Web Chat: Economic Impact of the Oil Spill on the Gulf Region

While the tragedy of Hurricane Katrina destroyed homes, infrastructure and the social fabric in New Orleans, the economic impact of the Deepwater Horizon oil spill might be worse for the future of the region.

On June 16, Amy Liu answered your questions about the economic impact of the oil spill on the New Orleans region in a live web chat moderated by Seung Min Kim, assistant editor at POLITICO.

The transcript of this chat follows.

12:29 Seung Min Kim: Good afternoon, everyone. We’re here with the Brookings Institution’s Amy Liu to chat about the economic impact of the oil spill in the Gulf of Mexico. Thanks and welcome, Amy.

12:29 [Comment From Jennie: ] What should the Obama Administration be doing to help avert economic disaster in New Orleans and the surrounding area?

12:31 Amy Liu: The president began to lay out some of these actions last night in his speech in the oval office. We need to quickly compensate the workers, businesses, and communities impacted by the disaster. We need to invest in the clean up and restoration of the wetlands and coastal area. And, while i agree with the moratorium on off shore drilling due to safety concerns, lifting the ban sooner than six months will help stem potential job losses in the oil and gas industry.

12:31 [Comment From Laurie: ] The oil spill has threatened several of the New Orleans metro area’s industries, but which will be the hardest to rebuild?

12:32 Amy Liu: The oil and gas sector will be the most hard hit at this point, as it is the second largest economic driver in the region. But, it may be the hardest industry to reinvent.

12:32 [Comment From Marcus: ] is there any sense of the cost of the overall damage caused by the spill?

12:34 Amy Liu: While we have little hard numbers to work with, i think this disaster may be worse and more costly than Hurricane Katrina. Katrina cost the nation $130 billion dollars in physical damages and lost productivity. This oil spill may be worse because the consequences are still unfolding (and getting worse by the day!), the economic disruption will likely be more severe, and the environmental damage will be costly.

12:34 [Comment From Wes: ] What’s your reaction to the President’s speech last night?

12:36 Amy Liu: Overall, i think he laid out a sensible plan of attack on what he called an “epidemic.” I think the most important thing he mentioned was his acknowledgement that the people’s lives in the Gulf Coast are intimately tied to that water. Both the economy and safety of that region is dependent on the health of the wetlands. So his gulf coast restoration plan is the right call. But my hope is he gets quickly past a plan and gets BP to invest soon in wetland clean up and restoration!

12:37 [Comment From Patricia: ] Hurricane Katrina (and Rita) damages are still not resolved and are (should) still be costing the nation money, five years later. How many years do you think this may take to make a substantial recovery? (Estimate only, of course)

12:39 Amy Liu: Well, one thing i want to reinforce is that post-Katrina and Rita recovery is underway. At least in New Orleans, 75 percent of the population is back, nearly 85 percent of the jobs in the region have been recovered. Great reforms lead by citizens and civic groups are in progress. The concern is this oil spill’s economic and environmental damage may undercut that great progress.

12:39 [Comment From Amanda: ] Do you think the transition to clean energy (which Senator Landrieu just said needs to happen immediately) is going to be economically feasible for South Louisiana? How can they adjust when they are so dependent upon oil and gas revenue?

12:41 Amy Liu: Oh boy, this is a tough but important question. I was told that even good green citizens in southern Louisiana want the offshore drilling ban to be lifted. I think the real opportunity is to take all of the engineering and energy talent in southern Louisiana and, with universities, determine if we can transition some of that expertise to new sources of clean energy, like water technology, which is something that the region certainly has a lot of!

12:42 [Comment From Ron: ] Any estimate as to how many jobs this will cost the region?

12:44 Amy Liu: I don’t have great estimates but I can say that the three biggest economic drivers of the 10-parish New Orleans economy is tourism (72,000 jobs), oil and gas (19,000 jobs) and port and logistics (about 25,000 jobs i believe). There are about 4,800 fishing commercial licenses issues in all of the New Orleans area. So, somewhere in there, we will see a lot of job losses and disruption. But, we can’t forget that there will also be new jobs created or substituted as a result of the clean up and recovery efforts.

12:45 [Comment From Odetta: ] How have community development or economic development organizations responded to help their constituents? And, what should they be doing?

12:48 Amy Liu: I know the New Orleans area best. And what is clear is despite disaster fatigue, citizens and civic groups have come out in full force to help with this oil spill. Civic groups are working closely with the administration to find ways to create an efficient decision-making process in this very multi-faceted operation. Nonprofit groups and private citizens are volunteering to help clean up beaches and the wetlands. There is even solidarity with the fisherman to keep eating the seafood there. I would just tell them to keep up the great work and commitment which has made this city and region resilient thus far.

12:48 [Comment From Genvieve: ] What kind of progress has the region been making since Katrina? Can the area really take two hits in five years?

12:51 Amy Liu: This is a great question. First, i want to remind everyone that this region sustained three crises — Katrina/Rita, the Great Recession, and now the oil spill. This is a lot for any one community to sustain in a five year period. But enormous progress has been made to reinvent the city from its old patterns and trends; the biggest charter school and reform effort in the country, the rise of community health clinics in the absence of any public hospital, inroads in turning around the criminal justice system. But again, the concern is that the erosion of the wetland and the economy could dwarf the impact of these promising reforms.

12:52 [Comment From Katrina: ] what are the potential impacts on the economy beyond the Gulf Region on jobs, the stock market, etc…

12:54 Amy Liu: I’m getting a lot of questions about broader national economic impact so let me try to tackle this. I think there are of mixed minds at this point about whether the oil drilling moratorium will raise oil prices but at the same time others argue that the percentage of lost oil supply may be negligible in the global market. Seafood prices may rise until other suppliers fill the gap. I think the shifting is still underway.

12:55 [Comment From Amanda: ] How can the federal and state government help south Louisiana have an easier transition to clean energy? What kind of incentives or programs will we need to move to alternative energy in that area?

12:58 Amy Liu: I think the most important step in helping southern Louisiana move in this direction is the acknowledgement that they would like to diversify beyond fossil fuel. It doesn’t mean that the region should neglect the oil and gas industry (which has been declining overall in the region since the 1980s) but boost its capacity to participate in alternative forms of energy. The administration, with Secy Chu’s leadership, already has put forth a number of incentives and new programs to move in this direction, found in the stimulus package, FY 2010 and 2011 budgets. At this point, state and regional leaders could take advantage of existing tools out there.

1:01 Amy Liu: One other thing i want to add: southern Louisiana has been an energy sector for the country. To stay competitive, it needs to modernize the sector. What they don’t want is to go through what Detroit just went through…. which is dependent on an auto sector producing products (like SUVs) that were inconsistent with consumer demand and the times. The big three auto firms are now building more energy efficient fleets. The energy sector in southern LA could also reinvent and adapt to the times to not end up like Detroit.

1:02 [Comment From Guest: ] What are the chances of having a restoration plan that takes a multi-state approach and what ideas do you have on what it should look like? Also, how can regional advocates contribute as a policy voice?

1:05 Amy Liu: Well, I think that this crisis can create an important moment for aligning these Gulf states in ways that the 2005 hurricanes did not. Louisiana already has a solid comprehensive wetland coastal restoration plan in the works. And I believe the Obama administration had already convened a multi-state task force on the coastal health prior to the disaster. Now, they just need to build on these good foundations, create an opportunity for public engagement, and get going! As i said before, a plan needs to get to action quickly.

1:06 [Comment From Fred: ] Is there a Gulf Governors Association? About time, no?

1:07 Amy Liu: There has been talk about how hard it has been to get these very different Gulf states, with their different cultures and politics, to come together. I think an effort to apply for high speed rail didn’t work. But the common economic and environmental imperative of saving the wetlands, beaches and coastline might do the trick. Good idea!

1:09 [Comment From Marge: ] Can you compare Bush’s reaction to Katrina with Obama’s reaction to the oil spill? Do you think Obama is handling this crisis well?

1:12 Amy Liu: I think the Katrina and BP disasters are very different in that most of the “emergency response” to the BP oil spill, like stopping the oil flow, is outside of the direct control and staffing of the federal and state governments. The private sector third party complicates matters. But given that, the criticism for Bush was that he said the right things and made the visits but didn’t prioritize the Gulf coast recovery for his term. Obama’s performance and rating is still playing out.

1:12 [Comment From Ray: ] You mentioned that most of New Orleans’ population is “back.” Might the oil spill keep others from returning?

1:15 Amy Liu: This is an interesting question. Some of the population return to New Orleans comes from young people and students who are flocking to the region to be part of a major turnaround. Some are former New Orleanians wanting to contribute to their hometown’s revival. The oil spill may motivate more loyal New Orleanians to come home. At the same time, those who are concerned about the safety of the region (made more vulnerable by the wetland destruction) may stay away.

1:15 [Comment From Mark: ] Do you think there’s any risk of the Gulf region’s cities becoming scenes of the past – similar to Detroit or other “rust belt” areas?

1:17 Amy Liu: Yep, this was my previous concern. If the oil and gas industry or energy sector does not reinvent itself, it may become part of an old energy sector, much like the Midwest auto economy, thus dragging down the future prospects of a great city.

1:17 [Comment From Seth: ] So, where does New Orleans go from here?

1:20 Amy Liu: Well, the first thing is that the people of New Orleans need to stay optimistic and stay on the path of transformation. I think there are genuine efforts to reinvent the city as one better than it was before. But they now need to turn their focus on diversifying their economy, including the stalwart industries, and making sure there is a fundamental embrace of coastal restoration and new ways of living with water. At the end of the day, this is not just about federal leadership. New Orleans has to show the way.

1:20 [Comment From Ann: ] What about smaller communities that are more dependent on fishing and/or tourism? Are they at risk of being obsolete?

1:21 Amy Liu: Small communities and rural areas have the extra challenge of being dependent on one or two industries or having a tax base too small to make transformative change. The way to stay economically resilient is to find ways to take the skills of existing workers and connect them to jobs in other parts of nearby cities and regions, at least in the short term.

1:22 [Comment From Lori: ] With the hurricane season just starting, and carrying onfor the next 5 months, how is New Orleans going to be protected if the levees have still not been rebuilt? What will control the flow of oil & water from reaching the city?

1:25 Amy Liu: This is the biggest concern of most citizens and leaders. At the end of the day, the wetlands are the first line of defense in a major hurricane and they protect the very industries we have been talking about. Hence it is absolutely critical to invest in comprehensive restoration of the coast. But it goes beyond wetlands. The levees’ modernization needs to be finished on time (they will be stronger than before but not enough in the face of wetland deterioration). And the city and citizens have to adopt practices to better live with water, whether when it comes to zoning or ensuring a home meets code for flood protection. There are lots of ways that can make a difference in safety and sustainability. But the wetlands are so critical.

1:25 [Comment From Jackie: ] You mentioned that you would recommend small communities have their employees find work elsewhere. Wouldn’t this cause added harm to the local community by losing their economic base to other communities that are larger?

1:26 Amy Liu: I’m not suggesting that workers move. But we need to connect them to larger job markets. I think making sure that workers are earning income will make a big difference in the local tax base.

1:27 [Comment From Michelle: ] Many of the solutions are going to require a long-term approach and time. However, in the interim, what can we continue to tell our communities and advocates is the best way to support the Gulf? Are there any immediate needs that advocates can attempt to address? Also, how can we best support if we are not in the immediate area?

1:30 Amy Liu: Overall, I think as national citizens, we need to be patient with and supportive of the people and recovery efforts in this part of the region. They’ve sustained three major crises in five years. Philanthropic dollars should continue to flow to the region to ensure progress continues. We should support national (and BP) investment in the coast to protect all of the public investments already made in the region. I think in time, we want to be proud of helping to preserve the economic promise of the communities there.

1:30 Seung Min Kim: And that’s it for this chat session — thank you for all the great questions and a special thank you to Amy for answering them. Have a great week!