Here I was, sitting in my office at Loyola University, New Orleans, where I teach economics, very busy doing what I take to be the Lord's work, and something unlikely as a wind on steroids rends asunder my work and life. It presented denizens of New Orleans with a stark choice. Evacuate at great inconvenience and run the risk that the oncoming bad weather will veer elsewhere rendering such flight unnecessary, or stay put and brazen it out, and have to deal with flooding, lack of electricity, no air conditioning in 90-degree-plus temperatures, to say nothing of actually loss of life and/or limb, either due to the storm itself, or to the aftermath, including looting, flooding, and loss of law and order.
My own modus operandi, finely honed after spending almost half a decade in New Orleans, has been to wait until the very last minute, and then bolt out of there, tail between my legs, and then sit in bumper-to-bumper traffic. For Ivan, I crept to Baton Rouge, a trip of a little over an hour in ordinary circumstances, in nine hours. For Katrina, I left home early Sunday afternoon (8/28/05) inched up to Vicksburg in eight hours, which would usually take a little over two hours. Then, I went on up to Little Rock, my previous stamping ground (actually, it was Conway, a town of about 50,000, which lies about 30 miles northwest of the capital of Arkansas), and from there to Vancouver by plane.
I am now safely ensconced in western Canada, writing up the notes I took en route. Happily, I escaped lightly, without too much inconvenience. But my heart goes out to those who were very much less fortunate.
What has this to do with political economy, the usual subject of my writing interest? A lot, that's what.
I. Private Enterprise
First of all, the levees that were breached by the hurricane were built, owned and operated by government. Specifically, by the Army Corps of Engineers. The levees could have been erected to a greater height. They could have been stronger than they were. The drainage system could have operated more effectively. Here, the New Orleans Sewerage and Water Board was at fault. It consists of three main operating systems: sewerage, water, and drainage. See here, here and here. Had they been, a lot of the inconvenience, fright, and even loss of life undergone in this city could have been avoided.
Then, too, these facilities may have fooled many people into thinking they were safer than they actually were. I know this applies to me. Thus, people were in effect subsidized, and encouraged to settle in the Big Easy. Without this particular bit of government mismanagement, New Orleans would likely have been settled less intensively. (On the other hand, at one time this city was the largest in the South; statist negligence of a different kind - graft, corruption, over-regulation - is responsible for it having a smaller population than otherwise.)
I am not appalled with these failures. After all, it is only human to err. Were these levee facilities put under the control of private enterprise, there is no guarantee of zero human suffering in the aftermath of Katrina. No, what enrages me is not any one mistake, or even a litany of them, but rather the fact that there is no automatic feedback mechanism that penalizes failure, and rewards success, the essence of the market system of private enterprise.
Will the New Orleans Sewerage and Water Board suffer any financial reverses as a result of the failure of their installations to prevent the horrendous conditions now being suffered by New Orleanians? To ask this question is to answer it.
One crucial step forward then, would be the privatization of this enterprise as part of the rebuilding process (if that indeed occurs; for more on this, see below). Perhaps a stock company could be formed; I suspect that the largest hotels, restaurants, universities, hospitals and other such ventures would have an incentive to become owners of such an enterprise.
Right now, the levees are run by the very same types of folks responsible for the post office and the motor vehicle bureau. I take no position on whether levees are a good or bad thing; only that if they are to be built, this should be done by an economic entity that can lose funding, and thus put its very existence at risk, if it errs. This can only apply to the market, never the state.
This is neither the time nor place to examine in detail the case for private ownership of bodies of water such as the Mississippi River, Lake Ponchartrain, and, indeed, all oceans, rivers, seas and lakes. But the same principles apply here as they do to land. Suffice it to say that this is a question that should be explored, for it is no accident that where there is private property there is safety and responsibility, and where there is not there is not.
Secondly, numerous roads, highways and bridges were washed out, collapsed, or were swept away. This makes it far more difficult for rescuers to get to the beleaguered city, and for refugees to leave. You will never guess who built, operated and maintained these facilities. Yes, it was government!
It of course cannot be denied that various oil drilling rigs also came unglued, and that these were all private enterprises. One of them even collided with a bridge, greatly damaging it. However, there is a significant difference between the two types of events. The market test of profit and loss applies only to the latter, not to the former. Those oil companies that built their platforms more strongly will tend to grab market share from those that did not. No such regimen operates in the governmental sector. Imagine if the oil drilling rigs were all built by the state. They would have undoubtedly created far more damage.
II. The Dead Hand of the Past
It is by no means clear that there should even be a city in the territory now occupied by New Orleans.
Ideally, under a regime of economic freedom, what determines whether a geographical area should be settled at all, and if so how intensively? It depends upon whether or not, in the eyes of the human economic actors involved, the subjective costs outweigh the benefits. The reason no one lives in the north or south poles, and that population density in Siberia, Northern Canada and the desert areas of Nevada is very low, is that the disadvantages are vastly greater than the advantages in those places.
However, if government subsidizes building in areas people on their own would not choose to locate, then the populace can no longer allocate itself geographically in a rational manner. Similarly, the government declares drought-stricken farmlands an emergency area, and heavily subsidizes agriculture in such locales, there is also misallocation of settlement in this regard.
The Federal Emergency Management Agency (FEMA), created in 1979, became part of the U.S. Department of Homeland Security only on March 1, 2003. The federal government has been doling out gobs of money to inhabitants of areas struck by tornados, storms, snow and other inclement weather for years. Such declarations number in the dozens for 2005 alone. Southern Louisiana, Mississippi and Alabama have already been declared federal disaster areas. Tons of money will pour into these political jurisdictions. Thus, locational decisions are and will continue to be rendered less rational than otherwise, if people had to pay the full costs of their geographical settlement decisions.
It may well be that with the advantage of hindsight, the Big Easy is like severalof these other places: not too cold, or drought-stricken, but too low, below sea level, and thus too much in danger of being flooded.
States Mises in this regard:
"Suppose that, making use of our entire store of technological skill and our present-day knowledge of geography, we were to undertake to resettle the earth's surface in such a way that we should afterwards be in a position to take maximum advantage of the natural distribution of raw materials. And suppose further that for this purpose the entire capital wealth of the present were at our disposal in a form that would allow us to invest it in whatever way was regarded as the most suitable for the end in view.
"In such a case the world would certainly take on an appearance that would be very considerably different from the one it now presents. Many areas would be less densely populated ... The great trade routes would follow other courses."
At first glance, this does not support a New Orleans with anything like its close-to-one-half-million population at its present location. Yes, this city is situated at the mouth of a great river, and offers a world-class port to international shipping. On the other hand as recent events have so tragically demonstrated, these benefits may be more than offset by the fact that it lies below sea level.
