Saturday, September 17, 2005

Still Getting It Wrong on Post-Katrina Aid

[Cross-posted on The Agitator.]

I know almost nothing about Bush's proposed "Gulf Opportunity Zone" except what's in this short MSN article (reporting on his speech Thursday). But from what I can tell, the plan gets almost everything important wrong.

Post-Katrina recovery funds should attempt to do two things: (1) help the people whose lives were disrupted by the storm and its aftermath; and (2) avoid creating incentives for more people to place themselves in the path of future disasters. As I've said before, this is a difficult needle to thread, because any aid sets a precedent for future aid. The Bush plan, however, doesn't serve either goal very well. Several aspects of the plan -- incentives for job creation, tax relief for individuals and businesses, loans and loan guarantees for projects, and homesteading of federal land -- are specifically designed to encourage economic growth in the Gulf region. This approach fails on goal (1) because the incentives are aimed at anyone who might want to settle in the region, whether they lived there before or not. And it fails on goal (2) because it encourages development of the Gulf region in preference to other areas of the country.

A sensible version of the plan would target the tax relief, loan guarantees, homesteads, etc., at displaced persons, but it would allow them to be exercised anywhere in the country. That way we would help the victims without subsidizing excessive risk-taking.

Just to be clear (because I've found that my position on this matter is frequently misinterpreted), I am not saying the Gulf region is economically undesirable and should be abandoned. It should and will be rebuilt. The question is what extent of economic activity should take place there, and how many people should live there. Subsidizing economic development in that region relative to other parts of the country causes more people and businesses reason to settle there than makes economic sense, because they are not exposed to the true cost (including risk-related costs) of their choices.


Z said...

Glen, according to your plan, if I chose now to move to and open a business in New Orleans, I would be placed at a competitive disadvantage, via higher taxes, vs my local rivals. This free market scale-tipping would be justified because it serves the greater good of discouraging me to live in this disaster prone area.

OK, then why stop at the Gulf and Katrina funds? If it is truly worthwhile to use government interference in the market to minimize risk, why not use taxation as a whole to accomplish this? East coast residents could pay hurricane taxes; you guys in CA could pay earthquake taxes, etc. In fact, we could incorporate a massive, all encompassing actuarial table into the tax code to ensure government power is used to minimize our risk to the greatest extent possible.

Seriously, I am curious as to your position in general on government market manipulations to bring about the greater good. Do you support cigarette taxes to discourage smoking, for example? How about farm subsidies, steel tariffs, or affirmative action programs? (all these programs at least purport to serve the greater good) Do you, on principle, support government market manipulations that aspire to achieve higher order societal benefits? If you support some but not others, isn't that the same principled position the politicians have? They feel free to jump into market manipulation as they see fit, which appears to align with your current position. I'm not trying to be antogonistic, I'm just curious about this aspect of libertarian thought...

Gil said...


I agree with you that the President's plan will have the problems you suggest (and more), but I don't understand why you think displaced people should get special governmental assistance if the goal is not to encourage them to rebuild New Orleans.

Why is a poor (or rich) person displaced from New Orleans a better candidate for aid than any other unfortunate person who didn't happen to be a part of a big-story-disaster?

And won't this special relief serve to subsidize the risks of future New Orleans residents anyway, because they can be confident that they'll be bailed out in the event of another similar disaster if they fail to provide for their own insurance?

Glen Whitman said...

Z -- you make some good points, but I think you misunderstand my overall message. I'm trying to *minimize* government manipulation of personal choice, not further it. But if we take it as given that some kind of post-Katrina aid will be given, then some degree of economic distortion is inevitable. I'm interested in minimizing the distortion, whereas I think Bush's plan maximizes it.

To answer your question, I do *not* support sin taxes, farm subsidies, affirmative action, etc. I also oppose subsidies that encourage people to live in disaster-prone regions. And I also oppose taxes designed to discourage living in those areas. I want to the government to adopt as neutral a stance as possible.

In this case, I'm assuming that we want to aid the Katrina victims, so I'm asking how we can do so without encouraging more people to locate in these areas. My answer is that the aid should be targeted at the actual victims, but *not* targeted at the geographic region in question. That way, Katrina victims could choose to relocate in (for example) Denver or Des Moines.

Gil -- Even if you don't think we should help the Katrina victims, I think it's politically impossible not to. My point here is that we can help the victims without encouraging them to live in the Gulf region. They could get loans and loan guarantees to build homes and businesses anywhere in the country.

And yes, you're right that any aid given will encourage locating in diaster-prone areas to some extent. I'm just asking how we can minimize that effect.

Gil said...

Alright, so what do you think is the best policy?

Do you think it would be best if the government did none of these things, but you think your proposal might be the least harmful, yet still politically feasible, option?

It's hard to tell whether you think your proposal is positively good, or just the least bad thing that we might get away with.