Comment on Federalism, Economics, and Katrina-BECKER

Posner gives good arguments why the federal government has important advantages in fighting emergencies, like the recent devastating hurricanes, that wreak havoc over a broad area that involves several cities and states. But bigger and centralized governments are also more bureaucratic, and respond slowly and erratically. Surely, the local government of New York City responded faster to the 9/11 terrorist attack than did the Federal government, even though New York’s response could also be criticized. None of the governments responded quickly or effectively during the Katrina emergency, even ignoring the lack of preparation for the overwhelming of the New Orleans levee system by a powerful hurricane. Fortunately, since there was advance notice of Katrina’s destructive path, most of the vulnerable population evacuated their homes and businesses, and took other protective measures. While I agree with Posner's general discussion of the different advantages and disadvantages of local and centralized authority, I still have a strong preference toward decentralized authority whenever that is possible. One reason is that local governments have a better feel for the special needs of its own population than a distant central authority can ever have. A second important consideration is that individuals can move from one locality or state to another in search of better schools and other public services. This is an enormous advantage that can never be duplicated when power and decision-making are centralized. Competition among states and cities within a country puts considerable pressure on lagging state and local governments because people vote with their feet. They move where there are education and other services that better meet their needs. Unfortunately, this type of competition works well only for individuals and families that are reasonably well informed about alternatives elsewhere, and who have the resources and inner energy to take the large and risky step of moving to a possibly better and often distant location. Most richer and better-educated persons can do this, but many studies demonstrate that poorly educated persons are far less likely to move across cities and states than are the more highly educated. The population that remained in New Orleans during Katrina and who suffered the most had low incomes and education. This is not surprising since the low educated, as I just indicated, are usually less likely to move to take advantage of better opportunities elsewhere. Many do not own cars, and have to take public transportation, and they must find places to go. But without minimizing the importance of these considerations I want to emphasize another factor at work in the Katrina episode that contributed to the particularly heavy suffering of persons at the bottom end of the income and education distribution. Governments at all levels-federal, state, and local-simply failed to take decisive and appropriate actions to meet the emergency brought on by Katrina. So families were mainly left to their own devices, and most of them had enough initiative to take as effective action as was possible. Of course, they could not do everything since their homes and shops were in place and often had to be abandoned. The poor were hurt most by the government's failure partly for the reasons just indicated, and partly because they have become heavily dependent on governments to take care of them. This "dependency culture" created and nurtured perhaps unintentionally by welfare, Medicaid, and other government programs saps initiative and energy, and greatly weakens the habit of making one's own decisions. Dependency on government is especially devastating in serious emergencies, such as that caused by Katrina, when governments fail to take quick and appropriate actions. It may be best to give the Federal government responsibility for meeting emergencies that cast a wide net over a large area encompassing many localities and states. But each emergency is somewhat different, and it is hard to believe that even after large and numerous investigations of each failure, a large bureaucracy like the Federal government is likely to take fast, effective, and decisive actions. This is one important and usually overlooked reason to reform transfer programs and legislation to help the poor so that they have much greater responsibility in organizing and managing their lives. They need to be induced to look for private housing as well as jobs, and to be held responsible for bad decisions rather than being excused because they are "victims". Such changes in these programs for the poor will probably not make governmental responses to emergencies any better. Yet they could significantly reduce the enormous damage done from catastrophic events to families who can least afford further losses. These families will respond quicker and more successfully to catastrophes if they are more accustomed to taking care of themselves.

Comments

[Lenin]

Becker says them poor folks "need ... to be held responsible for bad decisions rather than being excused because they are 'victims'."

Thus spoke the rich white man. In his libertarian fantasy there will be no victims any more, just winners and losers.

He seems not to have heard of the Welfare Reform Act of 1996. Though aid for the poor has been slashed, he still rails against "welfare, Medicaid, and other government programs." If we just did away with all these programs the poor would become self-reliant--or if they didn't, we could hold them responsible for their bad decisions.

Now hear this, you libertarians: the poor you see in this land are not the product of government largesse; that's a joke. They are the children of capitalism. It is time for you to take some responsibility yourselves.

Becker, your code words can't conceal the racism.

[milty]

the free-market system of the u.s has ushered in an era of prosperity and growth unprecedented in human history. so.....youre wrong.

[Blar]

Is there any rigorously gathered empirical evidence in favor of the dependency hypothesis? This hypothesis is that people who receive benefits from government programs like Medicaid and welfare develop generalized deficits in initiative, energy, and independent decision-making, and that these generalized deficits make them less effective at dealing with situations where independent action would be beneficial, such as Katrina. Are there experimental studies, or correlational studies, or even observational or anthropological studies that support this hypothesis?

I am generally uncomfortable with vague talk about a government-produced "culture of dependency", partly because the people who like to talk about it tend to have little first-hand experience with the supposedly dependent people, and partly because the mechanisms underlying the creation of dependency and its negative consequences are unclear. If anyone can recommend a carefully researched study of the dependency hypothesis, or a book based on such studies, then I'd like to read it.

[monkyboy]

Considering the fact that China's economy has been growing 3 times faster than ours over the last decade, I would hardly say the U.S. free-market sytem has "ushered in an era of prosperity and growth unprecedented in human history," milty.

In fact, much of U.S. prosperity these days is due to the fact that China lends us some of its excess capital.

Economists always argue for free trade, but none of them seem to have an answer to the proplem of rising real estate prices, medical costs and fuel prices. We seem to be trading away high-paying jobs just so wealthy Americans can by cheap cloths and plastic lawn furniture from China...

[Matt Canavan]

Both Posner and Becker concentrated on either the Federal or State Governments coordinating an emergency response. But there is a third possibility: a private response. If neither government guaranteed to respond in an emergency, then individuals themselves would be left with making their own arrangements. Would this be such a bad thing? I'm not an expect in disasters but there did not seem to be any obvious market failures in the response to Hurricane Katrina. Individuals were largely responsible for their own departure and also for gaining insurance for their own property (although here the government provision of flood insurance appears to have complicated matters for insurers and the insured). The benefits (and costs) of individuals' departure or insurance appeared private and there was plenty of information regarding the danger of the hurricane. All in all the market (on its own) would have delivered a decent response and indeed private organisations (such as Wal-Mart) seemed to be the only ones providing timely intervention.

[Matt Canavan]

Both Posner and Becker concentrated on either the Federal or State Governments coordinating an emergency response. But there is a third possibility: a private response. If neither government guaranteed to respond in an emergency, then individuals themselves would be left with making their own arrangements. Would this be such a bad thing? I'm not an expect in disasters but there did not seem to be any obvious market failures in the response to Hurricane Katrina. Individuals were largely responsible for their own departure and also for gaining insurance for their own property (although here the government provision of flood insurance appears to have complicated matters for insurers and the insured). The benefits (and costs) of individuals' departure or insurance appeared private and there was plenty of information regarding the danger of the hurricane. All in all the market (on its own) would have delivered a decent response and indeed private organisations (such as Wal-Mart) seemed to be the only ones providing timely intervention.

[Anonymous]

monkyboy,
if you knew anything about economics, you would know that the u.s GDP per capita still remains the highest in the world. whether china is selling excess capital i really cant dispute, but i will say that i am not surprised because of the mass achievements we have witnessed in productivity growth-americans can produce more with less because our humans and capital are more efficient. duh!

[milty]

first of all, chinese are more freer than they used to be. they can raise capital, and foreigners can invest their money in enterprises, which has created their economic boom. the excess capital means they are investing here and is a good thing.

[monkyboy]

I do know a few things about economics, Anon:

1. Predict current trends will continue
2. Predict current trends will change
3. Find a period in history where data is similar, and predict trends will follow historical patterns

Did I miss anything? Get a three-sided dice and you too can be an economist!

So Dr. Becker thinks that even though government built satellites warned of the approaching hurricane and those who were able to fled from it on government built roads, people shouldn't expect help from the government?

A single C-5A could have air-dropped enough food and water for those who remained in NO to live on for a week. Of course, that would mean that a tiny fraction of the $100+ billion we've spent so far on "Homeland security" was spent on having a single plane, loaded with food and water, always on standby...

Perhaps Dr. Becker could drop the tired song about the poor and spend a little time on the economics of government cronyism and corruption. It's a pretty hot topic in China these days...

[albatross]

I can see the point of the "culture of dependency" comment, but I don't think it's just based on government dependency. Some people can't take care of themselves--they're too old, or too sick, or mentally ill, or not very bright, or they have more kids than they can handle, or whatever. We're not going to let those people starve. If there weren't federal and state programs to take care of them, there would be someone helping them--maybe doing a better job, maybe worse.

That's a set of people who can't take care of themselves in normal times. It's insane to expect them to take care of themselves in much more difficult times of disaster. So whoever they're dependent on needs to make plans for getting them through the disaster.

[albatross]

I find it really interesting how many people seem to look at the utterly botched handling of Katrina in New Orleans, and find a way to read the lesson they wanted to read out of it.

a. Some people want to say that the feds should be responsible for handling this kind of disaster. Yet we've just seen an example of a truly awful federal response to a disaster, which ought to make you wonder why you expect the response to normally be better.

b. Some people want to say that the local and state authorities should be responsible. But we've also just seen an example of a botched local response.

I'd like to propose that one reason to have both levels partly responsible is that when only one is incompetent, the other may be able to step in. In this case, that didn't happen because both levels (all three levels, really) were incompetent. Then the burden fell on individuals; if you were smart and prepared enough to get out, you got out, and "only" lost your home and lots of money and maybe your job, community, and school. Otherwise, you also rode out a genuinely horrible situation while the authorities either did nothing or made things worse (like turning away Red Cross workers from the shelters inside New Orleans).

[Wes]

Surely, the local government of New York City responded faster to the 9/11 terrorist attack than did the Federal government, even though New York’s response could also be criticized.If a "Federal Fire Department" had stepped in and put out the fires in the World Trade Center, or even just rescued the people who were trapped on the upper levels, I don't think very many people would have objected.While the New York City fire department could make the rather weak excuse that they lacked the resources to either put out major fires in the large buildings of New York City or even just the resources to rescue people from those large buildings, if the US federal government can afford to spend hundreds of billions in Iraq, then they certainly can afford the resources to put out fires in large buildings in the United States.

[AMac]

I love the commentary. I think the important thing about big Gov is that it should be prepared for every contingency that may occur in any aspect of life in any town, county, state or region. Basically, I believe that the feds should not have allowed the towers to be built because they were too tall; and they should not allow anyone to live below sea level because if a hurricane hits they will be under water. Isn't it more logical to prevent all these catastrophes instead of being a safety net after the fact . . . I would love to see the Trumps of the world go nuts because the Feds told them their buildings were too tall, wide, short, thin . . . thus too dangerous . . . plus the riots that would have happened when the army marches into remove all citizens living below sea level (in both poor and rich areas). Govs large or small are not a safety net for every permutation of natural and/ or unnatural disaster. The problem with these issues is when something happens (statistically once a century or millennia) we press the fed or the local gov to buy a 747 to cross the street. That is the reason the Army buys $10,000 hammers . . . and is also the main reason that we are in Iraq. Everyone wanted to go into Iraq (and I mean everyone) to make sure 9/11 never happened again. The great preemptive strike . . .

We can prevent everything and we can?t prepare for everything but lessons can be learned. Sadly people would rather blame than learn. It the 9/11 commission 3 years to create a doc which criticized everyone for not working together and seeing all the signs of impeding doom . . . it took 3 years to figure that out so how could anyone have done it in real time . . . Same with Katrina, everyone screwed up . . . but wait the death total was 10% the estimate (not great but way better than thought to be) and dear god maybe they handled Houston better . . . oh but that was a small one . . . so Bush got lucky.

[Goodbye Lenin]

Lenin,

Why is a communist fantasy any more desirable?

Also, this is a disagreement about how to better respond to natural disasters; racism is something much different. Calling someone a racist for their comments on a blog is like me comparing you to Stalin, without having met you, based on the name you've chosen to post with.

monkyboy,

A possible explanation (but not the only one) for rising real estate prices is that city governments, in an attempt to control growth, do not allow developers to meet demand by regulating building permits. The result is higher prices for the available real estate. I'm sure there is something more to this debate though; it might be an interesting blog topic.

Another point: "We seem to be trading away high-paying jobs just so wealthy Americans can by cheap cloths and plastic lawn furniture from China."

But this is not the only thing that is happening, as you said, it's a tradeoff. All Americans are enjoying lower prices. Additionally, the higher paying jobs are going to people in poorer countries, helping, to some extent, to decrease world income inequality.

[monkyboy]

I agree, Goodbye, that all Americans are enjoying lower prices, but some Americans lost their jobs to get them. It's kind of a Problem of the Commons in reverse. Everyone gains a little and a few pay the price.

I think you could divide American workers into three catergories:

1. Those who never had a good paying job
2. Those who lost a good paying job to overseas competition
3. Those who will eventually lose their good paying job to overseas competition

For every American doctor, lawyer, CEO, lobbyist, professor, etc., there are 100 Chinese or Indian workers who could do their job just as well or better for a tenth of the cost. They are safe only because the mechanism to replace them hasn't been put in place yet. Up until they are replaced by low-cost foreigners, they will fight to keep out the competition while selling everyone else out they can.

Call it a "Titanic Lifeboat" economy. Keep working at your high-paying job, keep spouting "they shoulda gone to Harvard" rhetoric about the poor like Dr. Becker, and try to save $5-10 million before you're dragged out of your cushy sinecure...you'll be fine when the ship goes down.

[ben]

monkyboy

Surely you are joking. How does your theory fit with the facts that in the last thirty years trade has expanded considerably, real American incomes are higher, the labor force is larger, and unemployment is lower? Trade has caused a change in the mix of jobs in this economy, which naturally involves job losses in some sectors and job creation in others. Since unemployment is lower and the labor force is larger, jobs created outweigh those lost. So what possible point is served by counting only the losses?

The idea that foreign workers are substitutes for a large fraction of American workers is wrong. Wolf (2004) responds directly to your claim: "Start then with those overwhelmingly competitive Chinese workers. It is true that, on average, a worker in Chinese manufacturing cost only $730, annually, between 1995 and 1999, while a German worker cost $35,000, an American one $29,000 and a British one $24,000. Is it then not perfectly evident that German, American and British wages will be driven down to Chinese level? It is not merely not obvious; it is untrue. Chinese labour is cheap because it is unproductive: If an American worker produces $81,000 dollars of value added annually, a German worker $80,000 and a British worker $55,000, while a Chinese worker produces only $2,900, it is not at all difficult for the workers of the high-income countries to compete, even if their wages are vastly higher."

[monkyboy]

Let's look back 60 years ago, ben. America emerges almost unscathed from WWII with trillions of dollars worth of government supplied industrial capacity ready to switch from wartime production to commercial use. Where were our major competitors?

1. Japan - Destroyed infrastructure, millions dead, occupied by U.S.
2. Germany - Destroyed infrastructure, millions dead, occupied by the allies
3. China - Destroyed infrastructure, millions dead, about to endure a bloody civil war that ends in Communist rule
4. Russia - Destroyed infrastructure, tens of millions dead, ruled by Stalin!
5 India - A British colony, about to undergo a bloody struggle for democracy

America started the post-war industrial race with a huge headstart. That lead is almost squandered.

Productivity comes from capital. Last year, Chinese workers saved $1.5 trillion out of their meager paychecks, enough to buy 10% of every single public company in America. American workers in the same period saved...zero dollars. In fact, we had to borrow from the Chinese to buy Chinese output.

Ten years from now, China's economy will pass the U.S. economy in size. The U.S. will owe trillions to China, and China will own every U.S. company worth owning.

To help displaced workers here in the U.S., we should just get globalization over as fast as possible. Free visas to any foreign worker who can replace any U.S. worker making over $100,000 a year would be a nice start.

[ben]

monkyboy

Real income per head in America currently exceeds that in Europe by about 30%. Far from being squandered, this gap is growing. Clearly, America's lead has sources other than the lack of a recent war on its turf.

You correctly point out that capital is one driver of productivity. But whether that capital is financed by savings or borrowing is irrelevant to the effect of that capital on worker productivity. So Chinese savings rates is a complete red herring here.

Being surrounded by capital is only one driver of worker productivity. Things like education and management experience matter. These are in relatively limited supply in developing countries. So I doubt your plan to expand the supply of workers for highly paid US positions will work.

[Anonymous]

also, capital can become more efficient, as well.

it's also worth noting that any growing economy will have structural unemployment-which is to say that certain skills become obsolete because the way our economy produces goods is changing. namely, we are becoming more of a service oriented economy as opposed to a manufacturing one. While it sucks for those who are marginalized by growth, it is necessary for long term growth.

[monkyboy]

High productivity is nice, ben, but it's not everything. Theoretically, you could have a single worker making $9 trillion a year. Even though the U.S. has a higher per capita income than Europe, we have four times the number of children living in poverty out of roughly equal total populations.

I don't think anyone would say the U.S. has a better education system than any other wealthy country.

As for management experience, does anyone really think Steve Balmer is doing a good job at Microsoft? Should Rupert Murdoch get to anoint one of his offspring to head a public U.S. company? Should the managers of Delphi get tens of millions of dollars for sticking taxpayers with that companys' underfunded pensions? It's pretty obvious American CEOs don't aren't worth the money they get.

The U.S. workforce is split between those who have to compete against foreigners for wages and those who don't. This situation won't last for long. Either the shielded workers should be taxed down to the income their Chinese and Indian counterparts get, or the barriers that keep their foreign counterparts out of the U.S. should be removed...

[ben]

monkyboy

I'll ignore the first three paragraphs of your last response since they have nothing to do with what we have been talking about.

On your last para, you seem to believe that the reason white collar workers get paid more is that they are shielded from foreign competition in a way that cheaper labor is not, and by raising supply of high skills workers through foreign competition the wages of professionals will come down.

I am skeptical of your theory for many reasons. One, service providers usually have to be local, but goods providers (manufacturers) do not. Service jobs are not likely to be shipped overseas any time soon. Two, you ignore within-country supply side effects as a regulator of wages. If workers in profession X really are overpaid, what prevents that market being flooded with local entrants over time and driving that wage down? Are people simply leting opportunities to make an undue fortune slip by?

Three, your idea to tax shielded workers down to foreign wages is just wrong for reasons already explained to you. Surely a socialist will agree with workers being paid in proportion to the value of their output. Please walk me through the logic that makes it sensible to pay equal wages to two people when one is 25 times more productive than the other.

[monkyboy]

I'm not a socialist, ben. I was just suggesting tax policy could be used to punish groups of workers who try to prevent low-cost foreign workers lowering their wages.

It's government policy that controls who benefits and who suffers from globalization. Trade agreements control the price of goods, visa policies control the price of services.

Tuition to China's top universities is less than $1000/year. Over half the cost of a U.S. college education is professor's salaries. I imagine making an unlimited number of easy to get visas available to qualified foreign professors would drive the cost of getting a degree in the U.S. down considerably.

The average doctor in China makes $360/month. Let's just send every one of them a visa and a plane ticket to the U.S. and see what happens to medical costs here.

Under current rules, companies that bring foreign tech workers into the U.S. on H-1B visas have to agree to pay them prevailing wages. Let's drop that requirement and the limit of 65,000 of these a year.

Members of the U.S. congress get a minimum wage of $165,000/year plus generous benefits for working 6 months out of the year. Members of the National People's Congress get zero pay. Seems like a steep pay cut is in order for congress and any government official who makes more than $20,000/year.

Cheap foreign labor shouldn't hurt just low-skilled Americans. Let's open up the floodgates and see who floats and who sinks here...

[Michelle]

Yes, local organizations should to be more galvanized towards action, yet much was accomplished only when the national guard stepped in.(local organizers are to blame as well for slow action)
With disasters like Katrina, when the push is towards running fast away, I have a feeling that most civilians tend to their own and run as fast as they can. This is sad.

People blame people for blaming the poor but sometimes the poor should be blamed. The iconic picture of the corpse in the wheelchair is a case in point. Why did it take so long for the corpse to be covered up? Why were the poor so callous? Why did some african americans not help but hurt other african americans? There needs to be freedom-giving measures that will allow the poor to be more responsible for their own well being. Ethical action is often beyond the rich/poor divide.

[monkyboy]

In reality, Stephen, "the simple minded 'red staters'" rely on transfers from blue states, not "common sense." The federal government taxes 21st century companies like Microsoft, Oracle, Amazon, Apple, etc., and uses the money to prop up farmers, Halliburton, Lockheed, etc.

Take New York, California, Washington and the rest of the blue states out of the U.S. economy and you're left with a primitive third-world economy engaging in agriculture and mineral extraction. Mississippi, for example, receives $1.83 in federal spending for every tax dollar it pays. California only gets $0.73 back in federal spending for every tax dollar it pays.

Like our current president, who bought his "ranch" the year he ran for the presidency, red staters like to talk tough and act independent, while at the same time living on hand-outs from wealthy relatives.

China is not a democracy. It will never be a democracy. And while capitalist programs are helping its rise to economic domination of the world, it will get there with a unique blend of Marx and Adam Smith.

[Dan C]

There are two root causes for the failed response to Katrina: one in the response, one in the preparation.

The response failed because of the complete breakdown of command and control. Local, state, and federal had no clear idea of what was going on or how to coordinate a response. The scale of the Katrina disaster made the consequences of communication breakdowns more severe.

The military tends to do better in these situations because they understand the fog of war. Military units are trained to follow central commands while showing forward unit initiative.

However, I have reservations about using the military in such situations. The military depends on the support of a clear majority of the country. If New Orleans had turned worse, and the military was required to fire on civilians, I would be very uncomfortable.

So, ideally, local authorities are first responders and the federal government provides support. Assuming adequate supplies and communication, the system can work.

So what went wrong with the preparation? The system was full of market distorting incentives. Federal government promises to help post disaster created moral hazards i.e. people took risks they should not take. Local authorities allowed some areas to be developed that never should have been. People were placed in danger (public housing in the 9th ward). A culture of corruption wasted precious resources. Simply, the political process failed at all levels to prevent this mess. The true cost of building and living in New Orleans or the Gulf Coast were distorted for various political motives. No level of government had a reason to correct the distortions.

But I think Mr. Becker is very wrong on the issue of a dependency culture. As another poster mentioned, the people left behind were not simply poor. They were infirm, mentally ill, substance abuse issues, afraid of crime, illegal, etc. Still many in these communities did unite together to help neighbors. Humanity was challenged but it did not completely disappear.

The rich are frequently dependent, but they have the money and political clout to demand better service.