The Ignorant Investor

Fox news reports:

Although estimates of Hurricane Katrina's staggering toll on the treasury are highly imprecise, costs are certain to climb to $200 billion in the coming weeks. The final accounting could approach the more than $300 billion spent in four years to fight in Afghanistan and Iraq.

I'm having a tough time reconciling this figure with what I'd expect. The damage outside New Orleans seems to be about what we'd expect from a decent-sized hurricane, and that usually runs from about $15-30 billion. We have some good numbers on that because these destructive hurricanes come about every few years. So probably the massive cost we're talking about here should be thought of as the cost of repairing the flood damage to the city of New Orleans.

Now, my math will get very imprecise here. Assuming about 1.2 million people from New Orleans were displaced by the flooding, spending about three hundred billion dollars to rebuild the city is spending something on the order of $250,000 a person.

That's an awful lot of money. Maybe, on second glance, it's what we should expect. The cost of replacing all the destroyed houses, lost income of workers, and the infrastructure of much of the city is bound to be expensive. Most of the time, the expense of building houses and infrastructure is done with borrowed money, amortized over a period of 30 years or more. It generally happens over decades, if not a century or more. To replace it using some kind of lump sum over a period of a few years will be extraordinarily expensive, particularly when we have to worry about rebuilding the burst levee into something impregnable to future hurricanes. You have to wonder about who is going to bear the cost of that. Will it just be taxpayers from other states, or will current and future New Orleans residents bear the brunt of it?

Which brings me to an important issue: given these costs, would it make more sense to give up on rebuilding most of the city and just pay people not to go back? If this sounds callous, remember the people whose homes are destroyed by events that don't get wall-to-wall news coverage. Victims of smaller floods, people whose homes are hit by lightning, fire, or people in small towns whose lives are destroyed when the local factory moves offshore to China- everyone in America seems happy enough to let these folk fend for themselves when the hard times hit. If they weren't smart enough to have insurance, we say, they shouldn't just deal with the costs of that decision.

So what do we tell these people now and in the future when we seem about to drop hundreds of billions on the folks in New Orleans? That we're sorry, but their own personal disasters just weren't big enough to win our sympathy? That doesn't seem right to me. We should have one rule for all disaster victims.