Marginal Revolution: What went wrong, in general terms

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What went wrong, in general terms

Matthew Kahn asks:

1. How much did the people of the New Orleans metro area invest in their own levees? Given that property owners and public safety in this metro area are the main beneficiary of such investments, why wasn't this sufficient incentive for the Mayor and the metro area's other political leaders to tax citizens collect the money and invest in better, more modern levees?

Here is the full post, which includes three other to-the-point questions. I am not into the blame game, but Randall Parker's recent post also raises questions about the underfunding of New Orleans local government. Of course the Feds messed up too.

Are democratic governments simply not very risk averse when it comes to very bad, low probability events? The model behind this conclusion is simple. Politicians would have to spend the money on protection no matter what, and lose the benefits of spending that cash elsewhere with p = 1. The chance of reelection goes up only with a small probability, namely if the bad event happens and voters can tell their representatives were suitably cautious. Why not instead spend the money with a higher chance of boosting reelection prospects? The key stylized fact is that if a politician messes up very badly, there is no penalty worse than removal from office, which is a penalty (roughly) fixed in value. And since the value of holding office may not fall in proportion to the suffering caused by the disaster, politicians' utility maximization will not bring optimal spending either.

Addendum: David Bernstein has some good information on federal spending cuts. And there is also a complicated story about overreaction ex post, although without necessarily doing much useful, read Daniel Drezner.

Posted by Tyler Cowen on September 5, 2005 at 07:42 AM in Political Science | Permalink

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» Political risk assessment from blogs for industry
Tyler Cowan Are democratic governments simply not very risk averse when it comes to very bad, low probability events? The model behind this conclusion is simple. Politicians would have to spend the money on protection no matter what, and lose the b... [Read More]

Tracked on Sep 6, 2005 1:43:47 AM

» Disasters and democracy from Guy Noir
... Tyler Cohen argues that this is a structural problem of democracies: elected politicians generally lack the incentives to do disaster preparation right. If this is the case, the current outrage over the Katrina aftermath won't translate into adequa... [Read More]

Tracked on Sep 7, 2005 6:39:34 PM

Comments

Tyler,
Not sure here, but I was under the impression that the levee system was government property, owned and operated by the Army Corps of Engineers. Without their permission and approval, nobody could repair the levees even if they wanted to and had the money.

That said, it would probably have been possible, had private or local entities pushed hard enough, for them to get permission to help with the levee restoration work.
~Jon

Posted by: Jonathan Goff at Sep 5, 2005 10:34:40 AM

Within our Federal/State/Local regime there is little incentive for any local government to spend money to avoid a catastrophic infrastructure failure. The presence and resources of the larger government entities is the insurance policy. Why would anyone spend money to insure or upgrade something that they already believe is well insured?

Posted by: Tom Kelly at Sep 5, 2005 10:36:13 AM

Of course the Feds messed up too.

Why "of course"? Can you name something the Feds could have done that they didn't do? "Could have" here to include physical possibility and legality.

Posted by: Charlie (Colorado) at Sep 5, 2005 10:39:35 AM

If anyone deserves blame in making the effects of Katrina worse, it's the
government, so I don't see why underfunding is the problem. Since 1930 the Army Corps of Engineers removed 19,000 sq. miles of marshes from the Mississippi delta and surrounding area, as well as barrier islands and tupelo stands that would have absorbed energy from the
storm. Some studies claim that local storm surges increase by a foot for every
sq. mile of wetlands removed.
The rechannelling of the Mississippi to benefit politically favored developers
worsened and spread the area of Katrina's impact.
The levees themselves were a problem.
As Sharon Begley pointed out in her excellent "Science Journal" column in Friday's WSJ, "their very existence contributed to the disaster" because they prevented the river from depositing the silt which would have replenished the delta and marshes.
Ted Steinberg, author of "Acts of God," points out that the Gulf of Mexico
is now a lot closer to NO than it was when Betsy struck in 1965. Sharon
Begley says its now in the city.

All the discussion about how Katrina has opened fault lines along race and
class overlook that NO is a poor area because it's a corrupt welfare state
where the work ethic, such as it is, is defined by "laissez les bons temps
roller."
Krugman has a particularly inane column (even by his standards) today about how antigovernment
attitudes are making the effects of Katrina worse.

Posted by: Bill Stepp at Sep 5, 2005 10:59:53 AM

Writing that there is not much risk adversity on low probability events says it all. It's unfortunately true.

Here's to you Tyler.

Posted by: Marianne Coleman at Sep 5, 2005 11:02:03 AM

The Mississippi River presents an overall complicated economic situation where many of the decisions have externalities. It may be appropriate to expect the people and businesses of New Orleans to be responsible for some of the cost of their levees. However, the size of the levees required is in part, perhaps large part, due to actions of others in channelizing the Mississippi. Upstream construction of levees causes flood waters to be delivered more quickly to the NO area. Presumably, the people in Iowa and Illinois should be responsible not only for the cost of their own levees, but also for a portion of the New Orleans levees, which must be built higher and wider than would otherwise be required. The extension of the river channel through the delta -- a necessary step in order to maintain NO's status as port suitable for ocean-going ships, a port whose existance benefits many outside the NO area -- has contributed to the disappearance of coastal wetlands that help absorb the storm surge. If the wetlands had not been reduced, the Pontchartrain-side levees would not need to be so high.

Posted by: Michael Cain at Sep 5, 2005 11:22:01 AM

You are asking the wrong question. The right question is - how has the Lousiana political culture of extreme corruption exceded only by managerial incompetance survived so long?

The political culture once excluded women and minorities. Opening it up over he last 30 years, thus introducing more competition, should have broght new and better leaders to prominence.

Instead, the political culture produced even worse, more corrupt, and incompenat leaders than before.

How could this be?

Posted by: Jos Bleau at Sep 5, 2005 11:35:53 AM

-->Writing that there is not much risk adversity on low probability events says it all.<--

Well, unless there's too much, like the fear of Vioxx, second hand smoke, and airplane crashes.

As public policy goes, I suspect you will find insufficient risk adversity when risk adversity carries a perceived direct cost, and too much when it appears to be free.

Posted by: Scott Wood at Sep 5, 2005 12:01:35 PM

Honestly, it's easy to armchair quarterback this thing, but the response has actually been quite amazing, given the magnitude of what happened.

Posted by: Will Franklin at Sep 5, 2005 1:49:57 PM

The number of sq. miles in my post above is incorrect. The number is 1,900, not 19,000.
It's over one million acres.

Posted by: Bill Stepp at Sep 5, 2005 1:55:32 PM

Tyler, the Army Corps of Engineers has had statutory responsibility for flood control on the Mississippi for 70 years now. There is a problem but it is Congress's problem.

Could the Louisiana government and the government of the city of New Orleans have lobbied more effectively for money for flood control? No doubt. But Democrats and Republicans, liberals and conservatives have all opposed flood control spending for as long as I've been alive. As recently as this spring the NYT editorialized in opposition to flood control spending as �pork barrel politics�.

Posted by: Dave Schuler at Sep 5, 2005 1:57:12 PM

There was a request to this administration to fund the restoration of the levess in 2003. Read the facts. The money was diverted to Iraq. This is all over the blogs, just read. The Times-Picayune wrote no less than nine articles about it over the last two years.

The Bush adminstration is DIRECTLY responsible for this mess.

Posted by: donna at Sep 5, 2005 4:17:01 PM

John McPhee wrote about the Miss. River levee system in his book "The Control of Nature", published in 1989. I recommend the book highly to anyone wanting to read about how humans "think" they have nature under control. I have discussed this book with my students in the past (there's a third of the book devoted to Southern California and mudslides), and they all ask the same thing: "Why did they allow a city there in the first place?"

That being said, this issue is a lot more complex than what all of us are talking about. The levees upstream are definitely an issue, as is the destruction of wetlands, and the continual increase of the levees' height. It is important to play the blame game, but this is going to be a long-term issue.

Posted by: so_cal_mike at Sep 5, 2005 9:32:25 PM

The article: Black People "Loot", White People "Find" reveals the racist predisposition of the US media. Thankfully, not all media is this way inclined, the British media tell it like it is.
Beyond the media, there is the government, represented by its officials. When one of the people in charge of the ex post response was asked why - if after the Tsunami food aid was dropped in two days - it took them five days to action a meaningful response for New Orleans (their own country), the man just went red in the face. That speaks volumes for itself.

"Repeatedly, reporters refer to white victims clinging to life as "survivors" and "residents," while African-American victims doing the same things are called "looters" and "criminals." Disproportionately, the humanizing, "heart-breaker" stories feature white victims and families. Meanwhile, images of African-American crowds are almost invariably in the background during discussions of "criminal activity."

See full article/facts at:
http://culturefusion.blogspot.com/2005/09/hurricane-katrina-reveals-racism.html

Posted by: Curious at Sep 6, 2005 5:00:18 AM

So the local storm surge has only gone up 1,900 feet instead of 19,000? I feel so much better.

You're demagogging a serious issue.

----

If you let the river spread out just past NO, you get a serious problem with water going downhill (INTO NO!) You also get a serious problem with navigation because the channel is going to move every high tide.

I heard a comment that NO has been our busiest port. There is a clear federal issue here. How to fix it? That's far from clear, but we have an opportunity to make a drastic change that will work better. Hastert is right.

-----

A sister of a friend was late heading out of Gulfport. She stopped by my friend's house (my friend had already headed out). A thought crossed her mind, "I could siphon gas from the jeep". Then immediate moritification set in.

I've said it before, and I'll repeat it here. The looters are poor because they consistently make poor choices. Going down to your local Walmart and "finding" jewelry is completely different from "looting" gasoline to get out.

Nobody that I've seen has a problem with people getting food, water, and transportation by any means that doesn't stop others from the same. These are "finds", or whatever other non-negative term you want.

People justifying taking flat-screen TV's & jewelry have to resort to the usual race-based rhetoric. These are "lootings", and if you don't want to be called a looter, don't do it.

If most of the people taking food & water are white (and feeling guilty for doing so), while most of the people taking TVs and jewelry are black, then white people are "finding" while black people are "looting". I don't want this to be true, but if it is, then the black leaders need to attack the problem in their community and quit blaming everyone else for their own problems.

Posted by: Nathan Zook at Sep 6, 2005 10:45:14 AM

Saw an interview on TV with the man in charge of the flood wall system - no earthen levees failed, instead water topped the flood walls and undermined them on the backside causing them to collapse. They were built in 1965 for up to a category 3 hurricane, before that there was no protection. Katrina was a 5, falling to a 4 at landfall, and a 3 soon after. When asked what it would have taken to increase protection, he suggested starting 20 years ago would have been a good time.

Posted by: rmark at Sep 6, 2005 2:48:14 PM

jewelry is good to trade for food and water, hiigh value in a small package.

Posted by: rmark at Sep 6, 2005 2:51:30 PM

Ignoring for a moment some of the more complicated issues here (who's responsible for the poor response, who should have spent more on what and when, the tragic interplay of race and poverty with the disaster, etc.), it seems that some simple conclusions are easy to make. First, federal government involvement in these types of issues creates two types of moral hazards: (1) federally subsidized flood insurance encourages people to build where there are frequent floods, where otherwise they would be unable to build (private insurers won't issue flood insurance in these areas, deeming it too risky); (2) FEMA disaster relief similarly encourages people to build where otherwise they wouldn't if they had to bear the risk of rebuilding after potential disasters. Second, the New Orleans disaster seems to reveal another disturbing effect of FEMA: local governments do not take reasonable precautions in the face of even certain disasters. Instead they wait for the federal government to take action; in this case, this behavior seems to have resulted in thousands of deaths. I find it impossible to believe that the governments of New Orleans and Louisiana were incapable of providing adequate supplies to those trapped in the Superdome, but my guess is that they, like many of the rest of us, have become so dependent on the federal government that they assumed FEMA or the military would do it for them.

Thus, in my opinion, the most critical question resulting from Katrina and its aftermath is whether we want to continue creating these incentives for people. I think we are killing people with our kindness. Economics tells us, more than anything else, that people respond to incentives. Giving people incentive to live in dangerous areas is certain to place more people in harms way; giving local governments disincentive to prepare for disasters assures that they will be less able to help their consituents when it most matters.

I'm not suggesting that we not help the victims of Katrina. Of course we will and we should; they have every reason to expect such help, and it would be tragically unfair not to do so. I think we should, however, have a discussion about what we want to do in the future. If, in the future, we force people to bear the full responsibility for choosing to live where it is dangerous, or for building a sinking city below sea level, what may seem cruel will almost certainly save many lives.

Posted by: Andrew Wise at Sep 6, 2005 4:10:59 PM

Just a quick comment about Andrew Wise's comment. We face the time-consistency problem a bit here: The government ex-ante promises not to provide more than a certain amount relief when the hurricane comes. But if the hurricane does come, political pressure is going to force the government to provide more relief than ex-ante promised. So, I think that there is some reason that just deciding what we will do in the future and sticking to it is not so easy.

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