Katrina, 1; FEMA, 0

“One of the things that’s changed so much since Sept. 11 is the extent to which people do trust the government — big shift — and value it, and have high expectations for what we can do.”

~ V.P. Dick Cheney (Oct. 19, 2001)

The New Orleans disaster, more than any event of my lifetime, has revealed the utter incompetence of peacetime civil government at all levels. From the New Orleans police department to FEMA, it was a combination of bureaucratic betrayal and incompetence.

Think of the school buses that remained parked right where regulations specified — all gone now. Think of the performance of the New Orleans police department, where 200 of the 1500 members just quit. Think of the National Guard that was not called by the governor in time. Think of FEMA.

We have now seen what to expect from civil government in a major crisis, even one for which there was advanced warning. There is a lesson here that only the politically blind will miss, and undoubtedly will: to the extent that you become dependent on some tax-funded bureaucracy to save you in a disaster, to that extent you become vulnerable to that disaster and also poorer because of the expense of the government’s protection.

To get some idea of what happened physically, take a look at some before/after satellite photos. Go to the page and scroll down. You will see several photos that fluctuate from pre- to post-Katrina. Click on any photo. You will see a large pre-Katrina photo. Then move your cursor over the photo. It goes to post-Katrina. The effect is overwhelming. The power of water!

This will not be cheap to re-build. The capital that goes to re-build it will not be used to build something else. This is a massive loss, despite all the economic nonsense about this being “a shot in the construction industry’s arm.” Think of it as if Al-Qaeda had done it. Then nobody would be talking about the event as a boost to capital spending. On this point, I defer to Frédéric Bastiat (d. 1850), whom I recently re-wrote.


The best piece I have read on the economic effects of the disaster was written by George Friedman of Stratfor, a first-rate service that analyzes geopolitics. I refer you to his entire essay. It really is worth your time to read all of it. These extracts are crucial.

A simple way to think about the New Orleans port complex is that it is where the bulk commodities of agriculture go out to the world and the bulk commodities of industrialism come in. The commodity chain of the global food industry starts here, as does that of American industrialism. If these facilities are gone, more than the price of goods shifts: The very physical structure of the global economy would have to be reshaped. Consider the impact to the U.S. auto industry if steel doesn’t come up the river, or the effect on global food supplies if U.S. corn and soybeans don’t get to the markets.

The problem is that there are no good shipping alternatives. River transport is cheap, and most of the commodities we are discussing have low value-to-weight ratios. The U.S. transport system was built on the assumption that these commodities would travel to and from New Orleans by barge, where they would be loaded on ships or offloaded. Apart from port capacity elsewhere in the United States, there aren’t enough trucks or rail cars to handle the long-distance hauling of these enormous quantities — assuming for the moment that the economics could be managed, which they can’t be.

The port looks intact. This is good news for the rest of us. Had the hurricane remained at category-5, and had it not veered toward Mississippi, the port might have been lost. The rest of the country would now be facing price increases due to falling imports and a falling dollar, which is bad enough already.

[Note: If you want to watch the daily rise or fall of the dollar, I have a real-time chart on the home page of my website.]

Friedman then commented on the long-term implications of the exodus of skilled workers from New Orleans.

The oil fields, pipelines and ports required a skilled workforce in order to operate. That workforce requires homes. They require stores to buy food and other supplies. Hospitals and doctors. Schools for their children. In other words, in order to operate the facilities critical to the United States, you need a workforce to do it — and that workforce is gone. Unlike in other disasters, that workforce cannot return to the region because they have no place to live. New Orleans is gone, and the metropolitan area surrounding New Orleans is either gone or so badly damaged that it will not be inhabitable for a long time.

It is possible to jury-rig around this problem for a short time. But the fact is that those who have left the area have gone to live with relatives and friends. Those who had the ability to leave also had networks of relationships and resources to manage their exile. But those resources are not infinite — and as it becomes apparent that these people will not be returning to New Orleans any time soon, they will be enrolling their children in new schools, finding new jobs, finding new accommodations. If they have any insurance money coming, they will collect it. If they have none, then — whatever emotional connections they may have to their home — their economic connection to it has been severed. In a very short time, these people will be making decisions that will start to reshape population and workforce patterns in the region.

He compared the hurricane to a nuclear bomb.

It is in this sense, then, that it seems almost as if a nuclear weapon went off in New Orleans. The people mostly have fled rather than died, but they are gone. Not all of the facilities are destroyed, but most are. It appears to us that New Orleans and its environs have passed the point of recoverability. The area can recover, to be sure, but only with the commitment of massive resources from outside — and those resources would always be at risk to another Katrina.

The displacement of population is the crisis that New Orleans faces. It is also a national crisis, because the largest port in the United States cannot function without a city around it. The physical and business processes of a port cannot occur in a ghost town, and right now, that is what New Orleans is. It is not about the facilities, and it is not about the oil. It is about the loss of a city’s population and the paralysis of the largest port in the United States. . . .

Katrina has taken out the port — not by destroying the facilities, but by rendering the area uninhabited and potentially uninhabitable. That means that even if the Mississippi remains navigable, the absence of a port near the mouth of the river makes the Mississippi enormously less useful than it was. For these reasons, the United States has lost not only its biggest port complex, but also the utility of its river transport system — the foundation of the entire American transport system. There are some substitutes, but none with sufficient capacity to solve the problem.

This is the economic issue of the city of New Orleans. The collapse of the levees has created a monumental disaster. It is therefore worth looking at this two-fold issue: why the levees collapsed and who is responsible. Once again, we must follow the money.


According to the Army Corps of Engineers, which built and maintained the 17th Street Levee that collapsed, thereby flooding New Orleans, this was a kind of victory. Here is an August 30, 2005 press release from the Corps.

The New Orleans District’s 350 miles of hurricane levee were built to withstand a fast-moving Category 3 storm. The fact that Katrina, a category 4-plus hurricane, didn’t cause more damage is a testament to the structural integrity of the hurricane levee protection system, officials said.

(Editor’s note: Information provided by a Corps of Engineers news release.)

“Officials said.” Thanks, officials!

The United States government designed the levees to withstand a category-3 hurricane. But Katrina was a category-4, down from a category-5. So, from the beginning 25 years ago, the government short-changed the levee system. It was planned this way. A Knight-Ridder news report (Sept. 1) provided these insights:

The levees were built to withstand only a Category 3 storm, something projections suggested would strike New Orleans only once every two or three centuries, the commander of the corps, Lt. Gen. Carl A. Strock, told reporters during a conference call. Katrina was a Category 4 storm.

“Unfortunately, that occurred in this case,” Strock said.

Strock said the levee system’s design was settled on a quarter of a century ago, before the current numerical system of classifying storms was in widespread use. He said studies had begun recently on strengthening the system to protect against Category 4 and 5 hurricanes, but hadn’t progressed very far.

Strock said that despite a May report by the Corps’ Louisiana district that a lack of federal funding had slowed construction of hurricane protection, nothing the Corps could have done recently would have prevented Katrina from flooding New Orleans.

“The levee projects that failed were at full project design and were not really going to be improved,” Strock said.

This was the official party line from the senior official in charge of the levee system. The U.S. government is skilled at levying — just not so good at leveeing.

Strock’s comments drew immediate criticism from flood-protection advocates, who said that the Corps’ May report was a call for action and a complaint about insufficient funding, and that no action took place.

“The Corps knew, everybody knew, that the levees had limited capability,” said Joseph Suhayda, a retired director of the Louisiana State University’s Water Resources and Research Institute.

“Because of exercises and simulations, we knew that the consequences of overtopping [water coming over the levees] would be disastrous. People were playing with matches in the fireworks factory and it went off,” he said.

Suhayda, an expert in coastal oceanography, said, “the fact the levee failed is not according to design. If it was overtopped, it’s because it was lower in that spot than other spots. The fact that it was only designed for a Category 3 meant it was going to get overtopped. I knew that. They knew that. There were limits.”

There are always limits. Limits are basic to life. The goal of an agency entrusted with protecting the public ought to be able to predict these limits accurately and then, with limited funds, construct a barrier. But this is not how any known government agency works. The agency is given limited funds and is told to design the protection against some disaster within budget. The limit that counts is the budget, not the limits of the threat. The threat is officially defined so that the budget is not exceeded — well, not by too much, anyway.

Then what good is the protection? Not much when it is really needed, i.e., in a category-4 type of disaster. Then what good is the expenditure? Of great good, if you are inside the agency assigned the task of protecting the public. The money employs experts and their staffs — in this case, for 25 years.

Some critics Thursday questioned the usefulness of levees, saying that all of them fail eventually.

“There are lots of ways for levees to fail. Overtopping is just one of them,” said Michael Lindell, of Texas A&M University’s Hazard Reduction and Recovery Center. ‘There’s a lot of smoke screen about ‘low probabilities.’ Low probabilities just means ‘Takes a long time.'”

It took 25 years.

Now the city will be re-built, relying once again on Federal money and protection. But the levees will remain the same. They will not be completely replaced. That would be far too expensive. After all, a category-3 hurricane hits only once every two centuries, or so they thought. Another Katrina won’t happen for a long time. So the law of averages says.


The president of New Orleans’ Jefferson Parish, Aaron Broussard, was interviewed by NBC’s Tim Russert. What he revealed is nothing short of horrifying. It has to do with FEMA, the Federal Emergency Management Agency. It is not just that FEMA did nothing for days. They did way too much.

Let me give you just three quick examples. We had Wal-Mart deliver three trucks of water, trailer trucks of water. FEMA turned them back. They said we didn’t need them. This was a week ago.

FEMA — we had 1,000 gallons of diesel fuel on a Coast Guard vessel docked in my parish. The Coast Guard said, “Come get the fuel right away.” When we got there with our trucks, they got a word. “FEMA says don’t give you the fuel.”

Yesterday — yesterday — FEMA comes in and cuts all of our emergency communication lines. They cut them without notice. Our sheriff, Harry Lee, goes back in, he reconnects the line. He posts armed guards on our line and says, “No one is getting near these lines.” Sheriff Harry Lee said that if America — American government would have responded like Wal-Mart has responded, we wouldn’t be in this crisis.

I can understand why Mr. Broussard was upset — furious, even. But he suffers from the same blindness that afflicts almost all politicians and most citizens. He thinks that more money and more centralized power will solve the problem. He said:

FEMA needs more congressional funding. It needs more presidential support. It needs to be a Cabinet-level director. It needs to be an independent agency that will be able to fulfill its mission to work in partnership with state and local governments around America.

No, FEMA needs to have every dime of its funding cut and all of its employees fired. It doesn’t need a house cleaning. It needs a house burning. If Katrina had taken out FEMA as “collateral damage,” the loss of New Orleans would have been worth it (though not the loss of life). No such luck. We have lost New Orleans, we will lose the tax money to rebuild it, and FEMA’s budget will grow.

The response to failure of government is always the same: increase its funding. U.S. District Judge Janice Brown, who is the most hated judge in America by the Left, has put it well. “Government is the only enterprise in the world which expends in size when its failures increase.” (I wish President Bush had nominated her for Supreme Court Chief Justice.)


Very few organizational systems are working according to plan at any point in time. They rarely work well outside of narrowly defined channels. Apart from job-threatening, budget-threatening negative feedback systems within organizations, they stagnate. They are soon run for the benefit of their employees.

Unless someone is willing to risk a loss by breaking the rules, no system functions well in an emergency. FEMA is like any other government bureaucracy: no one is willing to take a risk. No one is able to respond fast to new circumstances. The bureaucratization of emergency response is a contradiction in terms.

Wal-Mart could respond rapidly because (1) it runs a profit and can pay for a small loss (a truck load of water); (2) Wal-Mart is flexible because it is so profitable; (3) someone in charge at Wal-Mart can say “do this,” and the chain of command responds. None of this is true at FEMA.

When you assess your economic vulnerability, do not forget New Orleans. Keep it in mind as you plan for the future. Your plans had better not rely on the good judgment of the bureaucrats who have constructed category-1 safety nets in a world of category-5 events. Remember also that the costs of constructing these category-1 safety nets has kept individuals from dealing with category-5 realities. Worse; the masses have trusted in category-1 safety nets as if they had been designed to deal with category-5 crises. The masses remain asleep.

There will be an economic Katrina one of these days. It takes a long time. It does not take forever.

September 10, 2005

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 17-volume series, An Economic Commentary on the Bible.

Copyright © 2005 LewRockwell.com

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