| The problem is that New Orleans lies at the heavily trafficked intersection of the Old and New Economies. The region's economy is based on agriculture, water transport, and natural resources. But moving and selling goods requires an intricate web of supply chains, pipelines, and commercial arteries that connect producers to consumers. The networked economy isn't just about bytes and fiber-optic cable, it's about oil, grain, and sugar. And when the infrastructure of these networks gets damaged, it can't be replaced easily or cheaply.
If New Orleans were pure Old Economy—if, for example, it simply grew wheat—its devastation would not cost that much, because other wheat and grain growers would replace it. If it were pure New Economy, like Wall Street, it could bounce back instantly, because its real assets (information and people) would not be irretrievably lost. But because it's right in the middle, the damage will be enormous.
Katrina, for example, has already created havoc in the energy sector. Nine of the region's 14 refineries are shut, representing 12.5 percent of U.S. refining capacity, according to the Financial Times. This week, the United States also lost about 20 percent of its oil production and a big chunk of natural-gas production. As a result, the pipeline systems that originate in the Gulf Coast region and snake throughout the Southeast and Atlantic seaboard aren't functioning properly. The instantaneous result: higher costs for gas and heating oil in states far beyond Louisiana. [...] Energy isn't the only valuable commodity that flows through New Orleans. As the Wall Street Journal notes, New Orleans ports "handle roughly half of the corn, wheat and soybeans exported from the U.S., much of which reaches the city on barges traveling on the Mississippi River." Katrina has already screwed up the vital supply chains that funnel goods from the Midwest to global markets and from global markets to the Midwest. Farmers have been floating grain to external markets on river barges since the 18th century not because it offers speed, but because it is the most economically efficient means of doing so. [...] And importers will either have to eat higher costs or pass them along to consumers. Until yesterday, about 25 percent of Chiquita's banana imports arrived in the United States at the company's Gulfport, Miss., facility. No longer. The company, and many others, will have to scramble to find alternate (and likely, more expensive) arrangements. |
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