James Pethokoukis

Politics and policy from inside Washington

Will Hurricane Irene be a black swan for the U.S. economy?

Aug 25, 2011 19:01 UTC

The U.S. economy is growing very slowly, just 0.4 percent in the first quarter, 1.3 percent in the second. And it might not do a whole better the rest of the year. That’s a problem. A recent study from the Federal Reserve finds that that since 1947, when two-quarter annualized real GDP growth falls below 2 percent, recession follows within a year 48 percent of the time. (And when year-over-year real GDP growth falls below 2 percent, recession follows within a year 70 percent of the time.

So while we may be in a recovery, it’s a fragile one, at best. In short, nothing can go wrong or we’ll end up back in recession. That’s a big reason everyone is so focused on Europe and its ongoing sovereign debt and banking troubles. And why problems at Bank of America cause flashbacks of 2008.

But what about the nasty storm making its way up the East Coast? What’s the potential it causes enough economic damage and disruption to nudge the American economy back into a downturn? Well, I suppose the worst-case scenario would be a direct strike on New York City. That would be pretty bad:

In the city, a hurricane’s storm surge would cause sudden, extensive flooding, submerging much of Lower Manhattan and crippling the subway system and tunnels.

The powerful winds would uproot thousands of trees, down power lines and send debris flying in all corners of the city. And those winds could shatter windows on skyscrapers, especially in the taller buildings that would bear the brunt of powerful gusts that occur at higher elevations. The canyons of Manhattan could magnify the winds, and would be a deadly place for anyone caught beneath the raining glass.

Other comparisons to Hurricane Katrina are hard to ignore. Katrina, the most costly natural disaster in U.S. history, caused insured losses of more than $40 billion in 2005. AIR Worldwide, a firm that models disaster scenarios for insurance companies, has said that a repeat of the Long Island Express would cost $33 billion if it happened today. In the most dire projections, a direct hit on New York City could cost upwards of $100 billion.

The impact would be felt long after flood waters recede. Coch predicts that the salt water in the subway would corrode the switches and cripple the system for months or years, and disable much of the communications infrastructure in Lower Manhattan. “In 1893, Wall Street was cut off from the rest of the country when the telegraph lines went down,” he said. “Imagine what would happen now when the fiber optic cable failed.”

Sounds a lot worse than Hurricane Katrina given the incredible importance of Manhattan to the U.S. and global economy. Tough to quantify, of course. But, for comparison purposes, here is a Congressional Research Service analysis of the economic impact of Katrina in 2005:

Since the storm, a number of economic forecasters have adjusted their predictions to reflect its effects. Most indicate that, as a result of the storm, national economic growth is expected to be 0.5%-1.0% slower than in the second half of 2005. However, as economic activity recovers in the affected region, and rebuilding begins, growth in the first half of 2006 is now expected to be more rapid than was previously forecast.

Back in 2005, the economy was growing at a 3-4 percent clip. Today, it’s less than 2 percent. Maybe even less than 1 percent. It seems pretty clear a devastating hit on the Big Apple might well send the economy back into recession. And given the current fragility of consumer and business confidence, how likely is it that the economy would quickly bounce back into growth in a quarter or two? Here’s how Japan is doing, by the way, after its pair of natural disasters earlier this year:

Five months after a tsunami and nuclear meltdown assailed Japan, the economy has been pummelled by fresh blows. Share prices have followed global stockmarkets down, with the Nikkei 225 index revisiting its nadir in the days after the earthquake in March. As if the fears about a global slowdown that have depressed equity investors were not enough, the yen has been soaring, which will hurt Japanese exporters. Adding to the pain, Moody’s, a credit-rating agency, downgraded Japan’s debt rating one notch to Aa3 on August 24th because of its huge public debt and chaotic politics.

COMMENT

The economy should not be the main concern here, we should be focused on preparing. Our lives, homes, and families are in danger. We always worry about the economy, we know this storm could potentially be a huge downfall, but that’s not the issue right now. We need to make sure we are safe until the hurricane is over. The economy should be the least of our concern. Don’t you just love how people are more worried about money than their lives?

Posted by 321anonymous123 | Report as abusive

On climate change, Romney is pretty consistent

Aug 25, 2011 16:49 UTC

What Mitt Romney is saying today about climate change is pretty much what he’s been saying all along. First, here is what he said yesterday:

Asked about global warming at a town hall meeting in Lebanon, New Hampshire, Romney said he believed the world is getting hotter and humans contribute in some way to the change — but could not judge to what extent. ”Do I think the world’s getting hotter? Yeah, I don’t know that but I think that it is,” he said. “I don’t know if it’s mostly caused by humans.”

“What I’m not willing to do is spend trillions of dollars on something I don’t know the answer to.”

In June, a day after launching his second bid for the White House, Romney caused a stir by saying he thought humans had contributed to climate change to some extent. At that time he made a call for a reduction of “emissions of pollutants and greenhouse gases that might be significant contributors” to climate change — a suggestion that was not made on Wednesday.

A Romney aide said the candidate has not altered his position on climate change.

Still, using additional domestic nuclear, natural gas, and other resources could have a side benefit of cutting carbon emissions, Romney said. “My view is pursue a strategy which gets us into energy independence which has as a byproduct it gets us into less CO2 emitting.”

He criticized a bill backed by President Barack Obama that would have capped carbon emissions and allowed polluters to buy and sell rights to emit carbon. ”I do not believe in cap and trade and I do not believe in putting a carbon cap” on polluting industries, Romney said.

In his book “No Apology,” Romney describes his position this way, far more directly:

I believe that climate change is occurring — the reduction in the size of global ice caps is hard to ignore. I also believe that human activity is a contributing factor. I am uncertain how much of the warming, however, is attributable to man and how much is attributable to factors out of our control. … Internationally, we should work to limit the increase in emissions in global greenhouse gases, but in doing so we shouldn’t put ourselves in a disadvantageous position that penalizes American jobs and economic growth.

Romney is clearly in favor of limiting carbon emissions — at least in theory — but does not want to cripple the U.S. economy or spend trillions of dollars for “extreme and expensive measures” like cap-and-trade to do it. He mentions the work of Danish economist Bjorn Lomborg who believes “addressing the remediation of the effects of global warming [is] far more economic and far more humane than massive spending to reduce emissions.”

Romney also spends considerable time in his book explaining the pros and cons of a carbon tax-payroll tax swap, a plan favored by economist and Romney adviser Greg Mankiw and many other Republican-leaning economists. Among the positives, he says:  1) revenue neutrality; 2) higher energy prices would encourage energy efficiency; 3) industry would have a predictable outlook for energy costs; 4) profit incentives rather than government  subsidies would encourage the development of “oil substitutes and carbon-reducing technologies.” And there is this:

Comparative analyses of the tax-swap plan with a cap-and-trade system have demonstrated that the tax swap is likely to be five times as effective in reducing carbon dioxide emissions and, presumably, five times as effective in reducing energy consumption.

Romney does add, however, that “a great deal of work needs remains to be done if it is to become a viable option.”

Bottom line: Romney wants to use markets and incentives to reduce carbon emissions and lower U.S. dependence on overseas oil, not net tax hikes or mandates or regulations. This is not the Rick Perry position, of course. So the issue marks an interesting contrast between the two candidates. Grover Norquist puts it this way: ”If Perry was president, one of the things I’d not worry about is a carbon tax. I’d worry about big spiders eating New Jersey first.”

COMMENT

Sounds like Mitt doesn’t know much period.

Posted by seattlesh | Report as abusive
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