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Wednesday, September 14, 2005

Why Did Government Contribute to Katrina Relief?

In the aftermath of Katrina Congress approved $62 billion in relief funds. For the life of me I cannot figure out why. When examining the situation from economic efficiency, individual liberty, or Constitutional frameworks there just isn’t a reason government should intervene.

Let’s start with economic efficiency. Efficiency calls for government action when a monopoly exists or the market fails to provide a public good or correct for an externality. Although I make it sound like the market is this tangible thing, the truth is the market is just a term used by economists to explain the interaction between individuals who supply goods and services and those individual purchasing those goods and services. The market is termed to fail when the interaction of free individuals produce a monopoly firm or externalities, or fail to provide some public good.

Monopoly doesn’t apply here. Firms don’t produce hurricanes or their effects. Firms help to deal with the repercussions of hurricanes. But not a single firm will deal with those consequences, in fact many firms will have to work together to rebuild the lost wealth of survivors. And since there are hundreds of thousands of organizations and individuals rallying funds and supplies to help survivors monopoly doesn’t apply to the social aid organizations either.

The $62 billion certainly cannot count as applying to the provision of a public good. The money will provide funds to help rebuild communities and is both rival and excludable. The more people who partake in the consumption of the good, i.e. use the money for relief, the less will be available to others; consequently some people will be excluded from its consumption.

The correction of an externality is not the issue either since no externality exists. Hurricanes are natural disasters and have nothing to do with the transactions between buyers and sellers producing some external cost on individuals outside the transaction. The actions of consumers did not produce Katrina or her effects. God, nature, weather patterns may all be culprits, but the actions of consumers are not.

Monopoly? No.
Public good? No.
Externality present? No.

Economic efficiency just doesn’t call for government intervention.

From the perspective of individual liberty a call for government action is made to protect an individual’s person or property from harm caused by another individual. Katrina is a hurricane, not another individual. Sorry, no room for government.

Furthermore, the survivors chose to live in a part of the nation below sea level. If you live below the level of the sea then you are taking the risk that the sea might one day rise to ground zero. As a federal taxpayer I should not have to shoulder the burden of the consequences of the risk someone else living in another state opts to take. Why should my wealth be decreased because someone else chooses to live below sea level? After all, this is not the first time the area has been flooded. In 1927 the same thing happened. Did government jump in and save the survivors? No. Not a single dollar was given to help rebuild the New Orleans area. In fact the only government provision was tents and lamps loaned to survivors from the Army, who, by the way, sued for reimbursement afterwards.

The most relevant framework to our nation's system of political economy is the Constitutional framework. This framework looks to the Constitution to tell us what actions government may take. I cannot find anywhere in the Constitution a statement authorizing Congress to provide funds for survivors of natural disasters. It seems such action is the exercise of police power, a power conferred to the states, via the Tenth Amendment, to make laws and regulations, not otherwise unconstitutional, which promote public health, safety, and morals. If the legislatures in the states affected by Katrina want to use their tax revenues to provide relief to survivors to promote the health and safety of state citizens, then so be it. However, relief fund provision lies beyond the powers of the national legislature.

Can anyone think of some other normative framework which would authorize Congress to provide $62 billion in relief?

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