Rebuilding New Orleans- Again

Nearly three years ago, I wrote these two posts, here and here, regarding the aftermath of hurricanes Katrina and Rita on the US Gulf Coast. Holman Jenkins of the Wall Street Journal shared my sentiments in his editorial on the same subject of how, or whether, to rebuild New Orleans. I wrote in the first post,

"If they want the final say in rebuilding their city, then let them earn it. Ask for help borrowing capital that they will repay with a revitalized port, energy-related commercial zone and tourism areas that are safe and survivable. Rather than issuing demands that the rest of us, through the conduit of the federal government, simply hand over more than $100B to those government entities to spend as they wish. It takes a lot of gall to request/demand $100B to rebuild a city that wasn't safe in the first place, while seeming to stiff-arming the very people from whom they want the money when questioned as to how and why the reconstruction is to take place.

After all we have heard regarding the importance of the area to agricultural transport, energy production and distribution, and other general shipping needs, I don’t understand why the local and state governments can’t borrow against their infrastructure-based revenues to rebuild. I’d prefer to see the funds coming from increased prices paid for goods passing through that region to pay for the new and improved facilities, funded by bonds, than to simply hand over $100B to local and state governmental authorities.

Nobody questions the need and value or rebuilding damaged commercial infrastructure to standards which can better withstand a major hurricane, so long as that cost is economically rational. Either private or public revenue-backed bonds would seem to be feasible. If they can't attract capital, based upon the expected costs and revenues of improved and repaired facilities, then it begs the question of rebuilding commercial facilities there in the first place. What seems to be more in doubt is what kind of residential reconstruction is reasonable. Holman Jenkins wrote an excellent editorial about this in the Wall Street Journal two weeks ago."

And, as I wrote in the second linked post, the mistakes are not confined to the public sector,

"What is it about the Carolinas, Florida and the Gulf Coast? Living in a hurricane belt, you would think that the business owners and residents of the region would have shown more foresight regarding the potential damage from these storms when they build their facilities, homes and cities.

Take oil refineries, for example. I saw an interview with Lee Raymond of ExxonMobil on CNBC this week. He opined how until the past few weeks, he had never known how many experts on oil refineries there were in the US. That’s a pretty funny remark, until you let it sink in a bit.You don’t have to be an expert at building or operating an oil refinery to realize that concentrating so much evidently unprotected, vulnerable capacity in a hurricane zone seems like inept business planning. The oil industry executives bemoan over-zealous environmental regulations, but the net effect of their decisions on refining capacity and locations over the years is to be unable to keep pace with the growth of their customers’ demands for refined petroleum products."

Yesterday's excellent reprise of his three-years-ago editorial by Mr. Jenkins asked the question,

"Does the federal government have to be responsible for everything?"

He noted the difficulty homeowners had getting coverage in New Orleans after Katrina. Jenkins observed that local government officials viewed that as a 'problem,' whereas, in truth, it is the 'solution.'

Jenkins went on to write,

"No Louisiana politician will publicly write off the large submarine sections of the city and its suburbs. Yet the state in December disbanded the Louisiana Insurance Rating Commission, kicking over its portfolio of suppressed rate increases to the state department of insurance....No doubt local voters and politicians would decry it as a crime if New Orleans were forced to become a smaller, higher city because of such "greedy" behavior by insurance companies. The rest of us would see it as a sign of hope for our economic future after all."

He is right.

As I listened to Cindy McCain draw attention to those New Orleans residents who have been forced to flee, then will return, for the second time in three years, the absurdity of her observation hit me.

Back in my youth, the local Illinois river regularly flooded a low-lying area of squalid shacks a few miles upstream from Peoria. The newspaper and most of the town's citizens castigated the residents of those hovels for continually rebuilding in a designated flood zone. Eventually, flood insurance for the area was revoked, and the nonsense stopped.

Why should New Orleans be any different? As I noted in that earlier post, thanks to Holman Jenkins' initial observation, it was known as the Crescent City for a good reason. That crescent was the high ground which, in the days before the extensive levee system, was the only constantly-inhabitable, relatively safe area in which to reside.

When people flee and return to a weather- or other natural-disaster-prone area several times in a decade, it's time to end the insanity and cut off insurance and relief for those people. Anyone foolish enough to remain there should do so on their own hook. If businesses choose to locate there, then the resulting prices for their products had better cover their disaster losses. Meaning, of course, there'd better be something extremely differentiable and special about those products or services.

It's not a good thing that Jenkins and I are, three years after Katrina, lamenting the same idiocy regarding the rebuilding of troubled, ill-sited New Orleans.