Different River

”You can never step in the same river twice.” –Heraclitus

September 23, 2005

The Economics of Hurricane Relief

Filed under: — Different River @ 2:31 pm

As usual, Steven Landsburg puts things in the right perspective (Thanks to Arnold Kling for the pointer):

Before we spend $200 billion on New Orleans disaster relief, can we just pause for about three seconds, please? That should be long enough to divide one number by another. The numbers I have in mind are, on the one hand, $200 billion, and, on the other hand, 1 million people—the prestorm population of the New Orleans area, broadly defined.

Two-hundred billion divided by 1 million is 200,000. For the cost of reconstructing New Orleans, the government could simply give $200,000 to every resident of the region—that’s $800,000 for a family of four. Given a choice, which do you think the people down there would prefer?

Based on Stephen Moore’s assumption that the money would be divided between 500,000 families rather than 1,000,000 individuals, Clayton Cramer did a slightly different calculation:

[A] lot of that money is going to be spent on levee repair, bridges, public buildings, so the $400,000 per family is a little misleading. Nonetheless, think of the kind of money we are talking about with this relief program. That’s enough money that the interest payments would come to $1666 a month per family forever–without ever touching the principal.

(Emphasis added.)

That is assuming a 5% interest rate, also. I wonder if that is more or less than the average welfare payment in Lousiana, including the value of food stamps, rent vouchers, and the like. (I could look it up, but I’m too busy with work right now.)

But what would people actually do with all that money? Landsburg:

I’m guessing most of them would take the cash. I can’t prove that, but I think I can make it plausible: If your city were demolished, would you prefer to have it rebuilt—with someone else making all the decisions about how it gets rebuilt—or would you prefer to collect $800,000 in cash and move your family elsewhere?

Or, I might add, use all that money to rebuild in the same place — if you want to. As Landsburg adds:

Even after paying out all that cash, there would still be some tidying up to do, like rebuilding the interstates—but that accounts for a small fraction of the projected $200 billion. A lot of the other funds are earmarked for rebuilding infrastructure that’s local to New Orleans. But if you hand out big buckets of cash, most of that rebuilding is no longer necessary—some families will leave the area, and the ones that remain can, if they wish, tax themselves to re-create urban amenities—just as people do anywhere else.

It’s expensive to rebuild the levees. If enough newly enriched people choose to remain, there’s enough of a tax base to do the job—and if too few remain, then rebuilding the levees would be a bad investment anyway.

In other words, give the people the money, and let them decide whether, and how much, to rebuild. I’m sure people in New Orleans know better than (say) the Congressman from Oregon what should be rebuilt and how in New Orleans. Coyote Blog has an alternative idea, similar to Landsburg’s:

Cafe Hayek points out that Rep. Earl Blumenauer wants to make sure that New Orleans is rebuilt with a strong urban planning vision. Since Mr. Blumenauer represents Portland, Oregon, the city beloved of planners that has been planned into having some of the highest priced housing and worst traffic of any city of its size in America, I presume he wants something similar for New Orleans (Portland was also the city that thought it had solved global warming).

Here is my urban plan for New Orleans: Every person who owns property can build whatever the hell they want on it. If other people want something else built on that property, and value this outcome enough, they can buy the property from its owner. This novel concept is called “private property rights” and falls under the broader category of what are called “constitutionally protected individual rights” or even more broadly, “freedom”. It is a concept that used to be taken for granted in this country and but now is seldom even taught in schools.

For the property owned by the government, well, they are going to build whatever dumb***t thing they want to on it anyway, so I’ll just root for their choice to be fairly inexpensive. We here in Phoenix built a half-billion dollar stadium for the for-god-sakes Arizona Cardinals that is used for its core purpose 3 hours a day for 8 days a year. It couldn’t be worse, could it?

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