Long before the Freakonomics fad, there was a rogue economist twice as brash and incisive: Steven Landsburg. He’s written three non-technical books so far: The Armchair Economist, Fair Play, and More Sex is Safer Sex, and every single one is what I call “high information content.” By that I mean that nearly every page contains an idea or an argument that is so inventive, or intriguing, or perplexing, or maddening that it hardly matters whether it’s bad or brilliant. And while some people react to his counter-intuitive proposals and musings with all sorts of what they think are obvious objections to seeming insanity, Landsburg nearly always has more up his sleeves in defense: often exposing the clumsy assumptions behind the “obvious” in the process.
So with the Katrina anniversary today, and plenty of boring, conventional commentary, I figured I’d highlight two of Landsburg’s most thought provoking Slate columns on the subject.
First of all, with roughly 200 billion tax dollars estimated for relief efforts, and roughly a million people who could claim to be at least in some way victims of the disaster, Landsburg asks why we don’t simply dole out this money 200,000 per person and let them decide how to spend it, instead of essentially forcing them all to spend it all on rebuilding their homes and infrastructure in the same dangerous flood plain. With an average family of four netting nearly a million dollars (perhaps even tax free!), it’s hard to see how any opponent of poverty could complain. Plenty of people might simply move away from the area altogether, of course, but the remaining millionaires can then simply decide to locally tax themselves however much they want to pay for whatever reconstruction is still relevant to them.
Of course, when you look at the issue that way, you start to see the tricky problems involved with guaranteeing disaster relief in predictably dangerous places the first place. If living in an area where disasters were more common, but could potentially net you 200,000 a head, then that would probably be a pretty popular place to live, on balance. That in turn, would drive up housing prices in the area considerably. The unintended yet inevitable result is that you’d lose a lot of low-cost/affordable housing. While current relief efforts won’t be handing out the money in big fat personal checks (in part, I suspect, because so many other outside interests want a guaranteed bite of that pork), the ultimate effect on incentives is the same: you’d still have roughly 200,000$ worth of mixed personal & community insurance policies per resident intrinsic to living there. The result is more people living in harms way than they otherwise would, and more poor people paying more in rent and mortgage that they did previously. Talk about your bad ideas…
The point of all of this is about tradeoffs and incentives: sometimes we can’t do good things without also doing harm at the same time, and that’s primarily because human actors react to changes in costs and benefits. Economics is the art of being realistic about these tradeoffs and incentive effects. When people complain that there is not enough relief, it’s always worth asking them if they can explain level would be too much, and why. We can still argue about what the right level is, but simply assuming that more and more relief entails is nothing but good things is just plain foolish.