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‚Äôs 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.