The effects of Hurricanes Katrina and Rita continue to ripple through the U.S. economy. Cities and towns have been literally flattened, highways and rail lines shredded, and essential ports have been crippled. Our energy infrastructure has been battered by twin blows from the hurricanes. A major American city is still partially underwater. While the storms are long over, the damage to the U.S. is deep, structural, and largely hidden from the eyes of investors.

Few Americans realize the strategic importance of New Orleans. Wars have been fought to gain control of it. President Jefferson bought the Louisiana Purchase to assure free passage through it. Before Rita and Katrina, the Port of New Orleans was the fifth largest U.S. port by tonnage. It supported over 107,000 jobs, and contributed $13 billion to the economy of Louisiana.

As a result of the hurricanes, the Port of New Orleans is working at less than 30% of capacity. Most of the workers are scattered across the country, and can't return due to limited city services, even in the dry areas. Other major ports in the area like Lake Charles and Beaumont were heavily damaged by Hurricane Rita, and can't ease the load on New Orleans.

The Midwest is dependent on New Orleans and nearby ports to export its goods, especially grains. Excess truck and rail capacity is difficult to find, and too expensive for most producers in eastern farm states like Iowa and Illinois. Inventories of corn and soybeans are starting to build, depressing already low prices. If grains can't be exported around harvest time, foreigners will purchase from other countries. Some experts estimate that $600 to $900 million will be lost in grain exports and associated costs.

Even if the ports were repaired, workers would have difficulty getting the fuel they need to move goods. The Category Five waves from Rita and Katrina caused catastrophic damage to U.S. energy production. About 70% of natural gas, and 90% of oil production is still offline. According to Interior Secretary Gale Norton, 108 platforms were destroyed by Rita and are unlikely to be rebuilt. Over 340 offshore platforms were evacuated and have yet to be restaffed. Infrastructure repair will cost several billion dollars. Future exploration has been hindered by the destruction of oil and gas rigs, and replacements won't be available until 2008 at the earliest.

Once oil is extracted, it must be moved to refineries and processed before consumers can use it. The Association of Oil Pipelines reports that 75% of the pipelines are totally or partially blocked. U.S. refiners are functioning at about 70% of capacity, the lowest level since 1990. In addition, a strike at France's biggest refinery, Total's Gonfreville plant, is disrupting gasoline exports to America. "This would be a good time to have a warm winter," stated Ron Gold, vice president of the Petroleum Industry Research Foundation.

Many employees are unable to return to work because they have no place to live. Although progress has been made in pumping out the city and restoring services, much of New Orleans remains uninhabitable. Almost half the city still lacks electricity. Flooding continues to remain a problem due to heavy rain and levee damage. The heavily damaged Ninth Ward was submerged again after a storm surge from Hurricane Rita. The Army Corps of Engineers estimated that levee repairs won't be completed until June. With a little over 2 weeks left in the hurricane season, and New Orleans' defenses crippled, it's possible that another storm could undo progress made so far.

One of the huge hurdles to restoring the economy of the Gulf Coast is the ripple effect of 200,000 homes destroyed. Many of the homeowners of these ruined houses have little equity invested. Those people who fled from the catastrophe may simply never return. Damage to the infrastructure will depress property values in the area, leaving many homeowners suddenly "upside down" on their houses. Hundreds of businesses will go bankrupt for lack of customers. This will leave vacancies in the commercial real estate still standing, and throw more people out of work. Already 363,000 people are unemployed due to the hurricanes, making less capital available for reconstruction.

A massive wave of bankruptcies will crash on the shore of the U.S. economy. Many consumers were already overextended last quarter, with a record number of past due credit card payments. Even Americans far from the hurricane zone will pay sharply higher prices to heat their homes this winter. Some coastal communities have lost their entire tax base and will have no choice but to default on their municipal debt. Many regional banks could fail if they are overexposed to mortgage and other defaults.

Hurricanes Katrina and Rita were punishing twin blows to the Gulf Coast. It will take years for the damage to be repaired. Some losses will never be recovered.

However, these hurricanes exposed the reality of America's aging and crumbling infrastructure. Despite the lessons of 9/11, rescue teams had no emergency communication equipment. Bureaucratic red tape interfered with rescue efforts, with tragic consequences. Many of the levees and pumps that failed to save New Orleans from drowning are a century old. They were built to handle a worst-case scenario based on an outdated, and optimistic view of weather patterns. When flaws in these models were exposed, political will was lacking to address the problem. Despite the small size of their country, the Dutch have developed more sophisticated methods of flood control, 50 times stronger than the antiquated defenses of New Orleans.

If America is such a rich nation, why didn't we safeguard a cultural, strategic, historical, and economic gem like New Orleans? When the catastrophe occurred, why was help so slow and inadequate? We can't expect America to sustain a vibrant economy without maintaining the infrastructure. If we want to avoid slipping from our First World perch, we have to keep all our cities and industries above the waterline.

© 2005 Jennifer Barry
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Jennifer Barry
Lewisville, TX USA
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