My $200,000 Katrina relief plan.

How the dismal science applies to your life.
Sept. 22 2005 7:17 AM

Hurricane Relief? Or a $200,000 Check?

I'd take the check, and so would most of Katrina's victims.

Before we spend $200 billion on New Orleans disaster relief, can we just pause for about three seconds, please? That should be long enough to divide one number by another. The numbers I have in mind are, on the one hand, $200 billion, and, on the other hand, 1 million people—the prestorm population of the New Orleans area, broadly defined.

Two-hundred billion divided by 1 million is 200,000. For the cost of reconstructing New Orleans, the government could simply give $200,000 to every resident of the region—that's $800,000 for a family of four. Given a choice, which do you think the people down there would prefer?

I'm guessing most of them would take the cash. I can't prove that, but I think I can make it plausible: If your city were demolished, would you prefer to have it rebuilt—with someone else making all the decisions about how it gets rebuilt—or would you prefer to collect $800,000 in cash and move your family elsewhere? I've asked a lot of people this question during the last week, and, according to my informal unscientific survey, pretty much everyone would take the money and run.

One reason my survey is unscientific is that most of the people I've asked are middle-class. I'm guessing that for the very poor, a big cash handout would be even more tempting.

Even after paying out all that cash, there would still be some tidying up to do, like rebuilding the interstates—but that accounts for a small fraction of the projected $200 billion. A lot of the other funds are earmarked for rebuilding infrastructure that's local to New Orleans. But if you hand out big buckets of cash, most of that rebuilding is no longer necessary—some families will leave the area, and the ones that remain can, if they wish, tax themselves to re-create urban amenities—just as people do anywhere else.

It's expensive to rebuild the levees. If enough newly enriched people choose to remain, there's enough of a tax base to do the job—and if too few remain, then rebuilding the levees would be a bad investment anyway. Yes, New Orleans is a critical port, and yes, there has to be a local population to maintain that port. But it doesn't follow that there has to be an urban area of 1 million people.

At any rate, it's not clear that any form of disaster relief is such a great deal for the people who live in places like New Orleans. I explained why in this space a couple of weeks ago: The prospect of relief from future disasters raises housing prices in disaster-prone areas. That's bad for people who prefer more risk in exchange for cheaper housing.

Many readers wrote to ask: "What about the poor, who have no choice about where to live?" Apparently none of these readers has noticed that the images we've seen on television for the last two weeks are mostly of poor people. It is precisely the poor who benefit most from the opportunity to live cheaply in high-risk areas. Even within New Orleans, it was mostly the rich who opted for the high ground and the poor who lived below sea level. Why? Because it's cheaper below sea level. But not as cheap as it would be in a world without federal disaster assistance.

If your concern is that people shouldn't be so poor in the first place, my response is that you don't have to wait for a flood to raise that issue. The specific flood-related policy question is this: Given the population of poor people, do we make them, on net, better or worse off when we give them disaster relief (which is good) and simultaneously raise their housing costs (which is bad)? The refusal to engage that question is, it seems to me, nothing short of a declaration of indifference to what actually benefits the poor.

You might say that what we really owe the poor is disaster assistance and affordable housing. You might as well say that we owe them all magical pink unicorns that produce an unlimited supply of milk. It is quite simply impossible to guarantee assistance to people living on a flood plain without affecting their housing costs. And it is quite simply unserious to declare your commitment to poor people without pausing to ask whether your pet program does poor people more harm than good.

We probably shouldn't spend this kind of money on New Orleans. But given that we will, it at least makes sense to target it in a way that does the most good for the most afflicted—and that, I suspect, is to hand out cash. The current policy seems to be more along the lines of "Ready! Fire! Aim!"

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