Mississippi Boom

The Mississippi coast which was devastated by Katrina is undergoing an economic boom right now. From the Washington Post:

Six months after Hurricane Katrina smashed through a fragile necklace of Mississippi coastal towns, the region is enjoying a post-storm boom. Fueled by insurance money, federal reconstruction aid and speculative capital, surviving hotels and restaurants are filled to overflowing, beachfront land prices are soaring, and developers are placing billion-dollar bets that shattered antebellum mansions will give rise to condominium resorts. [...]

The shared sense here is that Mississippi's recovery, while still in its early stages and reliant on continuing outside help, is moving much faster than Louisiana's. [...]

[...] the nation's discovery of the area's 26 miles of white-sand beaches has boosted land prices along the devastated shoreline by 50 percent -- between $1 million and $2 million an acre. Investors are also seizing on federal post-storm tax legislation, which lets companies immediately write off half the cost of new investments.

Sales tax revenue has surged 30 percent ahead of last year's total in Gulfport, the largest city on the Mississippi coast.

There are two things notable in this. The first is that our overall economy has not sustained any serious setbacks even after a disaster of this magnitude. That’s hard for me to comprehend, but it is clearly true. Our growth, wealth and job creation remain undiminished.

The second notable truth is that the private sector is the only rational way to rebuild. This is even more true in New Orleans.

Why? Risk. Building in New Orleans is risky. Huge swaths of it are below sea level. To hear the scientific commentators last summer, such a disaster had been expected for 100 years. It should be expected again.

This means we have to ask the hard and very granular questions as to what should be rebuilt, where, and at what costs.

The only ones qualified to make these decisions are those whose investments in time and money depend on getting it right: citizens spending their own money.

The federal government is the farthest from this. Its largess in this situation would ensure that those doing the building have much less incentive to truly evaluate their investments. After all, with federal money, local building seems cheap or free.

Such an approach is begging for a outcome which is based on crude and unaccountable decisions. The textbook term for this is “market distortion”: risks are absorbed by those who don’t reap in the rewards.

Instead, the guidance should come from the example we see in Mississippi. Tax breaks. Local initiative. Certainly, federal money and political connections are helping to smooth things over, but people don’t bid up property because they are expecting a check from the government. They bid it up because they believe someone will want to live there in the future.

Do I know what should be rebuilt in N.O.? Heck no. Should people live in the shadow of a levee? I have no idea.

The more important question is, who has the best incentive to figure that out? The most reliable answer is: those whose lives, and livelihoods, depend on it.

Comments

[The Gentle Cricket]

Great post. I agree that the Government should but out and let the area rebuild based upon traditional capitalism. But, to play devil's advocate....

I think that the Government does have a stake in the rebuilding, despite our best wishes.

I agree that the government should just sit back and let the markets dictate the reconstruction; I think that would lead to the most prosperous, self-sufficient, efficient, and logical rebuilding. However, our government set a dangerous precedent by the massive amounts of aid delivered post-Katrina/Rita. If people now expect these government handouts after the next big storm (and I predict many will), then the government does have a stake in how to limit this false-liability.

[Cato_Maior]

"granular questions" - Superb word choice!

[Matt S]

Thanks for picking up on that, Cato. It is tempting in politics, especially federal politics, to believe that there is a sweeping solution for all this.

The real solution is to build a framework whereby thousands of smaller, more rational decisions can be made.