A short recent history of FEMA

Courtesy of Kevin Drum, read the whole thing.  Hindsight is easy, but what should FEMA be doing?

My view is the following.  Many levees are genuine public goods, and should receive government support, from the federal government (e.g., Army Corp; here is a brief history of their involvement) if need be although perhaps not ideally.  FEMA should not be in the business of flood insurance, nor should FEMA reimburse local governments for snow plowing.  Here is a Cato critique of FEMA.  Here is a libertarian article on why a limited governmental response to the Chicago fire was best.  Here is another libertarian critique.  Here is an AEI article that FEMA invests too much in earthquake safety.  Here is an argument that FEMA should not have been made part of the Department of Homeland Security.

Here is a recent piece on cuts to levee subsidies; the news will hurt the Republicans.  Here is a short piece on how revenue from airport privatization could have been used to shore up New Orleans levees.

Libertarian readers, do you care to argue the levee should not have been subsidized?  Do you favor real privatization, not as a Port Authority or Federal Reserve may be private, but in the true market sense?  (Here is a short history of the Louisiana levee authorities; their status has evolved over time.)  If you take that position, you have a few alternatives:

1. We rely too much on unreliable levees, and privatization/non-subsidization would reveal their true social costs and induce people to move elsewhere.

2. A privatized, non-subsidized levee would engage in a successful long-term contract with city residents; see the Demsetz-Williamson debate.  The government still would have to force residents to make the relevant tax payments, for free rider reasons.

3. A levee contract could be written without use of coercive taxation; see this piece on assurance contracts.

4. A private levee authority would invest in water safety out of fear of being sued.  Furthermore these ex post legal incentives would be reliable and would not involve more government intervention than ex ante regulatory incentives.

5. A private levee authority would be forced by its insurance company to build good protection and also hold huge capital reserves.  Their cost of capital and costs of production would remain lower than the government’s.  You can hold this position in conjunction with #3, or believe that coercive taxation would remain necessary.  But in any case it probably requires reliance on #4.

I am not willing to defend any of these five positions, but what do you say readers?  The current government system, obviously, does not have a sterling record.  Comments are open.


#6, The levees should never have been built in the first place, this is a nanny state solution. A rational solution would be to have the residents move from the area, they could be spending their money on more productive activities than holding the sea back.
(I don't actually agree with this position, just that it might be considered a valid position)


Would you give more consideration to #6 in light of the ability of terrorists to bomb the walls of the levee? I wonder if the levees in the Netherlands are heavily guarded, considering that one-quarter of the country is below sea level. Does it still make sense to put large populations in proximity to disaster given the risk posed by humans in addition to hurricanes?


Levees are a natural monopoly, non-excludable and non-depleting. How could you argue that they're not a public good? That's the very definition of the term!

I favor option 1. The reason is that privatization of flood control would incentivize generation of the most cost effective solution to flooding and storm problems. New Orleans exists because it is the ideal site for transshipment of goods from the inland transportation sytem to oceangoing vessels and because of its proximity to oil producing offshore areas. I think that a possible alternative to construction of levees could be the construction of a city that is built above the water on stilts similar to the structure of oil rigs except on a larger scale. I think this is technologically feasible now, and if the businesses that benefit from operating in NO were required to cover the costs of this they would pass on those costs to the markets through price changes and thus said costs would be distributed more efficiently than through government based subsidies.

New Orleans would come to resemble Manhattan in that the city would grow vertically rather than horizontally.

"New Orleans exists because it is the ideal site for transshipment of goods from the inland transportation sytem to oceangoing vessels and because of its proximity to oil producing offshore areas."

If this is important, is it affected by the fact that it remains in this desirable position only as a result of lots of upstream "engineering" of the river? The Mississippi would like to change course above Baton Rouge and flow down the Atchafalaya, entering the Gulf a hundred miles or so to the west. Who should be paying the Corps of Engineers bill for maintaining the river in its current course?

This is a role for government (that is, to protect the natural and man made levees, or to relocate if such protection is too costly).

That the government failed doesn't necessarily mean we need to go to the free market. It just means we had bad laws in place. The problems with relying on the government is that if your laws aren't good enough you need to then rely on personal heroics. That's a problem, because you won't always get the personal heroics, despite the high degree of acumen required to become an elected official.

This current government was more interested in tax cutting and starting war than it was in dotting all of its i's and crossing all of its t's. It's been a time when personal heroics (for example, read Richard Clarke's book and how Clinton and Gore always went the extra mile) are down and government incompetence is up. Perhaps this miserable failure is ultimately a good thing, because we well get better laws in place, so that it won't matter so drastically who is in office.

Number 4 is interesting because it shows the role our tort system plays in the free market. Those looking to weaken our tort system, however flawed it might be, fail to recognize this role and thus threaten to make us all poorer.

in these speculations there's a tendency to have a fantasy quality about the nature of risk, etc. in principle, the expected cost is probability times danger, so if the cost of a preventive measure is less than the expected cost, the preventive measure will be taken.
but what about when the danger is infinite but the actor's resources are finite? in such a circumstance, any ameliorative action is pointless because once the event happens the actor will be wiped out. for instance, imagine if absent preparation 100% of the city would be destroyed and with preparation only 10% would be destroyed. the costs of that 10% would still be so massive as to bankrupt almost any actor, especially when you imagine a few good trial lawyers getting in on it (think vioxx, asbestos, etc). in such a scenario it's not rational for the super-landlord to make preparations unless the super landlord is truly huge, at which case you're really just talking about the state.
as for the argument that levees are unitary, etc, not quite. you could have a set of back-up levees protecting neighborhoods within the city, you could condemn low ground property for use as a flood plain, etc.

bc, one reason it may be rational for government not to raise the levees is that no one in government is an owner of the property in question; at best, they are temporary caretakers.

Assume you have just been elected President and you expect to serve eight years. There is a 12.5% chance the hurricane will strike during your term - and let's be generous and say you estimate a 10% chance that political fallout from government mishandling of the levee situation will result in a signficant negative impact on your political career. Thus in making your decisions, you will discount that negative impact by 1/80.

On the other side of the tradeoff is the amount of spending it takes to upgrade the levee. Even assuming that the marginal alternative spending decision only has a small positive impact on your political career, there is no reason to discount that impact for the probability that it will occur, and there is little reason to discount it out of fear that its political benefit will not accrue directly to your career (a politician successful enough to achieve the Presidency is an expert at choosing spending projects that benefit his career). Therefore that small positive impact of the marginal alternative spending is not significantly discounted - and thus its benefits to you may outweigh the heavily discounted disaster-avoidance spending.

Isn't our New Orleans problem simply a smaller scale/version of the Netherlands problem? Shouldn't any solution involve an analysis of their Deltaweken solution -- which had a goal ..."to reduce the risk of flooding in Holland to once per 10,000 years."

If their experience is any guide, it seems feasible to successfully design, finance and construct this type of project.

In the 1800's levees were private projects built by companies established by landowners in the area. Overtime they became government institutions probably because of free-rider problems. Just on principle then, private levee systems could work because they have in the past.

I think the question might be, would a private system maintain the levees more reliably than a government one. It would be easy to see that a levee maintained by the insurance companies that insure the property protected by the levee would work well. Certainly, they would do a better job than corrupt political system which is what Louisiana has now.

Where are the free markets in all of this? Everyone was expected to devise their own way out of the disaster area by private means, just as the free market dictates, just like people do when disaster hits free-market Third World countries.

It is a beautiful thing this free market in which every individual pursues his or her own personal interests and thereby effects an optimal outcome for the entire society. This is the way the invisible hand works its wonders.

The free market played a role in other ways. Bush's agenda is to cut government services to the bone and make people rely on the private sector for the things they might need. So he sliced $71.2 million from the budget of the New Orleans Corps of Engineers, a 44 percent reduction. Plans to fortify New Orleans levees and upgrade the system of pumping out water had to be shelved.

Levees are more than earthen mounds holding back water- they are the best real estate in town.

Many industries need to be on the water. High end residences are desirable on the water.

So a private solution to this problem is to sell the perimeter of New Orleans to a developer who can then develop the levee real estate, probablly using land leases, in a way that makes sure that each user's leasehold is protected with the positive externality that everything "in the bowl" is then protected. The levees would tend to be very large, because that means more premium real estate- they would extend as far away from the water as the economic benefit of the location would allow.

The users of the premium levee real estate would end up paying very high rents for their premium property. Every levee user has incentive to protect their piece of levee for their own benefit. Everyone else gets the free ride of flood protection.

I wouldn't be so sure the funding cuts will hurt Republicans only. From the NYT editorial page, April 13 2005 :


Anyone who cares about responsible budgeting and the health of America's rivers and wetlands should pay attention to a bill now before the Senate Committee on Environment and Public Works. The bill would shovel $17 billion at the Army Corps of Engineers for flood control and other water-related projects -- this at a time when President Bush is asking for major cuts in Medicaid and other important domestic programs. Among these projects is a $2.7 billion boondoggle on the Mississippi River that has twice flunked inspection by the National Academy of Sciences.

The Government Accountability Office and other watchdogs accuse the corps of routinely inflating the economic benefits of its projects. And environmentalists blame it for turning free-flowing rivers into lifeless canals and destroying millions of acres of wetlands -- usually in the name of flood control and navigation but mostly to satisfy Congress's appetite for pork.

This is a bad piece of legislation.In other words, this could also bite who value the birds and the grass more than people; we can see what happens when we grant them their delusions to save some dollars.

Re. insurance companies and levee maintainence, this is a non-starter.

Insurance companies have an incentive to reduce risk only after a policy has incepted. However, since most policies only last one year (life insurance is a rare exception), that is the relevant time scale for an insurer. Plainly this is not long enough to justify anything but the most limited anti-flooding measures.


How big is the river in the Netherlands? How much activity in the port? How often to Cat 3+ hurricanes blow through?

I have serious questions about how one might devise locks that could handle the Mississippi, both with respect to commercial traffic, and with respect to water flow.

There is also the desire to preserve the swamp. The implementation of a canal system would pretty well eliminate the swamp. I think this is inevidable--the river is going to change course eventually--but it is a significant political question.

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