We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Flood defence and the market

Tyler Cowen over at his Marginal Revolution blog lists out a load of articles about the case for privatising stuff like flood defence, and critiques of U.S. Federal efforts in that direction. He personally believes that flood defence, spectacularly breached in New Orleans, is a proper function of the state. But being the fine scholar and liberal writer he is, gives a comprehensive roll of reasons for thinking these things could be done better out of the State’s hands.

Flood defence can be presented as one of those classic “public goods” that cannot arise via the Invisible Hand of the market. Is that really the case, though? It seems to me that if the full, insurance-related costs of living in a flood zone were presented to the people either living or looking to live there, it might either encourage a lot of flood-related civil engineering defence, or for that matter discourage locating in such areas in the first place.

Anyway, hindsight is very easy, especially if you are thousands of miles away. In the meantime, I urge folk to look at the many examples of voluntary compassion flagged up by Glenn Reynolds.

25 comments to Flood defence and the market

  • Edward

    Flood defense most certainly could be provided by the market. And as you point out, truly private insurance is a good way to make it happen.

    Will there be some free riders? Probably. But we already have plenty of free-riders.

  • A quasi-private solution would be to require those who sell insurance in an area protected by a levee to fund the construction and maintenance of the levee. This would tie the cost of the levee to the people who benefit and would provide a powerful incentive to make sure the levee was in good repair.

  • tz

    I’ve posted this at the “flood defense” link, but the problem is the free rider problem. My suggestion is a volunteer organization (Red Cross, Linux) instead of FEMA or ENE, and using leins against property value if a supermajority (say 75%) want a levee. The increase in property value should pay back the lein at time of sale (bonds against which can fund the project immediately) if some don’t want to pay immediately, but then 25% wouldn’t have a “heckler’s veto”.

  • Bush a.k.a. “Mr compassionate conservative” probably thinks that these “humid Louisiana gumbo-eaters” are just decadent descendents of Gallic “cheese-eating-surrender-monkeys”: why spend federal money helping them when you can redirect public resources to far more useful goals- such as the carpet bombing of Iraqi towns and villages…

    Meanwhile, as Louisiana is left to drown, US ambassador Zalmay Khalilzad has reiterated his outlandish statement of last week, calling the Iranian-inspired Iraqi constitution “the most progressive document of the Muslim world”

    I guess it depends on your definition of “progress”


  • I am a little skeptical about the possibility of private flood defences based on insurance as described here…. chances are in a libertarian society it would come about in situations where land is getting scarce and it is therefore cost-effective for developers to provide flood defenses as part of private building projects; ie. I don’t think an entire city like New Orleans would exist where it does today.

    And, AK Blogger, you are talking nonsense. Bush has just approved a HUGE budget in emergency federal funds to help with this problem. The central difficulty with most of what I’m hearing from New Orleans is that some of the people recieving these stolen fruits of others’ labor do not seem to appreciate it. I’m fed up hearing news reports saying: “People are angry.” “Her food wasn’t warm, so she was upset.” In a welfare society I guess we can’t be surprised when people are totally damned helpless unless Big Government comes to help.

  • John East

    Superficially the market appears to have failed. Inadequate flood relief, death toll soaring, break down of law and order, and reports that levees were inadequate because powerful business lobby interests wanted better access inland for imports.

    I just saw a pundit on BBC24 who claimed that the main problem is that the USA has no infrastructure to cope with a major disaster on this scale. He went on to say that the US fixation with “small government” was the cause.

    As a libertarian I would like to go on record as agreeing with most of what he said. This was a mega cock up of the first order, and I hope, but doubt, that the debates which will follow between right and left wingers will feature a lot of contrition from the right.

    Something has gone very wrong. It reminds me of the usual socialist excuse, when socialism doesn’t work, the socialists say we need more socialism. Well the free market hasn’t worked on this occasion so free marketeers must come up with a better excuse than the socialist apologists for their failures.

  • Well the free market hasn’t worked on this occasion so free marketeers must come up with a better excuse than the socialist apologists for their failures

    So you are saying that the state did NOT crowd out the market as a provider of flood defences and (most notably) law and order then?

  • David

    What I find most interesting about Hurricane Katrina coverage is how New Orleans-focused it is. New Orleans did not bear the brunt of the hurricane, the Mississippi Gulf Coast did. However, all the worst stories have come from New Orleans, a secondary disaster area.

    Here’s my observations:

    1. New Orleans is just about the most “European” city in the United States. It has a strong French tradition, has leaned hard left/socialist for decades and is know for its political corruption.

    2. The Mississippi coast is relatively recently built-up. It tends towards a more traditional American style of “rugged individualism”.

    3. The Democrats run Louisiana and the Republicans run Mississippi.

    Critics are exactly correct, the problems in New Orleans has everything to do with the lack of governmental response because the people of New Orleans are the products of decades of quasi-socialist government. They are passive, undisciplined, have a victim mentality, and blame everyone, especially the government which they were told throughout their life would take care of them.

    The problems in New Orleans have less to do with any fundamental deficiencies in the U.S. as a whole, but it exposes once again the failures of socialism. The people of New Orleans are screaming for the government to save them. What about Mississippi? I sure haven’t heard much. My guess is they are pitching into the problem and see no reason to cry for help since they are doing what is necessary to help themselves.

    I could be wrong, but for the life of me I can’t figure out why New Orleans is getting all the press when Mississippi was hit the hardest.

  • David

    Some more observations:

    1. My wife’s best friend just moved to Ocean Springs, Mississippi. She and her husband moved into their recently built house last week. The boxes were not yet unpacked when they fled for their lives Sunday. They left Mike’s car and took the van with whatever mementos they could find from their still unpacked moving boxes. Their house and everything in it is gone. In fact, most of the city of Ocean Springs has been scoured to the ground. They fled first to Montgomery, Alabama and are again on the move further north to stay with relatives. Yet I hear nothing on the news about Ocean Springs.

    2. The first time I saw footage of looters on the television, I told my wife “the police need to shoot them now or this will get out of control.” My wife replied that I was a “cold hearted Republican.” It turns out cold-hearted Republicans might know something about human nature while the left once again failed to stand up to the social predators. Today I listened to a fast-water rescue specialist on the radio today describe how his team was prohibited from making rescues for Thursday due to the danger posed by roving, armed thugs. This despite the fact they knew of the location of “over five hundred” people stranded by flood waters.

    3. Finally, over at Instapundit is some information about Mississippi, from readers’ e-mails. It points out the devastation in Mississippi went 150 miles inland. Why isn’t this in the news?

  • Midwesterner

    There’s a lot of valid points being made here. But something seems to have slipped of the table.

    This was a HUGE storm. This was the third most intense storm ever recorded to hit the United States. This was the fourth most intense storm ever recorded in the entire Atlantic Basin!

    We look at the intense storms to strike Bangladesh. The biggest storm surges recorded there exceed 8 meters (26feet). The record for the United States was 5 meters (16 ft). Then came this storm. 9 METERS, 30 FEET! Nearly double the previous record. (all numbers courtesy wikipedia)

    Any one who thinks we should have prepared our hurricane coast for double the all-time record is living in an altered state.

    The president declared a state of emergency for Louisiana on Aug 26.

    That morning Katrina was only a tropical storm. Not even technically a hurricane. It wasn’t even until the morning of the 28th that Katrina reached 5 on the Safford Simpson scale. It came ashore on the 29th . The forecasting system sure worked.

    Some points. Up until this year the secretary of Health and Human Services was Tommy Thompson. Some one who took disasters and the potential for terrorism seriously enough that he reorganized HHS to specifically respond to major crises asahp. He even put a facility in HHS as similar to the White House “War Room” specifically for managing this sort of crisis. Apparently, his successor never figured out how to let the clutch out. For those of you who don’t know Tommy, he was former Governer of Wisconsin, has strong libertarian principles and his brother was the Libertarian party candidate for governer after Tommy went to Washington. It would have been nice if Secretary Thompson had still been in HHS. Oh well.

    Number two, according to a public safety director for a “major suburb of New Orleans” the situation in the delta regarding major storm defenses, the program was in place, the money was approved everything was set to begin and then 9-11. That money was diverted to homeland security. It was a judgement call. It may have been a good choice or not. We can only speculate.

    Third, as so many have pointed out, New Orleans (and Louisiana) got it’s reputation the old fashioned way. It earned it.

    And I saw the Spanish member of parliament and her husband on the News this evening. The husband told everybody that it was “genocide” (his word) to shelter refugees in the Superdome. While he’s making this statement to every camera he can find, a detachment of soldiers have to drop the presumably less important work of saving lives and restoring order, and “rescue” him and his member-of-the-Spanish parliament wife.

  • Julian Taylor

    I agree totally with Perry’s observation. It is weird how someone in Alabama or in Mississippi who has literally lost everything shrugs it off with a, “well we’re all still alive and that’s what counts, guess we’ll just have to start building it again” attitude, quite unlike what we are seeing from New Orleans. Then again I guess lack of panic, or hysterics on camera, don’t work too well with the BBC or Sky.

  • Julian Morrison

    I can think of ways the market might provide flood defense, but I think it’s quite likely the market would provide flood coping strategies instead. The reason N.O. has sunk 20 feet below sea level is that it’s on a flood plain and the river wasn’t allowed to flood. It seems more likely to me that a city run as a market anarchy from day one would have responded to periodic floods through houses being built up on stilts, rather than by large-scale drainage and flood defense. Thus the problem wouldn’t have occurred. If there was drainage, it would likely be more in the manner of enclosed (and owned) island areas, than a single line of defenses along the waterfront.

    Assuming on the other hand that such defenses were inherited by a city transitioning to a market anarchy, it might be quite difficult to decide who owned them – since ownership would carry an ongoing maintenance burden, and a huge risk-cost. They may end up unowned, and maintained by some semi-charitable coalition of insurers, residents and shippers.

  • J

    I’m glad that some order has now been restored to NO.

    I’m also glad that balance has been restored to the Internet. I was concerned that for the last few days, only the left wing blogs have been blaming the catastrophe on the evils of private enterprise, BushCo, and global warming.

    Now, at long last, I see some people blaming this catastrophe on socialism – not only the poor socialist flood defences, but also the violent and/or helpless socialist people in the city, and the socialist urban planning that led to the whole problem.

    I’m reminded of how in the days before socialism, disasters like London burning down could not have happened, owing to the way the market would have encouraged people to build safe, widely spaced houses. Also, the market would have created some kind of ‘fire warden service’ to organise control of any such fire. The worst thing that could happen would be the evil government commandeering private property and ordering it to be blown up with gunpowder to create fire breaks! That would be an evil centralised action that didn’t respect private property, and would certainly not have helped stop any fire.

    Of course NOW, with or socialist building regulations and socialist planning rules, London is far more likely to burn down. And when it does, the nannied people will be too helpless to do anything. They’ll have to wait for the fire brigade – which being a government run, unionised outfit will be incompetent, and will not be able to put the fire out. I feel so much more vulnerable because of socialism. Maybe London will be the next NO!!

    I should move to somewhere more market driven that doesn’t have any of these problems. It’s a real shame that every city on earth is just tainted enough by socialism that the glories of the market solution aren’t available to me. Gosh, how I wish I could find some unspoilt new land and start a utopian libertarian society on it, so we could have the best response to natural disasters. But I can’t, so I’ll have to write several dire novels about it, instead.

  • Julian Morrison

    J: perhaps you don’t understand: the market is right because it’s moral – the fact that it’s also usually efficient to the best of present (though not prescient) knowledge, is merely a happy coincidence.

    You compare now to the past, but have you tried to compare now to a hypothetical now-with-free-markets? Your “thought experiment” is wildly uncontrolled if you don’t rule out of consideration advances made not due to the growth of the state, but to the progress of human knowledge.

  • John East

    Perry, I’m not saying that the state did NOT crowd out the market as a provider of flood defences and (most notably) law and order.
    Davids’ response was informative, “…people of New Orleans are the products of decades of quasi-socialist government. They are passive, undisciplined, have a victim mentality, and blame everyone, especially the government which they were told throughout their life would take care of them.”, but this still does not excuse federal inaction.
    The main point of my original post, which I don’t think I made very well, was to explore an honest reply to the rising number of pundits blaming Bush, and the Free Market, and calling for more touchy feely government to be prepared for the next disaster.

  • I think much of the “blame Bush” ranting is to distract people away from the true incompetence of the governor of LA and the major of NOLA. The President declared a state of emergency two days before Katrina hit and placed assets in place to help. There is a certain amount of ignorance about how the US federal system works in these cases as well.

    After bragging they got off again, those two politicians failed to ask the feds to come in and help in a timely fashion. A state has to ask the feds to “federalise” a situation. This request did not arrive very quickly. State assests (like the national guard) from LA were not in place to react quickly after the end of the hurricane. The incompetence shown by Louisiana leaders and their civil defence people is palpable.

    You know they are getting desperate now as some on NOLA are claiming that the feds did not show up because of racism…ditto the fact the leves were not working properly. Crying racism in politics generally means you are in desperate C.Y.A. mode.

  • “…hindsight is very easy…”

    I would only point out that the first “Monday morning quarterback” was born in 1863.

    His name was George Santayana.

    Hindsight may be “easy”, but there are bloody good reasons for it, and everybody who discounts it so blithely should think about them good and hard.

  • Midwesterner

    “and the socialist urban planning that led to the whole problem.”

    “before socialism, disasters like London burning down could not have happened”

    Ummm. J?

    Most energetic free enterprise capitalist city in the New World, 1871. The Great Chicago Fire. Just a reality check.

  • Johnathan Pearce

    J, don’t be such a sarcastic tosser. The point I was making was that the denizens of N.O. seemed not to have been presented with the insurance-related costs of living in such a flood-prone area. Had they been so presented, then there may have been a number of responses, ranging from changing building styles, or exodus, or whatever.

    Yes of course all clusters of humans are prone to disasters like this. But trying to align incentives with long-term human welfare interests strikes me as smart policy.

    The plight of N.O. is no advert for the State, that is for sure.

    This whole episode is hardly a great advert for the benevolent role of the State.

  • Johnathan

    Just another bite at this topic: is J trying to imply that there have been no massive fires, floods with dangerous consequences since the arrival of Big Government? Is that what he/she thinks? If so then we are in big trouble. One simply cannot delegate all responsibility for protection against flood, fire and whatever to the state and its agencies. There has to be serious policy work done on how to incentivise people to think more about the risks they run by living in location A or B.

    By the way, J, remember that most of the fire rescue services in the States are volunteer-based and the fire services in Britain began as insurance-funded organisations. The role of voluntary organisations like the Royal National Lifeboat Institution also undermines the idea that civil society cannot give rise to such bodies without state aid.

  • David, you assert that New Orleans “has leaned hard left/socialist for decades”.

    Forgive my ignorance, but presumably you mean 90% taxation rates, state ownership of banks , utilities etc and free medical care for all?

    How many socialists have been elected recently in the city? Are they close to a majority?

  • Chris-

    Let me clarify what I think David meant….. the effects of socialist thinking (commonly referred to as left-wing thinking) do not have to be as extreme as you request to be present nevertheless. There are many degrees along the left/right axis, but the results of ‘socialism’ swinging that pendulum are discernable in a mixed economy like our own (that’s why its a mixed economy). A city does not need to demonstrate 90% tax rates to lean in a more socialist direction.

  • Thank you.
    From an English perspective, I still have trouble working out what is sometimes meant in the US by “socialism” or “left-wing”. It seems to refer to policies that would be fairly centrist in the UK.

    That’s not to criticise Americans who use these words (every country is entitled to its own political terminology). But I sometimes wonder what some of the more bombastic US conservatives (on other blogs) would do if they met real socialism.

  • Tim

    I am, by nature, a libertarian. I believe that the state should keep the heck out as much as possible.

    That said, certain things just seem to me to be the function of the state. Primarily, I’d count those things that are difficult to create a market in, where there is monopoly supply. Flood defence is one of these. To try and move it to some sort of market basis (such as charging certain people based on being closer to the sea) would probably create more bureaucracy than it would save.

    Some things are just simpler. Fire rescue companies would end up with a massive cross-charging exercise, depending on which houses fire caught on which other houses.

    And public-private-partnerships are faux market liberalisation, and mostly are designed to make people think that the government is pro-market. The government is still in control of the purse, and can mismanage the project, and the people doing the supplying are only subject to the agenda of government, not the market. Only when they are taken out of the loop does it work.

    Maybe we should address some of those areas that I’ve suggested. Maybe flood defences and fire services can be made market driven. But let’s deal with the obvious “should be a market” first. Privatise the NHS, schools, postal services, liberalise planning law, simplify taxation.

  • John Ellis

    So you are saying that the state did NOT crowd out the market as a provider of flood defences and (most notably) law and order then?

    I guess I must be the only one whose spine shuddered when I thought about market-provided law and order…Law of the richest…? And if not, why not?

    There may be lots wrong with state-sponsored policing in various parts of the world, but can anyone give me an example of private-enterprise law that they’d be happy to be living under?