The Future of New Orleans

The situation now is terrible--the Red Cross certainly needs more donations. For a rather horrifying ongoing commentary from the city, see here. But most of the heavy lifting needs to be done by the federal government: the Army Corps of Engineers needs to repair the levees and drain the city, and FEMA needs to quickly establish a vast presence in the city. Unfortunately, both these agencies have seen their budgets slashed in recent years, and local officials are thus far exasperated by the agencies' poor performances.

Can New Orleans recover? It was a jewel of the South, if not of America, but 90 percent of it is underwater. It also is not nearly as important to the economy as it once was: as trade with China increases, the Gulf ports have become less vital, especially since many of today's cargo ships are "post-panamax"--too big to get through the Panama Canal. There are important oil and gas resources offshore, but New Orleans has been surviving primarily as a tourist city, and its appeal was its historic architecture and urban design. If much of that is destroyed, one can wonder how much its economy will be able to support.

On the other hand, history may be on the city's side. Cities have proven remarkably resilient in the face of disaster: many of the Japanese cities devastated by bombs after World War II were rebuilt, and their populations returned to pre-war levels. The same was true of Berlin and other German cities. Paul Krugman summarized some of the research on cities and disaster shortly after 9/11. Tyler Cowen at the Marginal Revolution offers links to it, as well as a slightly more pessimistic analysis.

The excellent urban economist Matthew Kahn also has some thoughts: the long-lasting effect of Katrina may be a masive brain-drain from New Orleans. The highly-educated who have lost homes, and who likely had insurance, will probably get a check and leave, given that the rebuilding process will be long and quality of life will be low while it takes place. If New Orleans loses a lot of human capital, the long-run damage could be much greater; it is human capital, not brick and mortar, that makes cities grow. On the other hand, if the homes of the middle class aren't paid off, the banks will likely not let them leave, and this "lock-in" effect could keep the middle class in the city. Also, New Orleans does have a few universities that will keep some high-human capital people around.

I am cautiously optimistic, and not just because I think New Orleans is a wonderful city. Cities tend to be resilient. But only time will tell.

A final aside: many of the people who remained in New Orleans--and who ended up trapped in the hellishness of the Superdome--did so because they were poor, and because they had no reliable way out of the city. Income is one of the best shields there is against disaster: people with higher incomes can invest in sturdier homes, they are more mobile, and they often have better insurance. New Orleans is a poor city, and Louisiana is a poor state. They do very little social spending. But anti-poverty programs can save lives; I hope people remember that well after the disaster has passed.

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