battle was Andrew Jackson, and when he became president, his obsession with Texas had much to do with keeping the Mexicans away from New Orleans.

    During the Cold War, a macabre topic of discussion among bored graduate students who studied such things was this: If the Soviets could destroy one city with a large nuclear device, which would it be? The usual answers were Washington or New York. For me, the answer was simple: New Orleans. If the Mississippi River was shut to traffic, then the foundations of the economy would be shattered. The industrial minerals needed in the factories wouldn’t come in, and the agricultural wealth wouldn’t flow out. Alternative routes really weren’t available. The Germans knew it too: A U-boat campaign occurred near the mouth of the Mississippi during World War II. Both the Germans and Stratfor have stood with Andy Jackson: New Orleans was the prize.

    Last Sunday, nature took out New Orleans almost as surely as a nuclear strike. Hurricane Katrina’s geopolitical effect was not, in many ways, distinguishable from a mushroom cloud. The key exit from North America was closed. The petrochemical industry, which has become an added value to the region since Jackson’s days, was at risk. The navigability of the Mississippi south of New Orleans was a question mark. New Orleans as a city and as a port complex had ceased to exist, and it was not clear that it could recover.

    The Ports of South Louisiana and New Orleans, which run north and south of the city, are as important today as at any point during the history of the republic. On its own merit, POSL is the largest port in the United States by tonnage and the fifth-largest in the world. It exports more than 52 million tons a year, of which more than half are agricultural products — corn, soybeans and so on. A large proportion of U.S. agriculture flows out of the port. Almost as much cargo, nearly 17 million tons, comes in through the port — including not only crude oil, but chemicals and fertilizers, coal, concrete and so on.

    A simple way to think about the New Orleans port complex is that it is where the bulk commodities of agriculture go out to the world and the bulk commodities of industrialism come in. The commodity chain of the global food industry starts here, as does that of American industrialism. If these facilities are gone, more than the price of goods shifts: The very physical structure of the global economy would have to be reshaped. Consider the impact to the U.S. auto industry if steel doesn’t come up the river, or the effect on global food supplies if U.S. corn and soybeans don’t get to the markets.

    The problem is that there are no good shipping alternatives. River transport is cheap, and most of the commodities we are discussing have low value-to-weight ratios. The U.S. transport system was built on the assumption that these commodities would travel to and from New Orleans by barge, where they would be loaded on ships or offloaded. Apart from port capacity elsewhere in the United States, there aren’t enough trucks or rail cars to handle the long-distance hauling of these enormous quantities — assuming for the moment that the economics could be managed, which they can’t be.

    The focus in the media has been on the oil industry in Louisiana and Mississippi. This is not a trivial question, but in a certain sense, it is dwarfed by the shipping issue. First, Louisiana is the source of about 15 percent of U.S.-produced petroleum, much of it from the Gulf. The local refineries are critical to American infrastructure. Were all of these facilities to be lost, the effect on the price of oil worldwide would be extraordinarily painful. If the river itself became unnavigable or if the ports are no longer functioning, however, the impact to the wider economy would be significantly more severe. In a sense, there is more flexibility in oil than in the physical transport of these other commodities.

    There is clearly good news as information comes in. By all accounts, the Louisiana Offshore Oil Port, which services supertankers in the Gulf, is intact. Port Fourchon, which is the center of extraction operations in the Gulf, has sustained damage but is recoverable. The status of the oil platforms is unclear and it is not known what the underwater systems look like, but on the surface, the damage – though not trivial — is manageable.

    The news on the river is also far better than would have been expected on Sunday. The river has not changed its course. No major levees containing the river have burst. The Mississippi apparently has not silted up to such an extent that massive dredging would be required to render it navigable. Even the port facilities, although apparently damaged in many places and destroyed in few, are still there. The river, as transport corridor, has not been lost.

    What has been lost is the city of New Orleans and many of the residential suburban areas around it. The population has fled, leaving behind a relatively small number of people in desperate straits. Some are dead, others are dying, and the magnitude of the situation dwarfs the resources required to ameliorate their condition. But it is not the population that is trapped in New Orleans that is of geopolitical significance: It is the population that has left and has nowhere to return to.

    The oil fields, pipelines and ports required a skilled workforce in order to operate. That workforce requires homes. They require stores to buy food and other supplies. Hospitals and doctors. Schools for their children. In other words, in order to operate the facilities critical to the United States, you need a workforce to do it — and that workforce is gone. Unlike in other disasters, that workforce cannot return to the region because they have no place to live. New Orleans is gone, and the metropolitan area surrounding New Orleans is either gone or so badly damaged that it will not be inhabitable for a long time.

    It is possible to jury-rig around this problem for a short time. But the fact is that those who have left the area have gone to live with relatives and friends. Those who had the ability to leave also had networks of relationships and resources to manage their exile. But those resources are not infinite — and as it becomes apparent that these people will not be returning to New Orleans any time soon, they will be enrolling their children in new schools, finding new jobs, finding new accommodations. If they have any insurance money coming, they will collect it. If they have none, then — whatever emotional connections they may have to their home — their economic connection to it has been severed. In a very short time, these people will be making decisions that will start to reshape population and workforce patterns in the region.

    A city is a complex and ongoing process – one that requires physical infrastructure to support the people who live in it and people to operate that physical infrastructure. We don’t simply mean power plants or sewage treatment facilities, although they are critical. Someone has to be able to sell a bottle of milk or a new shirt. Someone has to be able to repair a car or do surgery. And the people who do those things, along with the infrastructure that supports them, are gone — and they are not coming back anytime soon.

    It is in this sense, then, that it seems almost as if a nuclear weapon went off in New Orleans. The people mostly have fled rather than died, but they are gone. Not all of the facilities are destroyed, but most are. It appears to us that New Orleans and its environs have passed the point of recoverability. The area can recover, to be sure, but only with the commitment of massive resources from outside — and those resources would always be at risk to another Katrina.

    The displacement of population is the crisis that New Orleans faces. It is also a national crisis, because the largest port in the United States cannot function without a city around it. The physical and business processes of a port cannot occur in a ghost town, and right now, that is what New Orleans is. It is not about the facilities, and it is not about the oil. It is about the loss of a city’s population and the paralysis of the largest port in the United States.

    Let’s go back to the beginning. The United States historically has depended on the Mississippi and its tributaries for transport. Barges navigate the river. Ships go on the ocean. The barges must offload to the ships and vice versa. There must be a facility to empower this exchange. It is also the facility where goods are stored in transit. Without this port, the river can’t be used. Protecting that port has been, from the time of the Louisiana Purchase, a fundamental national security issue for the United States.

    Katrina has taken out the port — not by destroying the facilities, but by rendering the area uninhabited and potentially uninhabitable. That means that even if the Mississippi remains navigable, the absence of a port near the mouth of the river makes the Mississippi enormously less useful than it was. For these reasons, the United States has lost not only its biggest port complex, but also the utility of its river transport system — the foundation of the entire American transport system. There are some substitutes, but none with sufficient capacity to solve the problem.

    It follows from this that the port will have to be revived and, one would assume, the city as well. The ports around New Orleans are located as far north as they can be and still be accessed by ocean-going vessels. The need for ships to be able to pass each other in the waterways, which narrow to the north, adds to the problem. Besides, the Highway 190 bridge in Baton Rouge blocks the river going north. New Orleans is where it is for a reason: The United States needs a city right there.

    New Orleans is not optional for the United States’ commercial infrastructure. It is a terrible place for a city to be located, but exactly the place where a city must exist. With that as a given, a city will return there because the alternatives are too devastating. The harvest is coming, and that means that the port will have to be opened soon. As in Iraq, premiums will be paid to people prepared to endure the hardships of working in New Orleans. But in the end, the city will return because it has to.

    Geopolitics is the stuff of permanent geographical realities and the way they interact with political life. Geopolitics created New Orleans. Geopolitics caused American presidents to obsess over its safety. And geopolitics will force the city’s resurrection, even if it is in the worst imaginable place.

  12. Have the Neocons officially conceded yet that the Katrina hurricane and the aftermath was not another al-Qaeda outrage?

  13. From a European perspective, this report from Army Times offers what seems to be a uniquely illuminating insight into America:

    “Combat operations are underway on the streets ‘to take this city back’ in the aftermath of Hurricane Katrina.

    “‘This place is going to look like Little Somalia,’ Brig. Gen. Gary Jones, commander of the Louisiana National Guard?s Joint Task Force told Army Times Friday as hundreds of armed troops under his charge prepared to launch a massive citywide security mission from a staging area outside the Louisiana Superdome. ‘We?re going to go out and take this city back. This will be a combat operation to get this city under control.’ . . ”
    http://www.armytimes.com/story.php?f=1-292925-1077495.php

  14. Minor point, but the reference to Montana isn’t quite correct. The Missouri river is navigable only to the Nebraska/South Dakota border, far short of Montana, and in any event there’s very little commercial shipping farther upriver than Kansas City.

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