Economics of Disaster: New Orleans and Katrina

photo of post-Katrina flooding

For 300 years, New Orleans' great legacy was its constancy: the same landmarks, the same, if damaged, pavements, and many of the same prominent families. Another facet of this constancy was a stagnant economy that relied predominantly on tourism and oil, and did little to expand beyond those niches. When Hurricane Katrina struck Louisiana 10 years ago, it destroyed and then transformed New Orleans.

In August 2005, Hurricane Katrina made landfall. The Gulf Coast was heavily damaged from central Florida to Texas. More than 1,800 people died in the hurricane and subsequent floods. And while Katrina was one of the five deadliest storms to hit the United States, its powerful storm surge alone was not responsible for its devastating effects, particularly as they manifested in New Orleans. The destruction of New Orleans reflected a weakness in the natural disaster response efforts of the city and the nation as a whole. The storm was aided by uneven evacuations, slow response times, and poorly planned rescue efforts. Compounding these shortcomings were unprepared residents, poor infrastructure, and antiquated buildings. In all, the images associated with Katrina are a combination of natural disaster and human error.

In the 10 years since the storm, the infusion of federal relief money to New Orleans has helped rebuild its ailing infrastructure and revitalized its economy. However, many low-income residents have not shared in New Orleans' resurgence.

The federal government's initial response to Katrina was slow, but widespread media coverage about the city's devastation and residents' suffering spurred the government into action. Federal money flowed into the Gulf region, especially to New Orleans. Between 2005 and 2013, FEMA (the Federal Emergency Management Agency) pumped a total of $120.5 billion into the Gulf region. Some $75 billion was used for emergency relief efforts. The National Flood Insurance Program contributed $16 billion to the recovery effort, $13 billion of which went toward claims in Louisiana. The Obama administration furthered this effort by making important bureaucratic changes to free up federal money in federal block grants for schools ($247.5 million), the local criminal justice system ($130 million), housing vouchers ($85 million), and medical services in underserved areas ($47 million). Where federal funds fell short, nonprofits, foundations, and community organizations stepped in. The American Red Cross, the Jazz Foundation, the Salvation Army, and many other local and national organizations pulled together significant resources to fill any health, construction, food, shelter, and culture gaps.

Today, New Orleans is seeing the results of this reconstruction. On the one hand, the city is now one of the hottest places in the country for new businesses. The influx of major chains and companies expanding into New Orleans has created 14,000 jobs and brought $7 billion in capital investment to the city over the past five years. Its exuberant growth and diversification can be found almost everywhere, from the new 1,500-acre biomedical district to the revived neighborhood corridors with their trendy bars, from the added streetcar line to the budding New Orleans film industry. The city has become a hub for tech start-ups and young urban professionals.

On the other hand, the cost of living is increasing. Moreover, affordable housing, mostly destroyed by Katrina's powerful storm surge, has not been entirely rebuilt. In fact, New Orleans has only 25 affordable housing units for every 100 people living in extreme poverty. This subsidized housing—in which mortgage costs usually do not exceed 30 percent of annual household income—is a vital part of the social infrastructure in New Orleans.

In addition to the destruction of affordable housing, National Flood Insurance only covers a portion of the money needed to build homes on stilts, leaving the incredible cost of those last couple of feet to already financially burdened families. As the median income goes up, 27 percent of residents still live below the poverty line (defined as $23,850 total yearly income for a family of four). Though this percentage is decreasing, it is not an indication of baseline growth. It is instead a byproduct of poorer residents being pushed out of the city by the increasing cost of living. Thus, New Orleans' post-Katrina recovery story is a juxtaposition of economic progress coupled with gentrification and displacement. 

Reading Questions (Additional Research Recommended)

  • The story of the post-Katrina economy in New Orleans is complicated. Using evidence from the article, evaluate the level of economic progress in New Orleans. Make sure to think about how we should calculate economic growth. What role should income inequality play in this calculation?
  • Do you think New Orleans's current growth trajectory is stable? Why or why not?
  • What were the strengths and weaknesses of the government's response to Katrina? What do you think the government's role should be in a state's economy and political system prior to, during, and after a natural disaster?

Key

Question 1

  • Answers will vary
  • Should do some extra research to answer

Question 2

  • Answers will vary
  • Yes—increasing economic diversification makes the New Orleans less vulnerable to huge fluctuations in productivity and growth
  • No—increasing income inequality and/or gentrifications creates artificial short-term growth that eventually caves on itself.

Question 3

  • Strengths: large infusions of money, giving targeted blocks grants for social and infrastructure development, etc.
  • Weaknesses: late response, poor evacuation/refugee planning, etc.
  • Answers will vary

Resources

Articles

How New Orleans Pulled Off an Economic Miracle
How Small-Business Growth and Entrepreneurship Have Powered New Orleans' Post-Katrina Comeback
Hurricane Katrina, Neoliberal Globalization and the Global City
Katrina Anniversary: How Well Has Recovery Money Been Spent?
Lack of Affordable Housing a National Crisis, Website Reports
New Orleans Experiencing Economic Growth despite Widening Wealth Gap
Race, Socioeconomic Status, and Return Migration to New Orleans after Hurricane Katrina
Trapped in the Superdome: Refuge Becomes a Hellhole

Websites

City of New Orleans
Louisiana Recovery (FEMA)

Further Reading

"New Orleans, 10 Years after Katrina," by Ed English from Economy Matters
"The Big Busy," by Charles Davidson from EconSouth
Classroom Katrina: Thinking about personal financial preparedness in the face of a disaster