The human tragedy following the onslaught of Hurricane Katrina and the ensuing floods and disorder have riveted America’s attention. for the past two weeks. As federal assistance mounts to $62bn, with some estimates of the final amount reaching much higher,billion submission billioneven $100bn billion or it is both practical and responsible to ask what the federal government’s role should be in such a crisis and how best to carry it out.

First, an overall economic perspective is in order. While Katrina’s damage will inflict a short-term blow to US production and employment, its effect on the national economy over a period of a year is likely to be modest. This is not because the damage is inconsequential but because GDP gross domestic product and incomes rise as additional production, construction and employment follow from the rebuilding after a disaster.