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, and note I have placed a similar post at MarginalRevolution.com (with separate comments), Eugene has suggested I do some selective cross-posting.
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