TCS Daily

Will Katrina Impoverish the Nation?

By Duane D. Freese - September 19, 2005 12:00 AM

With apologies to Newton, every catastrophic action leads to a massive political and economic overreaction.

And with apologies to George Santayana, those politicians and bureaucrats who remember the lessons of history are doomed to have learned the wrong ones.

That certainly has been the case with Hurricane Katrina.

The outpouring of support for people in the Gulf region from every part of the country is heartening. And federal spending to rebuild infrastructure is essential to the general economic health of the nation, even if it does temporarily increase federal spending. The Wall Street Journal quoted Ben Bernanke, chairman of the president's Council of Economic Advisers, "The costs of rebuilding after Katrina are, of course, substantial and will add to the budget deficit in the near term; incurring those costs is essential if we are to repair the unprecedented damage wrought by that natural disaster. This necessary spending should not, however, jeopardize the president's long-term deficit-reduction goals."

To repair and revive is one thing, though; to rebuild New Orleans better than it was, as President Bush promised Thursday night, or bring all the New Orleans residents back as Louisiana Gov. Kathleen Blanco vowed earlier in the week, is something else.

Republican senators have sent a letter to the president calling for a Marshall Plan. Former House Speaker Newt Gingrich has suggested creating a new government sponsored enterprise -- a Gulf States Redevelopment Corp, backed by the federal government and regulated by regional officials, that would issue bonds and make loans for development and the levees. Jack Kemp, a former House member and head of the Department of Housing and Urban Development, has succeeded in pushing his long-championed enterprise zones idea, with Bush promising to create an Opportunity Zone for the gulf region.

Everybody cares. But this outpouring of aid raises a big question of fairness -- not to mention common sense in federal subsidies encouraging people to live below sea level in hurricane prone zones.

Already in Washington, D.C., homeless families and individuals who've waited in line for housing vouchers for months are being told they'll wait some more so aid can flow to the victims of Katrina.

Katrina victims will get $5,000 for training so they might better their lives. Other poor people, not from hurricane-prone areas, pay for training themselves or remain stuck in low-paying jobs. To rectify this seeming injustice, some are calling for a massive expansion of vouchers and of training programs, all at taxpayer expense, to make sure no one is left out. As many of the poor are minorities, how can the president refuse them? After all, hasn't he admitted now that poverty among minorities is a legacy of discrimination, and doesn't the federal government, if it is going to relieve poverty of minorities in New Orleans have the same obligation in other places where poor minorities live? Are some poor more worthy due to location than others?

Helping the victims of Katrina is expensive enough, but it will quickly become unaffordable when the programs for New Orleans and the Gulf morph into programs to serve every other community with a problem.

That's what happened after the urban riots in the 1960s. Urban Development Action Grants aimed at revitalizing and improving inner cities were converted due to program failures into Community Development Block Grants for poor communities. And that morphed into programs to help poor sections in any community. The Government Accountability Office (formerly, the General Accounting Office) reported in 2000 that wealthy "Greenwich Connecticut received five times more funding per person in poverty in 1995 than that provided to Camden, New Jersey, even though Greenwich, with per capita income six times greater than Camden, could more easily afford its own community development needs."

As the National Academy of Sciences noted in a report in 1983, "Whatever the original reasons for these subsidies, they have often continued, almost as entitlements, without serious assessment of their impact on the flow of capital to other sectors that might improve both national economic efficiency and interregional or intergroup equity."

The complaint here? It's not that the victims of Katrina don't deserve help. But helping others in ways that are not limited in scope will make us less capable of helping victims in future catastrophes.

The federal government should focus its aid on individuals and on infrastructure with importance for interstate commerce and national defense. We don't need new GSEs, we have two -- Freddie Mac and Fannie Mae -- that can be encouraged to invest in more housing for lower-income families, something Congress is already considering. And the government can help individuals receive training, through the network of community and private two-year colleges around the country.

Grand strategies to rebuild New Orleans better than it was will only lead to every community seeking similar advantages. And it will make the entire nation poorer.

To see more of the extensive coverage of Hurricane Katrina from TCS, click here.


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