The resettlement economics of Houston
"As tragic as it is for New Orleans, it is a boon for Houston." True? Are "broken windows" good for Houston? I tally the following gains and losses:
1. Sellers with price greater than marginal cost will receive more profits. Here is one story on the Houston business boom.
2. Some disaster relief money will flow to the city.
3. Business relocation will sustain the urban real estate market.
4. Some new talent will seek to agglomerate in Houston rather than New Orleans.
5. Short-term nominal demand in Houston will rise, although this could be either a benefit or cost.
1. Local taxes will rise to pay for shelters and the like.
2. Hotels, sports stadiums, and other public facilities will experience crowding.
3. Refugee issues will move to center stage; this will command political attention and perhaps creative divisiveness, hindering potential improvements.
Two historical examples: The fall of the Berlin Wall brought a temporary boom to West Germany but overall has not proved an economic blessing for the West. The initial demand shock was positive, but the new assets and resources did not prove complementary to the old. Second, the Mariel Boatlift dumped many Cuban refugees into Florida but wages and employment did not suffer. That suggests that the Houston poor will not suffer much from new competition.
I usually see economies of agglomeration as outweighing costs of congestion; I am even a fan of 20 million-plus population mega-cities, such as Sao Paulo or Mexico City. But as the German example shows, complementarity is key. You gain by working or living next to other people, but the spatial concentration of talent and assets should be guided by market prices and the pieces must be fitted together gradually, with some trial and error reshuffling.
The bottom line? Both the costs and benefits of resettlement will be overstated by partisans. The Houston boom won’t last long, and the costs will net out to put the city in a roughly break-even position.