The Case for Small Government

A Libertarian Perspective on Economic and Social Policy

March 06, 2006

Do Not Rebuild the Levees

According to an article in today’s Washington Post, independent inspectors believe attempts underway to rebuild the New Orleans levees are using substandard materials and will thus produce a levee system weaker than the one that failed during Katrina. The Army Corps of Engineers disputes these claims but admits the levees will require ongoing reconstruction after the projected June 1 completion date and will not be able to withstand a storm the magnitude of Katrina.

The details of this dispute are not the key issue here; the fundamental problem is that government should not reconstruct the levees at all. The Katrina disaster occurred mainly because government spent billions constructing these levees in the first place; without this intervention, people would not have been living in areas well-below sea level. Repeating the initial mistake is an incredible waste of resources. More generally, government-subsidized flood insurance, and attempts by the Corps to promote human activity in areas where Mother Nature never intended, make no economic sense.

The Katrina episode illustrates well a general theme of this blog: to fix a problem, first get rid of the government intervention that caused or exacerbated the problem. Nothing can prevent hurricanes. But when governments encourage stupid behavior – living in areas below sea level – major disasters become far more likely.

84 Comments:

At 7:35 AM, Blogger Scott Cunningham said...

An argument can be made that because of the public good nature of levee infrastructure, private provision has its own problems. Can you explain what empirically (or theoretically) persuaded you that private provision was still better in this instance? Isn't this a simple public good problem?

 
At 9:10 AM, Blogger The Pedant-General in Ordinary said...

My reading is that Jeffrey suggests that there would be no such thing as private provision in this case.

Any private provider would look at it and say: "Why build below sea level?"

Private provision would therefore be a very great deal better:
- it would be precisely zero cost
- there would significantly reduced payouts from Federal Flood Insurance
- much human misery from levee failure would be avoided.

The public good is better served by building elsewhere.

But I should hate to put words into the mouth of a Harvard Professor: I've barely got over correcting a linguist at UPenn...

 
At 9:43 AM, Blogger Jeffrey Alan Miron said...

I agree with pedant-general.

The public good argument claims there is a benefit to society from building the levees but that no private agent can capture the benefits, so government needs to do it.

I question both assumptions. First, why is there a benefit? Land is not that scarce. There are zillions of places for people to live besides “below sea level.”

Second, a private group could construct levees if the economics made sense. Private groups undertake enormous projects all the time. The private group would simply need a mechanism for charging the beneficiaries of the project a price; selling off the land that is useable once levees have been constructed is an obvious approach.

The key problem with the Army Corps is that must justify its existence. It sees a “need” for dams, levees, and flood control in lots of places because the Corps' objective is to do more stuff, whether the benefits outweigh the costs or not.

 
At 11:16 AM, Blogger Mike said...

The compelling arguments I've read in favor of rebuilding the levees are that without a port in or near New Orleans, it would be far more expensive for us to ship goods from the Midwest(especially farm goods) to deep water ports. We no longer have the rail capacity to deliver these goods to ports (and rail, as cheap as it is, is still far more expensive than barges). Trucking the stuff? No way.

And if you have a port, you need a city. Otherwise, you have to pay employees oil-rig-like-wages to make up for the fact that they have to drive 2-3 hours to get a haircut or eat a pizza.

Then you end up with, at a bare minimum, a medium-sized city where there used to be a large city. The idea that this can be accomplished in or near New Orleans without at least SOME levies seems ludicrous.

 
At 11:46 AM, Anonymous Anonymous said...

So, it sounds like we've decided we need to build something at the foot of a volcano...how do we reflect the price of this fairly? If, indeed, the rest of the country requires the Port of New Orleans (reasonable to me, but of course that's without any factual knowledge at all) should we then subsidize the infrastructure and insurance needed?

But of course the key assertion, that we need the Port of New Orleans now and in the future, is unproven.

 
At 11:49 AM, Anonymous Anonymous said...

So, it sounds like we've decided we need to build something at the foot of a volcano...how do we reflect the price of this fairly? If, indeed, the rest of the country requires the Port of New Orleans (reasonable to me, but of course that's without any factual knowledge at all) should we then subsidize the infrastructure and insurance needed? Provisionally, I would say, "Yes."

The important thing here is the chall

 
At 11:49 AM, Blogger Tom C said...

So, it sounds like Mike has decided we need to build something at the foot of a volcano...how do we reflect the price of this fairly? If, indeed, the rest of the country requires the Port of New Orleans (reasonable to me, but of course that's without any factual knowledge at all) should we then subsidize the infrastructure and insurance needed? Provisionally, I would say, "Yes."

But I would challenge the assertion that we need the Port now and in the future. My sense is that most people think we need Bourbon Street, and they couldn't care less about the port...in that ccase, couldn't Disney just buy it out? It's kind of a charicature at this point anyway, no?

 
At 12:32 PM, Blogger Macneil said...

I would challenge the idea that living there was "stupid." New Orleans didn't used to be so below sea-level: much of the construction that built the city was a cause for the city to sink so low in the first place. In hind-sight we can say the construction shouldn't have happened, but it was a perfectly logical thing to do.

Large areas of New York and Boston were built on top of the ocean. If the ocean levels were to rise, would we call them stupid? No. So, I think the use of labels doesn't really help your larger point, which can exist without the name calling.

 
At 12:51 PM, Blogger Temporary Account said...

At least the levees could be provisioned primarily by a lower level of government if we decide that they are a public good.

The city of New Orleans could build levees by taxing people who wanted to live below sea level and charging fees to those who want to use the port of New Orleans. While not perfect, that option comes as close to internalizing the costs and benefits as anything else I've heard.

 
At 1:00 PM, Blogger sadgdef said...

Your argument can be taken to the ridiculous extreme: If there is no utility in rebuilding the levees in NO, then one can argue that there is no utility in having a FEMA-type government entity (well, even a COMPETENT FEMA-type government entity) because, as you say, land is not scarce and people can move out of hurricane/flood/tornado/earthquake areas. Heck, that means that there is no use for defending our country from terrorism because we all can move to somewhere safer (say, New Zealand, or even, closer to home, Canada).

 
At 1:54 PM, Blogger John Harvard said...

Prof. Miron, welcome to the blogosphere! I came here via Marginal Revolution, and it looks like your blog will be fascinating.

sadgdef, based on Prof. Miron's original post, I suspect that he would not consider the elimination of FEMA a "ridiculous extreme." What he thinks of the need for national defense is another matter, one that I hope he will blog about at some point.

mike, you suggested that a city is needed at the site of New Orleans so that port workers can be hired at less-than-oil-rig wages. Assuming this to be true, why shouldn't the cost be spread by means of price increases instead of by the government?

 
At 3:04 PM, Blogger Tom C said...

sorry for the duplication...each time I "previewed" it saved the preview.

 
At 3:09 PM, Blogger Mike said...

john harvard:

You could easily extend your argument to the very provisioning of ports themselves. There comes a point when you have to declare certain infrastructure a national responsibility, and for me, the port of New Orleans is on the national side of that line. Leaving it up to the locals would result in an incredible disruption for Mississippi barge traffic.

 
At 3:36 PM, Blogger John Harvard said...

Mike -- Congress's power to regulate commerce among the states, and the restriction on states' laying "Imposts or Duties" without the consent of Congress, both of which are provided for in Article I of the Constitution, keep Louisiana from strangling commerce. Private entrpreneurs would be free to develop or not develop a port or ports as they determined it to be cost-effective or otherwise. As long as the federal government keeps the locals from charging a rent, there's no reason to believe that the government will be any better than private enterprise at determining what port facilities, if any, are economically efficient.

 
At 3:45 PM, Blogger damisi rosemond said...

Wrong. The problem with the levees is the radical non conservative right cut the funding for the army corp. of engineers thus killing the reinforcing of the levees project along with others.

This position is pointless. We rebuild cities not debate their usefulness. The Rethugs ought to give NYC and New Orleans the money they deserve and stop giving hand outs to their golfing buddies who run major corporations.

I find it funny how people on the side of smaller government always attack projects that better the life of the average citizen but never even examine run away welfare practices that benefit the elite.

 
At 5:22 PM, Blogger Jeffrey Alan Miron said...

One theme of this blog is that many conservatives who claim to advocate small government just want big government for different purposes than liberals.

But the libertarian view is truly different: it advocates small government across the board. This blog will provide many examples to illustrate this point.

 
At 7:03 PM, Blogger Commenterlein said...

If you want to make an argument that rebuilding New Orleans, or rebuilding the levees, is not the efficient thing to do, fine. But given that there are obvious benefits to rebuilding and protecting New Orleans, you can arrive at that conclusion only by doing a thorough cost-benefit analysis. Ed Glaeser has made some efforts along these lines, and I trust you are familar with his analysis.

Simply stating that "attempts by the Corps to promote human activity in areas where Mother Nature never intended make no economic sense" is non-sense. By the same argument, the Netherlands should simply let their country be flooded by the North Sea, because nature never intended the Netherlands to exist in its current place.

 
At 8:15 PM, Blogger Al Brown said...

If you want to better understand the folly of government intervention in the environment, read Cadillac Desert. A tale of greater waste, corruption and devastation is hard to find in the US than that created by the competition between the Bureau of Reclamation and the Army Corps of Engineers.

If a project is worth building, then it is worth it for those benefiting to pay for it. When we subsidize bad choices, more bad choices are made.

We ought to pass a constitutional amendment that requires states to build their own public works. Why is this a federal responsibility? That would put an end 90% of the dumb projects right away.

I think Reagan tried with some success to make states pay a small percentage of each project. Suddenly far fewer takers.

I think we should also remember that government action made New Orleans more vulnerable to hurricanes, such as when it created the shipping lane cutting right through the protective marshes.

 
At 2:44 AM, Blogger Russell said...

Mike: you say that shipping via rail is more expensive than shipping via barge, and yet that is, if true, true only because New Orleans' existance has been subsidized.

If, say, you're an environmentalist, and you want to find out what causes the least environmental destruction, then you subsidize nothing. Every subsidy hides some kind of environmental destruction, and makes that particular kind inevitable.

 
At 2:46 AM, Blogger Russell said...

Damisi: I think you'll find that libertarians attack all kinds of subsidies: for the rich as well as the poor. But from a rational point of view, you get more of what you subsidize. Therefore we ought to subsidize the rich, eh wot?

/me ducks, cuts, and runs away from THAT discussion.

 
At 4:38 AM, Blogger Ronnie Horesh said...

Actually Russell I think you'll find Government does the rich. Check out subsidies to energy, agriculture and the transport infrastructure; all of which overwhelmingly go to the wealthiest businesses and invididuals.

 
At 8:21 AM, Blogger sarah said...

The levees are public goods and thus must be maintained by the government. People (including me) derive some benefit from living in New Orleans (whether it's the weather, historical nature of the city, the lovely homes, family tradition, etc) and are willing to pay for it. If total willingness to pay is greater than the construction of the levees, the levees should be built. But because of free rider/public good issues, private provision is not feasible.

Maybe there is a case for the state or local to provide this public good, rather than the federal, but I think it's clear that government provision is needed.

Furthermore, the fact that (as professor Miron said) there are "zillions of places to live not below sea level" is irrelevant. If people are willing to pay to live in New Orleans, and that total is greater than the cost of constructing levees, then who are we to question their preferences?

 
At 1:26 PM, Blogger James said...

Those who invoke the free rider canard:

Understand the argument you are making. The "free rider problem" is based on the behavioral assumption that if people can free ride, then they will. If you believe that, fine. That's not unrealistic.

However, it is special pleading to mix your behavioral assumptions and suppose that the government will not free ride on the taxpayers if empowered to collect taxes and engage in a massive spending program.

If you want to invoke the free rider problem to make a cost/benefit case for government action, you really ought to account for how the costs associated with the government's free riding figure into the cost/benefit analysis.

 
At 7:18 PM, Blogger sarah said...

James -

I think your criticism springs from a fundamental misunderstanding of the free rider problem. Public goods are a very real and well-documented example of a market failure, and their provision (potentially) increases efficiency and social welfare. Private organizations cannot capture the value of a public good and thus they are under-(or not at all)-provided. Even professor Miron would agree to some public goods, e.g.national defense. While it's true that the unchecked government may overtax citizens, this is not a "public good" in and of itself. Also, I would point out that the government is not unchecked in a democracy (or any form of government, for that matter), so while it may not tax optimally, it doesn't have free reign do whatever it wants.

 
At 8:07 PM, Blogger bloggerUser said...

I completely agree with you on this. I resent having my federal tax dollars spent by corrupt bureaucrats and contractors in New Orleans so that houses and businesses can be built in flood zones and then be insured by the federal government (where the losses again will come from our tax dollars).

 
At 11:07 PM, Blogger James said...

Sarah,

I understand the free rider problem just fine. What I don't understand (and what you neglect to explain) is how letting some people reallocate other people's money is automatically supposed to generate an improvement. If people can be expected to free ride whenever they can and as much as that they can, this must be as true of the reallocators as it is of the people in the initial free rider problem.

Voting may correct the problem, or it may exacerbate it. For voters to check the tendency of the government to free ride requires that now two new free rider problems be overcome in addition the the first.

Presuming that voters actually want their votes to limit free riding by the government, each voter is able to free ride on every other voter. Hence good voting is a public good and, if we are to take the free rider problem seriously, good voting will be underproduced.

Of course this presumes voters are actually concerned with limiting the ability of the government to free ride and are not distracted by other issues such as the opportunity to benefit themselves at the expense fo other voters. Voting creates another free riding opportunity, the chance for voters to free ride on the losers.

To be clear, I don't deny that free rider/public goods problems exist. I just don't buy the idea that adding in government, with its own associated free rider problems, is automatically the "socially optimal" solution to free rider problems or even an improvement.

 
At 3:03 PM, Anonymous Anonymous said...

To those who talk about public goods: A port is used by people who ship out things. They can do their shipping if and only if the owner of the port allows them to. The value of using a port is whatever the users are willing to pay for that permission.

It is profitable for a private firm to operate a port and build a levée system if and only if they can get payed more than their costs. But what they can get payed is exactly the value of using the port. So it is profitable for the owner of the port to build the levées if and only if the value of using it is greater than the cost of building. I can see no public good here...

As for you in NO who want to stay there but intend to free ride: Well, that benefit obviously only goes to those living in NO, so the tax to subidise (not pay in full, see above) the levée should be levied only on those who live in New Orleans. So it should be a local tax, which is best decided on by the local authorities. Anything else is just an attempt to make others give you a free lunch.

 
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