September 15, 2005 

Rebuilding New Orleans.  As the clean-up of the Gulf Coast is underway a number of people are asking what about the rebuilding of New Orleans?  This raises some “interesting” economic questions.

The first question that should be asked is:  where to rebuild New Orleans?  At the urging of economists (as well as engineers) over the past several decades the federal government has provided funds to relocate people out of natural flood areas.  The economic logic is clear:  it makes sense to spend money (and resources) to move people out of “harms way” than to constantly pay for rebuilding after rebuilding as flood after flood takes place.  Relatively high short run costs are much lower than the sum of evacuation and rebuilding costs after reoccurring natural disasters. 

But, given Louisiana Governor Kathleen Blanco’s speech last night, a relocated New Orleans does not appear to be an option.  Also, her claim that the federal government should pay 100% of the clean-up and rebuilding of New Orleans seems to suggest that economic logic is probably not going to play a role in the rebuilding process.  One can hope however.

The second question that should be asked is:  how to economically rebuild New Orleans?  One fact to consider is that it has been reported that 67% of the households in New Orleans were renters, and the 37% that were homeowners, many of them did not have insurance.  That then raises the question:  how many of these people will return to New Orleans?  Some have suggested that the civic leaders of New Orleans are “planning” a new New Orleans; one that is dominated by high tech industries with the desire to create a “Hollywood South.”  The goal, it is argued, is to attract young, highly educated people to New Orleans in the film, TV and entertainment industry. 

It sounds like an ambitious plan.  But, one should worry about the general lack of success of ambitious “economic development plans.”  Often those communities that are economically successful provide basic public services the best.  These are often unexciting (but extremely necessary) things like safe streets, clean water, sound primary education, access to technical training, well maintained streets and highways, corruption free public services, efficient government bureaucracy, relatively low taxation levels, and some form of public transportation.

But, to economists often it seems that political leaders are more interested in “grand projects” as opposed to building what  we economists refer to as “sound infrastructure.”  Economic infrastructure building is boring.  Who wants to talk about curbs and gutters when we could be talking about attracting Hollywood stars to our town? 

But it’s the infrastructure that really matters in the end.  Economists argue that is what New Orleans needs to rebuild.  If they do that, the “stronger and racially diverse middle class” the head of economic development in New Orleans wants, will happen. 

This then raises the question, what will happen to the residents of “old” New Orleans?  Remember that 67% that were renters?  Will they be able to afford to move back to places like the 9^th Ward of the new “New Orleans?”  If not, where will they go?

If the political leadership of New Orleans could not, or would not, provide the sound infrastructure needed for the old New Orleans, will they be able to provide it to create the new New Orleans?  It seems every American taxpayer is going to be expected to foot the bill to find out.

Regards,

M Brandl