Term Paper on "State of the Economy"

Term Paper 4 pages (1548 words) Sources: 0

[EXCERPT] . . . .

Andrews, Edmund. "Economy adds 169,000 Jobs but the impact of the hurricane not yet felt." The New York Times. Business News. September 2, 2005. http://www.nytimes.com/2005/09/02/national/nationalspecial/02cnd-econ.html

This September 2, 2005 article by Edmund Andrews from The New York Times highlights a paradox of the recent tragedy that has beset New Orleans -- namely that the larger United States economy was recently, tentatively beginning to improve, until the devastation of hurricane Katrina hit the Gulf Coast region. Before Katrina hit, the unemployment rate in America had reached lowest level in five years but such happy news about the new jobs that had been created "came as outdated news to many economists and investors, who have begun bracing for at least a temporary slowdown as a result of soaring fuel prices and the hurricane damage to oil refineries and transportation networks tied to New Orleans." (Andrews, 2005)

In other words, the swift impact of the tragedy is not reflected in these otherwise salutary figures, which normally would have given a great psychological boost to investors and ordinary Americans. However, it should be noted that the type of jobs that were created -- short-term or long-term, for example, were not reflected in these initial employment figures, a fact not stressed in the article, but still important to take into consideration when evaluating employment data.

Regardless, the damage done to the economy by the recent national disaster of Katrina is not reflected simply by the reality most people will have to pay more to commute to work everyday. The entire economy will feel the brunt of the increased cost of oil. For example, the cost of shipping goods to market across the country will increase, driving the costs of the production of all goods higher. Consumers will have less disposable income to spend on other goods, as Americans pay more for basic necessities such as transportation and heating, and for the commodities they consider to be a vital part of their budget, such as food. Moreover, the hurricane has displaced hundreds of thousands of people from their homes and their jobs, and many may have lost those jobs permanently. (Andrews, 2005)

Even before Katrina hit, the growth in payrolls reported in the August employment figures was lower than Wall Street forecasters had been expecting, as many of these new jobs were lower-paying jobs, and less likely to be infused back into the larger economy in the form of spending. Now, the physical and structural damage done to the refineries in the hurricane's path also means that the long-term impact "really transcends" immediate oil prices and supplies... It has to do with refining capacity and with the freight distribution network." (Andrews, 2005)

In other words, the price of fueling the economy has taken an immediate blow, but so has the way in which crude is converted into useable fuel, in a way that may be so devastating that economists cannot currently foresee its future impact. This article is both sobering as well as sadly sane in its outlook, and provides a telling example of how a natural disaster can cause an economic impact that spirals for years into the future. It also shows how natural resources affect consumer buying habits and the price of all goods, not simply the goods directly affected by the disaster.

Article 2

Herbert, Josef. "White House to Release 30M Barrels of Oil." The Washington Post. September 2, 2005. http://www.washingtonpost.com/wp-dyn/content/article/2005/09/02/AR2005090200714.html?sub=new

This brief article highlights the supposed economic importance of the White House's decision to, release thirty million barrels of crude oil from the existing U.S. reserves as part of the Bush Administration's effort to mitigate the future financial impact of Hurricane Katrina. The current Energy Secretary Samuel Bodman stated that this release was merely an initial response, part of what he called an all-out or aggressive federal response to the hurricane disaster. (Herbert, 20050

The fuel would be in the form of both crude oil and gasoline and will be released over the coming month. Also, twenty-six countries in an international energy consortium would release more than sixty million barrels of crude oil and gasoline to attempt to avert the potential energy crisis caused by Hurricane Katrina in the United States. (Herbert, 2005) This demonstrates the international as well as the national fear of the impact of Katrina on such a massively influential economic entity as the United States.

However, although this article sounds quite positive in terms of the White House's decision release the thirty million barrels, it does not delineate if this release will prove to be a significant aid to the economy in the long or short-term. Given that so many of the refineries were destroyed in Katrina's wake, this does not mean that the mere release of crude will actually improve the situation as much as the figures suggest. The willingness of other countries to help the United States is heartening, but the article does not state if the amount bestowed will really be enough to lessen the overall impact of the storm. Even though the announcement was made that two million extra barrels of oil a day would be infused into the economy, gas prices have continued to spiral upwards, additionally suggesting that more needs to be done to curtail the immediate effects, such as limits on so-called price gouging. Also, the psychological boost of the administration's efforts may not be enough to deter the concrete impact of the hike in fuel costs and the threat to the ordinary economic lives of consumers to make the Bush Administration's statement have real weight and heft in rehabilitating the stricken confidence of ordinary Americans.

The potential use of the release of the barrels as public relations may seem more cynical, rather than helpful in the eyes of many Americans, and fail to have its desired impact of pressing Americans to continue to spend, to continue to infuse dollars back into a tenuously recovering economy, and thus avert a serious economic recession in the near future.

Fear can be a powerful motivator, and drive a shaky economy further into decline if individuals horde rather than spend their incomes, and it remains uncertain at best if such a demonstration by the current administration will have the desired steadying effect, especially if gas gouging is not curtailed.

Economic Article 3

Katrina Could Cost 100 Billion." CNN Money. September 2, 2005. http://money.cnn.com/2005/09/02/news/katrina_estimates/index.htm

What will be more deadly to the regional economy, asks this article from CNN -- will the major economic after-effects of the storm such as soaring gasoline and home-heating prices and to the oil refineries? Or, will it be the sheer impacts of the insurance costs incurred as a result of the storm devastate the region? The insured losses from Katrina would total $10 billion to $25 billion, according to Risk Management services, even before the levees protecting New Orleans, which lies mostly below sea level had failed. "Economic damage refers to the value of physical property and related losses in the affected areas, while insured damage reflects only the property covered by insurance companies." (CNN Money, 2005) Regardless, the damage of uninsured property can translate into individuals displaced from their homes and places of work, and insurance claims can also enact a considerable drain upon the coffers of many of the nation's insurance businesses, costs that these businesses will pass onto future consumers.

This article also highlights the importance of speed in recovering from a natural disaster for the good of the economy as well as for the health of local residents. The cost of the interrupted economic activity caused by the national disaster, including commercial losses from interruption and the displacement of residents who could otherwise be working and acting in an economically productive fashion, could cost the economy of the region as much as $100 million a day.… READ MORE

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