Katrina, Cost-Benefit Analysis, and Terrorism--Posner

The Speaker of the House of Representatives, Dennis Hastert, got into trouble, and had to apologize, for suggesting that maybe New Orleans should be abandoned rather than rebuilt. He raised a valid issue; that he got into trouble for doing so just proves the adage that, in politics, the phrase "to tell the truth" is synonymous with "to blunder." Not that it can yet be said that New Orleans should be abandoned; that conclusion could emerge only from a complex analysis. The point is rather that the analysis should be undertaken. The broader issue is the role of cost-benefit analysis in the analysis of disaster risk. In addition, the disaster to New Orleans is a timely reminder of the risk of terrorism. Because New Orleans is both below sea level and adjacent to a sea (Lake Pontchartrain is connected via another lake and a strait to the Gulf of Mexico), the city is extraordinarily vulnerable to just the sort of flooding that occurred when the levees broke as a result of Hurricane Katrina. To decide whether to rebuild or abandon the City, the cost of reconstruction, plus the expected cost of a future such disaster, should be compared to the cost of either building a new city or, what would be cheaper and faster, simply relocating the present inhabitants to existing cities, towns, etc., a solution that would require merely the construction of some additional commercial and residential facilities, plus some additional infrastructure. Of course New Orleans has great historic and sentimental value, and this should be factored into the analysis, but it should not be given conclusive weight. Perhaps it should be given little weight, since the historic portions of the city (the French Quarter and the Garden District) might be rebuilt and preserved as a tourist site, much like Colonial Williamsburg, without having to be part of a city. The decision to abandon or not cannot be left to the market. It could be if federal, state, and local government could credibly commit not to provide any financial assistance to the city’s residents, businesses, and other institutions in the event of another disaster--but government could not make such a commitment. Or if government could require the residents, businesses, etc. to buy insurance that would cover the complete costs of such a disaster. But again it could not; insurance in such an amount, to cover so uncertain a set of contingencies, could not be bought in the private market. So the decision would have to be made by government, and, ideally, it would be based on cost-benefit analysis. In such an analysis, the expected cost (that is, the cost discounted by the probability that it will actually be incurred) of a future disastrous flood would probably weigh very heavily and could easily tip the balance in favor of abandonment. The reason is only partly that constructing levees and making other improvements that would provide greater protection against the danger of flooding would be very costly (such a program was proposed in 1998 that would have cost $14 billion, according to Mark Frischetti, "They Saw It Coming," New York Times, Sept. 2, 2005, p. A23); it is also that the levees, seagates, etc. would remain highly vulnerable to terrorism. Breaches similar to those that caused the recent flood, but created without warning by terrorist bombs, would cause much greater loss of life because there would be no time to evacuate the population, whereas with the warning of the approaching hurricane 80 percent of the New Orleans population left the city before the flood. The expected cost of a terrorist attack on rebuilt levees cannot actually be calculated because the probability of such an attack cannot be estimated. But it should probably be reckoned nontrivial given the wide publicity that the vulnerability of the city to flooding has received and the fact that a port city is more vulnerable to terrorism than an inland one because terrorists approaching from the sea are less likely to be detected before they attack, since they would be spending little time on U.S. territory. (Analytical techniques for adapting cost-benefit analysis to situations in which risks cannot be estimated with any precision are discussed in Chapter 3 of my book Catastrophe: Risk and Response (2004).) Of course, massive amounts of money could be devoted to protecting the vulnerable rebuilt city from a terrorist attack, but that would be just another substantial cost that abandonment would avert. New Orleans is becoming more vulnerable not only because of the terrorist threat, but for three other reasons as well. The city is sinking because (paradoxically) flood control has prevented the Mississippi River from depositing sediment to renew the subsiding silt that the city is built on. The wetlands and barrier islands that provide some protection against the effects of hurricanes are disappearing. And global warming is expected to increase sea levels and also to increase the severity and frequency of storms--all factors that will make New Orleans more vulnerable to future floods. It might seem that if, as current estimates have it, the cost of the damage inflicted by Hurricane Katrina will prove to be "only" $100 billion, the expected cost could not have been too great, since the probability of such a flood as occurred presumably was low. But while the annual probability was low, the cumulative probability over a relatively short period, such as one or two decades, was probably quite high. Moreover, $100 billion is almost certainly a gross underestimate, because it ignores the loss of life (economists are currently using a figure of $7 million to estimate the value of life of an average American), the tremendous physical and emotional suffering of the hundreds of thousands of refugees from the flood, and the lost output of the businesses and individuals displaced by the flood. These are real social costs, as an economist reckons cost. What is not a social cost is certain purely pecuniary losses that will be made up for elsewhere in the economy; for example, the loss of convention business by New Orleans will be a gain to other cities. Another hidden cost of rebuilding rather than abandoning the city is the uncertainty concerning how much time it will take to rebuild and what the former residents will do in the meantime. If they expect to return to the city in several months, they will find it difficult to obtain remunerative employment in the meantime. For simplicity, I have assumed that the choice is between rebuilding New Orleans and abandoning it. Realistically, given politics and the typical (and on the whole commendable) American reflex refusal to accept defeat, the choice is the scale of the rebuilding. I urge that careful consideration be given to rebuilding on a considerably reduced scale from what the city was before the flood. Speaking, as I did earlier, of terrorism, an article in the Washington Post this morning (Susan B. Glasser and Josh White, "Storm Exposed Disarray: What Went Wrong," p. A1), provides support for those who claim that the slow response to the New Orleans flooding shows that the nation has not made adequate preparations for responding to a terrorist attack by means of weapons of mass destruction--a significant (though again unquantifiable) and growing danger. An attack with nuclear, radioactive, or biological weaponry could easily require the evacuation of an entire city without warning and with much greater loss of life. It seems that, four years after the 9/11 attacks, we are still not taking the threat of terrorism seriously. There are four basic counterterrorist tools: (1) Threat assessment, which means conducting cost-benefit analyses designed to identify the targets that are most vulnerable to terrorist attack, having in mind the goals of the terrorists (so far as we can determine them), the value of the target, and the cost of hardening (defending) it. (2) Hardening at least the most vulnerable targets. (3) Warning intelligence (which of course failed us on 9/11), designed to detect impending attacks. (4) Emergency response measures if an attack occurs, designed to minimize human and property damage. (1) has made little progress, in part because of political obstacles; all elected officials except the President and Vice President have geographically circumscribed constituencies and naturally resist efforts to devote proportionately more resources to defensive measures that would benefit only outsiders. (2) has made very little progress, because of cost. (3) has improved, though not as much as it should have. (See my book Preventing Surprise Attacks: Intelligence Reform in the Wake of 9/11 (2005), and my just-published monograph Remaking Domestic Intelligence (Aug. 2005).) And judging from the New Orleans disaster, (4) remains completely inadequate. One possible response would have been for the President to declare martial law and place a general who had combat experience (i.e., someone who knows how to coordinate a large number of people in circumstances of urgency and uncertainty) in command of all federal, state, local, public, private, military and civilian response agencies and personnel. The article in the Washington Post this morning that I mentioned notes the bureaucratic logjams that delayed the response; martial law would have overcome them. My idea about how to respond to such a disaster may be excessively dramatic and quite unsound; I am no expert. But ever since 9/11 it has been known that there could well be a terrorist attack utilizing weapons of mass destruction and that, if so, the correct emergency response might involve the evacuation of a city. It is disheartening to think that after four years there are still no plans, preparations, or command systems for dealing with such an eventuality.

Comments

[MikeTheBear]

How many smokers or obese people have medicaid and medicare in mind when they light up or snarf down? Is medicaid and medicare's coverage of preventable ailments analagous to federal disaster relief?

I once thought, perhaps cruelly, that anyone who had a smoking-related illness should not be illegible for Medicare/Medicaid. But I think you have a point that it would not significanlty change people's if smoking-related illnesses were not covered by Medicare/Medicaid. People like to live in denial. They think that they can always quit or lose weight "later." Suddenly, it's "later" and the damage is done. In some cases, people fail to accept responsibility altogether. The lawsuit against McDonald's was a bunch of fat people saying "it's not my fault." And if you object to the phrase "fat people," I happen to be one of them. I accept responsibility for it. I've been exercising regularly. It's hard work. Forget what the infomercials say about "10 easy minutes a day." Fortunately, I enjoy exercising. Trying to eat less is hard work. Unfortunately, I hate dieting. But I deal with it.

[Wes]

Wes argues that I overestimate the cost of rebuilding...Only that most of the money will not go to poor individuals who have the most desperate need - it is unlikely that poor people in New Orleans are going to be given the $200,000 each implied by a rebuilding cost of 100 billion for a city of 500,000).

[Wes]

The way I see it, coercion is most clearly justified when immediately necessary to protect other human beings from violence.So it have been be clearly justified to hold Bush's family hostage in order to prevent the US invasion of Iraq and protect millions in Iraq from violence at the hands of the United States? I'm not sure it really counts as pacifism but there sure would be a lot less wars if, every time some old guy tried to get young guys to commit acts of violence against human beings, the old guy's family got taken hostage until he stopped.I would say that coercion is most clearly justified when the benefits of coercion most clearly outweigh the harm. That may include specific instances of preventing violence against human beings (and imposing law and order generally) but there are also instances of violence against human beings where it is far from clear that the benefits are outweighed by the harm....destroying the regime of Saddam Hussein was a more worthwhile government endevor than making sure everyone has access to the basic necessities of life...The other day I saw someone wearing a sweatshirt with a big American flag that said something about being sympathetic to the victims of September 11th. I found myself wondering whether she also had a sweatshirt that said something about being sympathetic to the thousands of children that die every single day from inadequate nutrition.If governments use coercion and violence to impose an (economic) system where food is allocated in such a way that there are people (including young children) who starve to death then the governments (and the people who support such governments) are responsible for those deaths even if they are only killing people indirectly through starvation.Back to the topic at hand, if the US federal government had a uniform and standardized system for guaranteeing its citizens access to the basic necessities of life (rather than a hodge-podge of poorly organized federal and local government programs and private charities) it would have been much better able to help people from New Orleans.

[N.E.Hatfield]

Wes, There is an entire body of Law here in the States that covers such eventualities, it's called Martial Law. This body of Law covers everything from: who, what, when, where, why, and how.

I'm surprised that such forebearance has been shown to date by the proper authorities.

[Wes]

There is an entire body of Law here in the States that covers such eventualities, it's called Martial LawI was thinking of something more like the post office. Every town would have one in a central and prominent location but instead of dealing with mail they would provide access to things like minimal levels of food and shelter in an easily accessible standardized way.As it is, there are things like homeless shelters, battered women shelters, youth hostels (even some college dorms) and housing projects that provide shelter for people with limited resources while things like soup kitchens, subsidized meal programs and food stamp programs provide food for people with limited resources. The issue is not that the USA doesn't provide minimal food and shelter at all.The issue is that it does so only grudgingly in a disorganized and embarrassed manner. If the USA took pride in its ability to provide a minimal level of food and shelter for all its citizens and did so in an open, uniform and easily accessible manner then it would be a lot better able to cope when a lot of people got down on their luck all at once because of natural disasters.

[N.E.Hatfield]

Wes, From all the Media coverage I've seen, it doesn't look like many of these people are starving to death. Although dehydration might be a problem.

[sam]

The discussion this week is full of assertions regarding what the federal government SHOULD provide to citizens. That "should" suggests some sort of legal and/or moral imperative.

While I think the federal government should use its resources to aid disaster relief (for instance, the military, its equipment and capabilities), I am uncertain whether the federal government SHOULD help with the reconstruction at all.

My uncertainty is not based on a cost-benefit analysis. It's based on my understanding of federalism and the way I'd like to see things work (my view of federalism might simply be what I think would be the the most beneficial arrangement to the nation as a whole -- ergo, a cost-benefit analysis).

I know the circumstances are dire, but I still think it is amazing (a) how much people WANT from the federal government and (b) either how much control they are willing to cede to the federal government or how ignorant they are of the implications of GETTING from the federal government.

Put simply: I don't want the federal government paying for my town's levy because (a) it's really not that important to them and (b) they will end up with even more control over my local community.

Of course, I recognize that federal dollars are used for all sorts of "local" projects and that the US Corps of Engineers is responsible for all sorts of levies, dams, etc. It's not, however, a situation I'm happy about or wish to perpetuate. It leads to stupid, childish remarks like, "We knew the levy was inadequate, but Washington didn't give us any money to fix it."

That thinking, that casuistry, leads exactly to what happened in New Orleans.

"But, Sam," you might say, "New Orleanians, like everyone else, pay a lot of federal taxes, and they just want their piece of the pie too. It's the plight of the commoner. Why should they have to pay for their levy when the feds paid for City X's levy, and, moreover, now that their levy broke, shouldn't the feds at least help rebuild their city?"

That's simply the cynical version of the same mind-set that led to the first failure.

And, now, to politics . . .

Whatever the rhetoric, neither party favors limiting the federal government. You Republicans with your shelves full of Friedman and Hayek and Nozick, it's time for some honest self-reflection.

Wes - My previous post referenced West Germany, "a republic in north central Europe on the North Sea; established in 1949" -- so I was not speaking of "what Germany did to Europe after the USA and friends imposed democracy following WWI."

[Lauren Landsburg]

The first comment on this article, ostensibly posted by "Congresswoman Shirley Chisholm" on September 4, is obviously a false posting by someone else.

Shirley Chisholm died January 1, 2005.

[N.E.Hatfield]

Lauren, We know that. That's why no one has really responded to it. Unless, of course, she has figured out some way to come back from the grave. Much the like the Phoenix or New Orleans.
;)

[Wes]

One of the key reasons the Republican party has been increasingly successful at the national level is that people in the south have been transitioning from hating people of different ethnicities to hating people of different religions.So far, people in the south have seemed to value religious narrow-mindedness more than government competence: it's OK that the Bush administration has been so incompetent in its handling of the war in Iraq because at least it's beating on those nasty Muslims.It will be interesting to see whether people in the south still value religious narrow-mindedness more than government competence now that they have been personally affected by the Bush administration's emphasis on religious narrow-mindedness over government competence.I mean, sure let's leave humanitarian aid to poorly organized "faith" based "initiatives" while flushing hundreds of billions down the toilet beating on those nasty Muslims. Let's not even spend a fraction of those hundreds of billions on the infrastructure to deal with the situations where a lot of organized humanitarian aid is needed all at once by actual Americans.

[ben]

Wes

Your argument relies on a trade-off between expenditures on the war, and expenditure on preventing and fixing NO. But the war is being financed by debt. In the longer term, the cost of the war will be repaid through some combination of higher taxes and less government expenditure than would have otherwise occurred, but this is of no obvious conseqence to NO today.

Without short run spending constraints and no shortage of funding to fix NO (unless you think $51B won't be enough), I can't see what Iraq has to do with this topic.

Re: "those nasty Muslims", wasn't Bush explicit in saying that the attack on Iraq wasn't against Muslims but the Iraqi leadership? What reason do Southerners have to not believe him?

[Wes]

Your argument relies on a trade-off between expenditures on the war, and expenditure on preventing and fixing NO.If there is a trade off between humanitarian assistance to Americans and the war in Iraq then the Bush administration has some very messed up priorities.If, on the other hand, as you assert, the government has unlimited financial resources then the miserable failure of the Bush administration to provide humanitarian assistance to the poor people of New Orleans in the aftermath of the flooding is even more troubling because it indicates either spectacular incompetence or even hostility toward poor people on the part of the Bush administration.

[John Taupier]

Mr. Posner mentioned nothing about the WHY of New Orleans. It is there, since it is at the mouth of the Mississippi and serves the port of entry and of exit for much of the imports and imports of the entire midwest. If it is abandoned, another city will take over this job - and have much the same vulnerabilities. Second, much is made of the "below sea level" argument. Since there is so much destruction, this would be a good time to revisit the Galveston precedent. When it was damaged in a previous hurricane, the entire island that it is on was raised up. It took 11 years, but we should be able to do better today.

[Ken Judd]

If you combine your numbers with the Army Corps of Engineers estimates for a storm of this magnitude, then cost-benefit analysis strongly supports the proposition that the levee system should have been substantially upgraded. I agree that $100 billion dollars is clearly an underestimate of the costs of this hurricane. The Army Corps of Engineers says that the probability of an event of this strength is about 1/2 per cent; see the interview with General Strock at

http://www.pbs.org/newshour/bb/weather/july-dec05/strock_9-2.html.

Cost-benefit analysis says that we should be willing to spend about $500 million per year if it would prevent a $100 billion disaster with 1/2 per cent probability, an amount that would certainly justify a $14 billion dollar project.

A more detailed analysis of the probability distributions of disaster costs and probabilities is needed but I would be surprised if a substantial improvement of flood control structures was not justified in the past 40 years. I would also be shocked if the cost-benefit analysis did not say that levee work in New Orleans was a better use of money than most of the other flood control projects in the U.S.

[Derek]

Judge Posner states that the decision cannot be a free market decision. I wonder...

Let's say $75b needs to be spent either way to clean up the toxic mess that is present day New Orleans. Then, you take the other $25b, and have a vote of New Orleans citizens. They could vote to get $50,000 in cash each but be forced to live elsewhere. or they could vote to get no cash but to have New Orleans get rebuilt properly with levees that could withstand a cat 5 hurricane.
My bet is the citizens, on average, would rather be given cash to relocate, rather than have the government rebuild their city.
At least I would if my annual income were $17k.

[candi]

Bottom line! If Americans don't pay on the front end we will have to pay double on the back end.
Whatever decisions are made if they are not made during the prevention phase for the good of all mankind,everyone will have to get tripple taxed to clean up the mess of incompetent officials!
Our children to come will be born with a 1,500 dollar defict as a result of this hellbound administration. Charity begins at home and we have long neglected home and now we must pay!
Wake up and vote for the people not the dollar, not war and not injustice. The people will prevail but greed will fail.

[Thuin]

I've yet to read all comments, but those I've read so far haven't mentioned one particularity of threat-prevention as regards natural threats, and specifically flooding and its cousins: that "hardening" can often negatively affect "mitigation." Hard, nonporous control systems increase the severity of threats they fail to control, both directly (greater-scale floods, and more catastrophic, ie taking less time to peak, ones) and indirectly (greater difficulties in clearing ground, evacuating people, more dangerous ground made economically useful, etc).

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