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.
Does this mean that New Orleans would be doomed under a free enterprise system? This is quite possibly the case, if we could do everything all over again, and start off de novo, at the present time. But not necessarily, given that vast investment has already been made in streets, buildings, pipes, etc. Even though, perhaps, if we knew then what we know now, no city would have been erected south of Lake Ponchartrain, it does not logically follow that it should not be rebuilt at present, under realistic assumptions.
Given the New Orleans is now located where it is, it is entirely possible that it is economical for there to remain a large human settlement in that area. What cannot be denied is that when government enters the picture, economic calculation of this sort becomes impossible.
Mises continues his analysis:
“With regard to choice of location … new plants appear most efficient in the light of the existing situation. But … consideration for capital goods produced in the past under certain circumstances makes the technologically best … (location) … appear uneconomical. History and the past have their say. An economic calculation that did not take them into account would be deficient. We are not only of today; we are heirs of the past as well. Our capital wealth is handed down from the past, and this fact has its consequences … (S)trict rationality … induces the entrepreneur to continue production in a disadvantageous location … “
That is, New Orleans might well be a “disadvantageous location” based on the assumption that we can with hindsight rearrange all previous locational decisions. But, we can do no such thing. Rather, capital (buildings, roads, pipelines, etc.) are bequeathed to us at a certain location. As it happens, lots of valuable capital is located in New Orleans. This fact would incline us to reinvest in that locale, storms be damned. But only private enterprise can make such a decision on a rational basis. When government muddies the waters, this cannot take place.
The best way then, to rationally determine whether or not the Big Easy should be saved, is to leave this decision entirely to free enterprise — to capitalist entrepreneurs, who, alone, can rationally make such determinations. As the Austrian side of the Socialist Calculation Debate has demonstrated, only with market prices can this be done. Moreover, private owners make such decisions with their own money, or funds entrusted to them; if they err, they alone suffer. They do not bring the rest of us down along with them.
III. Weather Socialism
But there is a third element we cannot ignore: weather socialism.
According to an old adage, critics of government can properly blame this institution for many things, but bad weather is not among them. Wrong, wrong. At the risk of sounding out of step with the mainstream (a new experience for me) the state is responsible not only for hurricanes, but for tornados, storms, typhoon, tsunami, excessive heat, excessive cold, too much rain, too little rain, floods, droughts, desertification, tempests, squalls, gales, rainstorms, snowstorms, thunderstorms, blizzards, downpours, cyclones, whirlwinds, twisters, monsoons, torrential rains, cloudbursts, showers, etc. You name any kind of bad weather conditions, and the government is to blame.
Why, pray tell? Because the state at all levels grabs off almost 50% of the GDP in taxes, and its regulations account for a significant additional amount of wealth not created. If the voracious government left all or even most of the property created by its rightful owners — those who created it in the first place with their own hands — the weather problem could undoubtedly be better addressed by private enterprise.
And for what wondrous tasks does the government waste trillions of our earnings? Let me count some few of the ways. It subsidizes farmers who ought to be allowed to go bankrupt when they cannot earn an honest profit in their industry. As the number of farmers has declined over the years, the number of bureaucrats in the Department of Agriculture has increased. Welfare for farmers and agricultural mandarins.
Speaking of welfare, this is but the tip of the iceberg. Our masters in Washington D.C. distribute our hard-earned money to people who bear children they cannot afford to feed, and to corporate welfare bums. Then there is the Department of Education (weren’t the Republicans going to get rid of this sore on the body politic?) that presides over a public school system that warehouses and mis-educates our children.
And don’t get me started on our system of medical socialism that wastes yet other precious resources. We don’t have HillaryCare yet but we are well on our way. Then, too, we must count government throwing our money at the Post Office, the Space program, ethanol, foreign “aid,” unemployment insurance, the list goes on and on.
The drug war incarcerates thousands of innocent people — who could be out there creating additional wealth — at a cost exceeding tuition and room and board at some of our most prestigious universities. Last but certainly not least, speaking of war, the U.S. has been bullying its way around the world for decades, creating untold havoc. Katrina can’t hold a candle to our armed forces in terms of killing innocent people. There are no truer words than that “War is the health of the State.”
Suppose that the “public sector” were not wasting untold riches. What has this got to do with improving weather conditions? Well, a lot of the money returned to the long-suffering taxpayers (and much of the additional wealth created by the ending of economic regulations) would be allocated in the usual directions: sailboats and pianos, and violin lessons and better food and more entertainment, etc. But some of it would likely be invested in more research and development as to the causes and cures of unwelcome weather conditions.
Is there any doubt that in 100, or 1,000, or 10,000 years — assuming the government does not blow us all up before then — we will no longer be plagued by uncooperative clouds? I don’t say that if the state disappeared tomorrow the next day we would have clear weather (and rain to order from 2am — 4am), but surely the ending of the former would bring about the latter that much more quickly.
How would this work? Wouldn’t the problem of “public goods” rend the market a “failure,” as our friends from the Chicago so-called “free enterprise” school of economics would have it? Their argument is that if I come up with a way to stop storms dead in their tracks, or better yet, orchestrate matters such that they do not form in the first place, everyone else will “free ride” on my innovation. The other beneficiaries will simply refuse to pay me for this boon I confer on them, so I will not invest any money on this task in the first place. And neither will you. So the private enterprise system cannot handle such challenges.
Stuff and nonsense.
First of all, this task need not be accomplished on a for profit basis. Non-profit organizations, too, are part of the private sector of the economy. Just looking at the charitable outpourings to New Orleanians from all corners of the country, we can see that there is no shortage of benevolence and good will for the victims of Katrina. I should single out for special mention in this regard that “evil” profit maximizing large corporation that grinds down suppliers, immiserates its ownworkers due to its anti union policies, bankrupts small grocers, and just all around exploits every else it touches: . This hated corporation contributed $1 million to the Salvation Army for hurricane relief.More recently, Wal-Mart committed an additional $15 million for this purpose. As part of this commitment , Wal-Mart will “establish mini-Wal-Mart stores in areas impacted by the hurricane. Items such as clothing, diapers, baby wipes, food, formula, toothbrushes, bedding and water will be given out free of charge to those with a demonstrated need.
In contrast, I do not recommend the American Red Cross. I still have not forgiven them for turning aside risks of spreading AIDS and infecting hundreds of people, many of them hemophiliacs. Unhappily, from my own point of view, Wal-Mart, sent another $1 million to the Red Cross. But my favorite charities, if you want to really help the inhabitants of the Gulf Coast, are two. Both support free enterprise, the last best hope for people there and everywhere. One is the Mises Institute ; two, any of the State Libertarian Parties of Louisiana, Mississippi, or Alabama. But not the national party, until they deal with this issue.
The point is, if we the people had vastly more money at our disposal than we do now, thanks to government profligacy with our funds, we would be able to donate some of it to the not-for-profit sector to engage in research and development for weather control.
Secondly, the market has a way of internalizing the so-called externalities that supposedly prevent firms from providing storm-busting services. Within limits, and depending upon technology, the purveyors of flood insurance would be able to turn the rain and wind on and off like a spigot, depending upon the locational densities of their clientele.
For example, if in area A 90% of the landowners are members of Hurricane Busters, Inc., and in area B only 10% are, there is little doubt as to which will be better served by this particular firm. Then, too, there will be not only social pressure, but economic pressure, for large firms in any geographical area to sign up for such services. Those that do not (particularly in states stretching from Texas to Florida, and most certainly in New Orleans) will tend to find their customer base disappearing.
As but one small instance of this phenomenon, companies with large parking lots have recently instituted reserved spaces for pregnant women and new moms. No government agency forced them to do any such thing. (Prediction: the state will soon do just that, so as to garner credit for this very human and profitable policy). As this movement catches on, few will be able to resist. A similar situation is likely to arise with regard to protection from hurricanes. At the very least, if government would but get out of the way, it would clear the path for private enterprise to more quickly bring us the day when the Katrinas of the future will be obviated.
To conclude, here is what I see as the libertarian position on the storm and its aftermath. No national guard or other representatives of the state should be brought in. They are in effect “murderers and thieves.” Instead, private police agencies, appointed by property owners, should deal with the looters.
Further, no tax money should be poured into New Orleans. These are stolen funds, and should be returned to their rightful owners, the taxpayers of the nation. Of course, this applies, in spades, to those victimized by Katrina. But the refunds should be in the form of money, not expenditures for rebuilding, which their proper owners may or may not favor.
Private enterprise alone should determine if the Big Easy is worth saving or not. Problems of “transactions costs” will be far easier to overcome than challenges presented by an inept and economically irrational government. Possibly a Donald Trump type might try to buy up all the buildings at a fraction of their previous value, and save his new investment by levee building and water pumping. He wouldn’t need to get 100% sales. A lesser amount, say, 90%, might do, and he would only make his initial purchases subject to reaching this level. That is, he might first purchase options to buy.
Dr. Block [send him mail] is a professor of economics at Loyola University New Orleans.