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Economists See Quick, but Costly Recovery From Hurricane Ike

Hurricane Ike devastated a large part of coastal Texas, causing damage estimated at near $20 billion. The storm, which struck the Houston area on September 12, caused only 26 deaths in Texas, mainly because of an orderly evacuation from the coastal zone that began two days before the hurricane arrived. But, as VOA's Greg Flakus reports from the state captial Austin, the Texas economy and the U.S. economy are feeling the effects of Hurricane Ike.

More than a week after Hurricane Ike passed through, there are still parts of the Houston Metropolitan Area without electrical power and it may take weeks to restore normal life in the most devastated areas, like Galveston.

Texas Governor Rick Perry has warned that this blow to one of America's largest urban areas will have an impact on the whole nation.

"The future of America depends on a state like Texas and a city like Houston to get back on its feet as fast as it can," said Governor Perry. "We are blessed in the sense that this storm did not strike any harder than it did on the refining industry, but there is huge damage across this area of the state and it is going to take us a while to get back."

Oil refineries near Houston provide more than 20 percent of the transportation fuel used in the United States. Many of the operations were shut down in anticipation of the storm's arrival and gasoline prices jumped in some parts of the country as a result.

But oil and gas represent only a part of the Houston area's economy, according to Bruce Kellison, Associate Director of the Bureau of Business Research at the University of Texas at Austin.

"Houston is an incredibly diverse economy and it really represents the diversity of the Texas economy here in 2008," said Bruce Kellison. "It is not all oil and gas, there is a huge amount of high technology, manufacturing and R&D [research and development] going on in Houston."

Having such an important urban area closed down for more than a week did have an impact on the overall U.S. economy, according to Kellison, but he says it was mitigated by the rapid response. He attributes the quick comeback to massive aid from outside and the Texas attitude often expressed as "get 'er done", meaning let us get to work and fix the problem.

"Texans are incredibly resilient," he said. "If you had to generalize it would be the frontier mentality out here, the do-it-yourself spirit. You would expect Houstonians to bounce back strongly after something like this."

Kellison says the one industry that may suffer the most from Hurricane Ike is insurance. Companies are already under pressure to pay claims from Hurricanes Gustav and Hanna, which struck several U.S. states in the weeks before Ike. Kellison says the insurance situation could get much worse if there is an increase in the frequency and intensity of hurricanes, predicted by some scientists as a result of global warming.

"That is something the industry is going to be looking at," said Kellison. "State governments are going to have to address how policies for wind and water damage are written in states all along the Gulf coast."

Insurance rates will likely go up for people living in vulnerable areas along the coasts. Private electric power companies working to restore downed power lines and damaged facilities in Ike's path say they will have to raise rates on customers in the region to pay for repairs. But Bruce Kellison is optimistic about the Texas Gulf coast area.

He worked on a study for the U.S. National Aeronautics and Space Administration following Hurricanes Katrina and Rita three years ago and found that such facilities as the Johnson Space Center in Houston and the space shuttle assembly facility in New Orleans are viable despite the risk of bad weather. He says the oil and gas industry has made a similar assessment.

"We have invested in these assets along the Gulf coast for good reason," he said. "The transport is easier. These facilities represent enormous capital investment already and the facilities took a direct hit and came out okay."

Kellison says the rapid, head-on response to Hurricane Ike was mirrored last week in the U.S. government's response to the financial crisis on Wall Street. He says in both cases the measures taken minimized the impact of what could have been a much worse disaster.