Why rebuild? (simple points, but worth a mention)

by on November 19, 2012 at 7:16 am in Current Affairs | Permalink

Across the nation, tens of billions of tax dollars have been spent on subsidizing coastal reconstruction in the aftermath of storms, usually with little consideration of whether it actually makes sense to keep rebuilding in disaster-prone areas. If history is any guide, a large fraction of the federal money allotted to New York, New Jersey and other states recovering from Hurricane Sandy — an amount that could exceed $30 billion — will be used the same way.

Tax money will go toward putting things back as they were, essentially duplicating the vulnerability that existed before the hurricane.

The full story is here.

Urban Demographics November 19, 2012 at 7:41 am
Alex Godofsky November 19, 2012 at 7:58 am

How often do we expect a hurricane like Sandy to hit New York?

floydthebarber November 19, 2012 at 8:27 am

I’ll bite… Updating my priors, I’ll go with at least as often as every 25 years.

Edward Burke November 19, 2012 at 9:26 am

Perhaps as early as next year: Hurricane Irene raked the region in 2011, this year it was Hurricane Sandy, which struck as a measly Category One storm with winds of less than 100 mph and a storm surge barely topping twelve feet. So easily, another Cat One storm could strike within the next ten or the next five years. In the interim, it will be instructive to see just how our progressives in New York City and New York state respond. Should enlightened political and civic leaders not properly issue the order “Retreat!” sooner rather than later and begin by designating the entire rim of lower Manhattan as the site for massive breakwater construction? (Losing all of that precious real estate can help support local real estate pricing, at least.) End all construction along the south shore of Long Island? (Why not prohibit the availability of any kind of insurance–for flood damage or wind damage–in the affected zones?) Shouldn’t residential and commercial real estate development be prohibited in these affected areas, beginning yesterday? (The opportunities for exercising leadership here are abundant –or is “global warming” not a genuine concern for New Yorkers when the apparatus of state can be steered for reconstruction project after reconstruction project into our indefinite futures?)

axa November 19, 2012 at 10:24 am

the most optimist assessment would be assuming climate change is just bullshit. even tough the situation is NOT good: http://en.wikipedia.org/wiki/List_of_New_York_hurricanes

that is the optimist assessment, go figure the catastrophic sea level rise scenario.

mulp November 19, 2012 at 1:01 pm

“How often do we expect a hurricane like Sandy to hit New York?”

If you are a conservative, you will say “at least one hundred years because global warming is a hoax designed to justify high taxes to overbuild infrastructure and force excessive costs on the private sector just to profit the liberals who buy the scientists to generate false science by fake facts and to repay the votes from labor unions who get all the high wages jobs from the over-regulated and overbuilt construction.”

If you are a liberal, you will say “Katrina and Sandy are proof of global warming and such storms will repeat faster and faster so not only must rebuilding be hardened against repeat storms, but unaffected property must also be upgraded to withstand even bigger storms and the high investment in must be funded by higher taxes over the long term to prevent even greater tax funded spending to repeatedly rebuild.”

If you are Donald Trump you argue global warming is a hoax and storms like Sandy will not repeat for hundreds of years, but no rebuilding must be allowed in the storm damaged areas because it will be destroyed by another storm in five years. The free market must drive down the property prices of the extremely valuable water front property denied infrastructure so he can buy it cheap, and then he can engage in lobbying to get the tax funded infrastructure needed for his massive Trump resort and gambling and monument to The Donald mecca funded with $50 billion in government backed debt, justified by the huge economic benefits, which justify a 50 year exemption from all taxes.

If you are Mayor Bloomberg, you look at the facts and at your personal financial empire and where you have lived yout life, and merely doubled down on your mission to lead NYC back to being the greatest economic center of the world driven by a diverse dynamic people attracted to the economic opportunity and the lifestyle that offers a rainbow of culture only possible from such large scale and diversity. And taxes are merely the price the businesses and people pay for the asset which is NYC at the city, state, national, and global scale.

Note, all the powerful economic centers are very concentrated with substantial support from government – Apple was not revived by a spread out distributed uncoordinated Chinese economy, but by a city of concentrated people and firms backed by strong government promoting the economic power, replicating the history of NYC over the past five centuries when its power has waxed and waned. The free market without government is not going to replicate the greater NYC including the Jersey shores in Iowa even if Iowa and Congress created the pure charter city ideal to a hundred square miles of blank slate. It would not have the justification needed to start the economic chain reaction needed to create a great city.

NYC exists and will exist for as long as civilization stands because it is built from the harbor that existed five centuries ago, but no longer does. That harbor created a self sustaining and living economy that can not be moved without destroying it.

John Mansfield November 19, 2012 at 8:33 am

It seems like the histories of many ghost towns involve burning down twice and rebuilding once. There’s nothing wrong with rebuilding a destroyed town IF the town had reason for being when calamity struck and will after the residents rebuild. For some towns today, though, rebuilding through outside money will be the last boom for a place that should have taken the opportunity to rest in peace.

dan1111 November 19, 2012 at 8:57 am

Of course, the question is: who should do the rebuilding? If the town has a good reason to exist, it will get rebuilt without government assistance. Or, more precisely, if government aid is not expected, the cost of potential disasters will get priced into the market. The fewer government-introduced market distortions there are, the more likely it is that stuff will be built in the most reasonable place.

Government assistance can be defensible when there is some combination of two criteria: 1) there is great need and 2) the disaster was unforeseeable. But seaside homes don’t meet either very well. Most waterfront property is a luxury item, and devastating hurricanes occur regularly.

mulp November 19, 2012 at 1:14 pm

Seaside property which has not been destroyed in the century it has existed, built when the old development had existed without destruction for living history is:
1. a disaster waiting to happen and thus foreseen after it happens
2. an unforeseen disaster that will not reoccur in living history
3. an unforeseen disaster that is evidence of changing environment requiring abandonment
4, foreseeable because beaches near the equator are hit by storm all the time so beaches in the temperate zone should be expected to be hit by the same kinds of storms even if they have not occurred in history
5. AGW is changing the climate and man will never stop driving it, so we must use science to decide where to build where storms will not hit and cause damage, say inside Yucca Mountain and free of wind, rain, snow, fire, flood, earthquake, tsunami, ….

8 November 19, 2012 at 8:36 am

Switch to private insurance and people will alter their decision making. After a certain date, all new homes must buy private insurance. Existing homes can continue buying subsidized insurance, but can only continue receiving subsidized insurance so long as they do not make a claim for storm/flood damage. Once they make a claim, they must switch to private insurance.

n=1 November 19, 2012 at 8:47 am

They may, but game theoretic elements may produce the status quo ante outcome. Consider the NJ barrier beach towns that are chockablock with ticky tack. If my nearest neighbors choose not to rebuild, my higher private valuation of a shore view that is now more ‘mine’ might incent me to rebuild. Because the argument is symmetrical, everyone rebuilds.

dan1111 November 19, 2012 at 9:01 am

Yes, but in that scenario we would no longer care, because the public is no longer subsidizing your choices. If you want to weigh the risks and pay the high cost of private insurance, that is your decision.

mulp November 19, 2012 at 2:26 pm

The public is no longer paying for the road that serves your property, or the electric, water, sewer, gas, fire, police,…?

Most of the tax funded cost or rebuilding is on restoring the roads etc with utility rates for the region bumped up to cover utility losses and costs of rebuilding.

Failure of government to maintain public services that existed when you bought land (even if it exists only on paper, like a back country bridge in the public record that hadn’t been rebuilt after the flood two decades ago) is a public taking that requires compensation. If you buy a lot on the beach with a larger government over it that has failed to officially rezone and remove all public infrastructure through the official regulatory and legislative process, you can sue to require the government provide the roads and force utilities to provide their services at no cost to you. Or they can buy you off by eminent domain.

Douglas Knight November 19, 2012 at 12:50 pm

It’s much worse than that. It would be one thing if the government just subsidized insurance. But the feds give money earmarked for rebuilding

mulp November 19, 2012 at 2:14 pm

If private insurers go bankrupt, as has occurred on large scale in places like Florida after a big storm, and the mutual reinsurance results in higher insurance premiums for property that is far from the storm area and that was built to withstand storms, how does your model work?

If the insurers who refused to insure risky properties and demanded storm hardened construction and that drove zoning codes in the towns they insured protest the state insurance commission imposing fees on them for the losses of customers of bankrupt insurers, do you not pay insured claims because insurers knowingly or ignorantly defrauded customers. Florida got into the insurance business after national insurers withdrew or threatened to withdraw from Florida if they were assessed for losses of bankrupt Florida insurers who could not cover their losses.

National insurers look at a market like Florida differently than a Florida only insurer. While the national insurer is willing to “move money” from region to region, it is also looking at the scale of national coverage to balance its risks, and its scale gives it the resources to do long term analysis and planning. And by resorting to reinsurance, competitors pool their resources in analysis and develop public policy solutions that are mutually beneficial. Like fire protection standards and building codes. National insurers have the power to dictate to local governments what their laws are, and by extension, tax rates.

An investor might look at creating a Florida only insurer with the model of recovering investment in a decade in the hopes no big storm occurs in three decades yielding huge profits, so a big storm during the first decade results in bankruptcy and investment losses, in the second decade yielding modest returns, and in the third decade and beyond yielding high returns. Money invested in lobbying to block insurance regulation that requires layers of reinsurance that eliminate the profits is far cheaper than actually protecting against losses. Private profit, socialized losses. An FDIC bank run by a short term manager will approve the coverage of an insurer that won’t cover losses in a disaster because he makes more private profit with the losses socialized, and will support weak insurance regulation.

To create an insurance market that works without big government dictates on where and how you build, Florida entered into the reinsurance business and also lobbied for Federal reinsurance, along with States with flood plains that flooded at long intervals that did not want the big government dictates. Thus the Florida hurricane reinsurance in conjunction with Federal flood reinsurance.

dan1111 November 19, 2012 at 2:34 pm

The Florida situation can’t simply be portrayed as a failure of free enterprise. Numerous state laws regulating the insurance market exacerbated the situation, particularly one that prevented insurers from freely setting rates.

A large disaster driving insurance companies out of business is a potential problem, though. I am sympathetic to the idea that some government intervention could be needed in such a case. However, it is a long way from that to saying the status quo is necessary.

Floccina November 19, 2012 at 3:43 pm

New homes should also be told that they will be charged for cleanup of their stuff that pollutes the water when they are flooded.

doctorpat November 19, 2012 at 9:02 pm

Good luck identifying the original owners of all that stuff.

Ted Craig November 19, 2012 at 8:51 am

Change coastal region to banking system and isn’t this just a repeat of 2009?

ila November 19, 2012 at 1:10 pm

Maybe they can stress test the boardwalk after they rebuild it!

sherparick November 19, 2012 at 10:00 am

Although parts of Staten Island, Queens, and Atlantic City that were destroyed may be essentially working class, a great deal of the property destroyed was owned by wealthy, or at least upper middle class, and politicians tend to listen to those people, the John Galts of the world, then your usual moocher and looter. And as Florida discovered, private insurers want a pretty big preminium to cover the large tail risk (fairly unlikley events that have catastrophic outcomes). By the way, Sandy was preceded by just a year by Irene, so the fact that his was “100 year,” does not mean that won’t be another next year since 2013 will have no memory of what went on in 2012. Further, the sea level in New York Harbor is about a foot higher than it was at the time of the 1938, so the effect of such storms will be greater. The barrier islands and beaches want to retreat back toward the mainland (and the mainland marshes and bays want to retreat up to the Tidewater portion of the mainland). A hundred years ago when this was mostly pasture, farms, and woodlands, it would have been just allowed to happen. But there is now a a trillion dollar investment on East Coast, and such a “property interest” creates a political interest in protecting that property, particularly the Galts who have the political power to buy such protection. So the money will be spent until the most stubborn admit defeat or drowned. http://www.google.com/images?hl=en&q=Sandy+and+Highway+12&gbv=2&gs_l=heirloom-hp.3..0i22.1308.6310.0.7043.20.19.0.0.0.0.295.2585.1j12j3.16.0…0.0…1c.1.zzjrN6gBe1Y&sa=X&oi=image_result_group

P.S. I understand that the Tea Party Republcans in the North Carolina legislature has passed a law forbidding the sea to rise. King Canute was making a wise point about the lmits of his power about his inability to control the tides. Apparently, the Galts of North Carolina and Long Island have not gotten the message. http://blogs.scientificamerican.com/plugged-in/2012/05/30/nc-makes-sea-level-rise-illegal/

athEIst November 19, 2012 at 10:11 am

Further, the sea level in New York Harbor is about a foot higher than it was at the time of the 1938.

You have a cite for that?

dan1111 November 19, 2012 at 10:18 am

I don’t have a reference for this in particular, but this is true in a number of coastal areas. Just note that it is due to sinking land in those locations rather than rising sea levels.

(I remember a hand-wringing global warming story in the NY Times, founded upon a statistic like this, which only at great length admitted the true cause of the “rising sea level” in the location they were covering).

maguro November 19, 2012 at 10:40 am

And how much of the “one foot rise” was actual sea level rise versus land subsidence?

Nick_L November 19, 2012 at 10:54 am

http://www.nytimes.com/roomfordebate/2012/11/01/should-new-york-build-sea-gates/we-must-take-rising-sea-levels-seriously

‘Over the past 100 years, data from the tide gauge at the Battery in Lower Manhattan reveal that the region has already experienced close to a foot (9 to 10 inches) of sea level rise.’

Cliff November 19, 2012 at 10:15 am

Followed your link, and not exactly. Also love your use of “Galts” for “rich people” and also “Tea Party members” rather than the definition that would make sense (people advocating leaving the country to create their own).

axa November 19, 2012 at 11:13 am

what the NYT article misses is if there are any “relative success” in history about relocating communities like Pompei, Antigua Guatemala or St Pierre (Martinique). What are the economic and political conditions that allow a community to relocate? What is the level of damage that the community needs to face to change?

From these 3 extreme cases, the lesson is that the community has to disappear almost completely. At least in Guatemala the political leader survived and took the decision. Pompei and St Pierre were not that lucky. Survivors, full of fear and grief move to other cities. Anyone knows a case in history where knowledge before a deadly event and not grief/fear had been the driver of a community relocation?

Useless & fun fact of the day: relocated to Switzerland a month ago. Just found that tsunamis DO exist here and kill people every once in a while http://www.swissinfo.ch/eng/science_technology/Swiss_underestimate_lake_tsunami_risks.html?cid=33829072

I hope it is just a poor written article and Dr. Young does not lack of ambition. He can be using fancy phrases like “first time in history” and such for changing the rebuilding paradigm. Also, Dr. Young it’s a little America-centric, the rest of the world is not that different :)

dan1111 November 19, 2012 at 11:35 am

I agree that getting people who are already in place to move is not feasible (nor would it be useful–if a house is already in place, someone might as well live in it until the next storm knocks it down). But that’s not what this is about–it’s about a policy that subsidizes people to build in disaster-prone areas in the first place.

axa November 19, 2012 at 12:28 pm

you’re right, I got lost.

it seems impossible to move a community, at least is possible to stop paying them to rebuild the place every few years.

this theoretical solution is elegant, but knowing how to decide which communities you subsidize and which one leave to oblivion is a really good question. if the world we’re full of economists, all that matter is a cost-benefit analysis of rebuilding. since not……really don’t know how to tackle this problem, maybe dutch people have answered this question before.

google says some britons are mounting a really impressive decision theater scenario. Retreat, defend or attack the sea? http://www.buildingfutures.org.uk/projects/building-futures/facing-up

The Original D November 19, 2012 at 12:00 pm

Isn’t this basically what China did many times over for the Three Gorges dam? Granted, the populations involved were not nearly as wealthy or powerful.

dan1111 November 19, 2012 at 12:12 pm

No, it basically isn’t. One is forced relocation. The other would be the government refusing to pay to rebuild a house upon the sand.

axa November 19, 2012 at 12:51 pm

it would be awesome to have reliable information to back the “no subsides policy”. By having information I don’t mean an obscure research publication from a university professor. I mean a comprehensive and easy to understand information campaign aimed to the public. After that, public policy changes can be proposed.

Nowadays, if you want to quit the subside, you’ll be labeled a heartless republican. Or if you try to launch the sea level rise risk awareness campaign and you’d be labeled a dishonest scientist. I guess many more hurricanes have to destroy homes to get this gridlock undone. Changes take time, changing is painful.

maguro November 19, 2012 at 10:42 am

Quite a tedentious characterization. Here’s the other side of the story for those interested:

http://www.liveandlocalenc.com/junk-science-floods-coastal-north-carolina/

JWatts November 19, 2012 at 11:03 am

” I understand that the Tea Party Republcans in the North Carolina legislature has passed a law forbidding the sea to rise.”

I followed your link and the data doesn’t support that interpretation. From the link:
“These rates shall only be determined using historical data, and these data shall be limited to the time period following the year 1900. Rates of seas-level rise may be extrapolated linearly. …”

They are merely limiting sea level rise to linear extrapolations which is not at all the same as claiming the legislature ” has passed a law forbidding the sea to rise”.

byomtov November 19, 2012 at 4:45 pm

Ok. They passed a law forbidding any state agency from projecting the sea will rise in any way other than the genius oceanographers in the legislature think it will.

maguro November 19, 2012 at 9:39 pm

It’s only sensible to base policy on observations rather than computer model predictions. Sea levels have been rising in a perfectly linear fashion since the last ice age and predictions of exponential, catastrophic rises are purely the creation of speculative computer models.

The fact is that you can get a computer model to give you any damn answer you want, because guess what, you control all the parameters.

enoriverbend November 19, 2012 at 11:19 am

“a law forbidding the sea to rise”

Funny, but incorrect.

The proposed NC House bill really says that if the state makes a prediction about future sea level rise, it should be based on historical evidence using a linear forecast rather than on a computer model using an exponential forecast.

Whether you agree with that approach or not, to me it is further evidence that we need to go back to having people pay for the risks they take. If you believe in catastrophic sea level rise in the near-term future, currently you might still build a seaside mansion anyway — because you will get subsidized insurance *and* probably get bailed out in addition to that. And that’s just nuts.

doctorpat November 19, 2012 at 9:06 pm

You keep saying “John Galt”

I don’t think it means what you think it means.

Foster Boondoggle November 19, 2012 at 10:32 am

And at the same time, little to none of the rebuilding funds will go to bringing our infrastructure up to developed-world standards. So we’re left with this: http://economix.blogs.nytimes.com/2012/11/16/americas-mid-20th-century-infrastructure

Americans need to get out more and see how civil society can be made to work better, instead of just reacting to every proposal for improvement by saying “Rah! America Number One! America Exceptional!”.

dan1111 November 19, 2012 at 11:38 am

That straw man never knew what hit him.

dan1111 November 19, 2012 at 12:02 pm

More substantively, the annoying thing about that blog post is that it elides legitimate policy questions by assuming the European approach to be self-evidently superior. The author thinks it a “mystery” how we can have clunky Amtrak service when in Europe the trains run on time. But really this isn’t a mystery–it is a case of differing philosophies of the role of government.

You could write the same sort of article about Europe: “It is a mystery why anyone pays $7 a gallon for gas…Why do Germans tolerate paying nearly three times as much as Americans pay for electricity?…In America, we have wide, safe roads that have lanes for cars going both ways, while Britain relies on narrow, hedge-lined 18th century infrastructure.”

Apart from prior ideological commitment, it is not so obvious that one approach is superior to the other. Both have their positives and negatives. Make a real argument to support your position rather than claiming all your opponents are jingoistic idiots.

Foster Boondoggle November 19, 2012 at 1:02 pm

It wasn’t an assumption. It was an observation. Namely, that the europeans have succeeded in building much more robust infrastructure in multiple areas – the two emphasized in Reinhardt’s post were electrical transmission and train service, but one could equally well add the flood-resistance of coastal areas, better maintenance of bridges and roads, and so on.

I took his point to be, in part, that our underinvestment in public infrastructure has been shortsighted and collectively costly. I don’t see narrow British roads and $7/gal gas to be counterevidence.

JWatts November 19, 2012 at 5:45 pm

“the two emphasized in Reinhardt’s post were electrical transmission”

Do you realize what the relative numbers are in reliability? Using Germany as an example, the US averages around 120 minutes of down time per year vs the German 20 minutes per year. So, the German electrical grid is 6 times more reliable. However, German’s spend $0.31 per kwh vs the US’s rate of $0.11 per kwh.

So, effectively your average American household would pay an additional $2,300 per year to avoid an extra 100 minutes of power loss. I think most American’s, if given the choice, would choose the money over the extra 2 hours of ‘lights on’ per year.

Willitts November 19, 2012 at 11:03 am

A few brave people ask that intelligent question every time Ol Muddy overflows his banks. These people are promptly shouted down.

So the question isn’t whether we should rebuild. The question is what manner of death we give the people who suggest we shouldn’t.

RM November 19, 2012 at 11:58 am

And Cornell is about to spend a few billion dollars building a campus on an island.

BrentR November 19, 2012 at 12:08 pm

There are exaples of abandoning disaster prone places in history.

Galveston was largely abandoned as the biggest port in Texas, and replaced by inland and more protected Houston in the early 1900s.
Indianola, Texas was abandoned in the 1800s.
Many companies that were based out of New Orleans have moved inland to Baton Rouge.

The key is the cost to relocate. Moving NYC would be pretty expensive. The value of the real estate that was destroyed is pretty high due to its proxitry to NYC.

Ed November 19, 2012 at 1:40 pm

I keep on seeing comments about “rebuilding New York City” or “relocating New York City”.

Nearly all the areas damaged by Sandy are middle class and residential areas developed essentially as suburbs after World War II. For most of New York City’s history they were pastureland and farmland. The city government dumped alot of the worst public housing cases in these areas after World War II as well.

If the post-war development was a mistake, the main issue is where these people are going to live, with the city having to get involved in the question as far as it pertains to the public housing. There are about 100,000 people living on the Rockaway peninsula. There are about 500,000 people living on Staten Island, but in “Zone A” the population is probably about the same as the Rockways.

The main problem is that New York City has a housing shortage, but if everyone who live in these areas moved to Florida, the city population would drop from 8 million to 7.7 million. While the residents of these areas don’t like it when it is pointed out, their neighborhoods are probably as marginal as you can get in terms of the overall economy and culture of the metropolitan area.

There are two exceptions to this, the hurricane affected areas of Brooklyn, and lower Manhattan. With lower Manhattan, parts of which were also built fairly recently on landfill dumped into the East and Hudson Rivers, the hurricane did cause an enormous amount of commercial damage and the planning issues are involved (though this would fall within the area protected by the barrier). The low lying areas of Brooklyn are densely populated and were developed a long time before World War II, though Coney Island was originally developed as a seaside resort and maybe it should have remained one (there is also a substantial amount of public housing in both Coney Island and Red Hook).

Most of Manhattan is not vulnerable to rising sea levels because it is on fairly high ground. Actually, if you look at settlement patterns around the country, the earliest settlements close to rivers and oceans were always on fairly high ground. The floodplains get developed after World War II. But the population has greatly increased by then, and those were the areas where you could build cheaply.

New Jersey is also a different matter. I understand that New Jersey law already limits the insurance and subsidies available for building in coastal areas.

Insight November 19, 2012 at 2:50 pm

NYT: “The federal government, despite its willingness to spend tens of billions of dollars repairing communities after storms, has not put up the kind of buyout money that might convince more owners to walk away. ”

Not despite, because. Why accept a modest buyout as long as staying means a continuous stream of subsidies?

Floccina November 19, 2012 at 3:37 pm

Well I would not only not insure people building in flood prone areas, I would sue people for the damage/pollution that their homes, cars etc. caused while washing away.

axa November 21, 2012 at 3:24 am

why development persists in coastal areas despite the threat of hurricanes? interesting opinion from “pre-climate change era”

from september 1991: http://harpers.org/blog/2012/11/harpers-finest-written-in-the-big-wind-by-bob-shacochis/

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