The Daily Bruin spoke with Christopher Thornberg, a senior
economist with the UCLA Anderson Forecast who has also studied the
economic effects of disasters, about what economic impacts
Hurricane Katrina could have. Ңbull;Ӣbull;Ӣbull; Daily
Bruin: What happens to cities after they rebuild from a major
disaster? Do they become more prosperous than before?
Christopher Thornberg: No, not necessarily more prosperous. They
just get back on their normal track. Katrina might be a little
different in as much as it’s still not clear how much damage
was actually done. You look at an event, Hurricane Andrew, you look
at the Northridge earthquake ““ events that hit an economy
clearly see an impact in the short run, but again, is it business
canceled or is it business delayed? And in all of these cases, it
was business delayed. When the economy gets moving, you’ve
gotta catch up. That guy ordered that thing from you two weeks ago;
he’s nice enough to wait two weeks, but he wants his product,
so you gotta get to work, and the economy redoubles its effort and
catches fairly quickly and you see a bounce effect. I tried to sit
down and calculate what was the permanent loss of economic activity
as a result of Hurricane Andrew over the Northridge quake and the
answer is almost none, because what loss there in business is made
up for by the injection of funds into the economy in the rebuilding
effort. In the case of New Orleans, we’re talking about most
of the people who were affected were low-skilled, low-paid, a lot
of times not even (part of the) working population. It was
obviously a very poor population, which is why they were hit so
hard. Will they do better afterwards? No, because these are still
people who don’t have the tools to succeed in the modern
economy. In the modern economy, you’ve gotta have an
education; you’ve gotta have training. A lot of time there
are studies of ghettos and how ghettos feed on themselves. Maybe in
the context of breaking these ghettos up and getting these people
out and getting them off to other places, maybe they will make
(life) better for themselves. Then again, you can’t make too
much of this event because there’s not much to be made
there.
DB: You said it would be “business delayed.” How
long do you think this business delay will be in the case of
Hurricane Katrina?
CT: I don’t know, obviously the initial estimates were way
overblown, but this is a problem. Most of the area is going to be
back up and running in the next, probably, month. That’s the
way hurricanes work; you look at Hurricane Andrew and it was
amazing how fast things came back. This is a bigger event
obviously, the flooding was tremendous and a lot of homes simply
aren’t livable. I think I’ve heard estimates of
something like 150,000 homes are taken out of action, that would be
much larger than what Hurricane Andrew did. And in a lot of cases,
the people like I said have been moved across the country;
it’s not like they’re just moved out into tents into
the schoolyard down the road until they can get their houses
rebuilt. Obviously it’s a greater disturbance (than Hurricane
Andrew). It’s larger than I’m used to looking at, but I
have a lot of faith in the ability for people to make do. These
people will be adding into other places where they won’t add
to New Orleans, so again, that mitigates some of the effect. Maybe
half of New Orleans will be closed down for six months, on the
other hand, these people are going to be working elsewhere and
contributing to the economy.
DB: The Anderson Forecast predicted a possible recession in
2006 ““
CT: We’re talking about recession on the basis of the
housing bubble. We have a massive amount of building, a massive
run-up in prices ““ prices that are clearly unsustainable
““ and we as a nation are building more homes than we can ever
possibly need, so we have a circumstance where we have a major
imbalance. I said a little while ago that recessions are caused by
shocks to the economy, and I said a long time ago that recessions
that these shocks to the economy have to have three
characteristics: They have to be rapid, they have to be large, and
they have to be sustained. Those are three things need to be in
place. Katrina was certainly large; it was certainly rapid; but
it’s not sustained ““ it’s out of the system;
it’s gone. When this housing thing breaks, it’s going
to be rapid, it’s going to be large, and it is going to be
sustained.
DB: In Reuters, it was reported that consumer confidence
plummeted in September ““
CT: Consumer confidence is a horrible indicator of where the
economy is going, so don’t even pay attention to it. Consumer
confidence plummeted after Sept. 11 and consumer spending rose
rapidly. … (The consumer confidence survey) doesn’t predict
where the economy is going and it hasn’t so in a long
time.
Interview conducted by Harold Lee, assistant Viewpoint
editor.