UPGRADE #2 (01:30 p.m.): A poll by Popular Machanics asks "Do you think New Orleans should be rebuilt?" The "noes" are winning, 75% to 25%.
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A reporter called yesterday about a 1999 column I wrote for Reason. It has nothing to do with IP, but a lot to do with markets and government, and it scores a 10 for timelineness:

All Wet By James V. DeLong

A recent study by the National Wildlife Federation, a leading environmental group, documents the high tide of insanity that is the federal flood insurance program.

Higher Ground [updated version is here] focuses on "repetitive loss properties"--homes the government keeps rebuilding over and over again through insurance settlements. Using data from the Federal Emergency Management Administration, the study finds that between 1978 and 1995, repetitive loss properties (defined as two losses of over $1,000 each in any 10-year period) represented 2 percent of the homes insured but claimed 40 percent of the payments. Over 5,500 property owners collected more than the total value of their houses. Top honors went to a Texan with a house worth $114,000 who collected $807,000 on 16 claims over 18 years.

Such statistics illustrate the lunacy of the 30-year-old flood insurance program. It undercharges property owners and takes on risks that no sane insurer would accept, which encourages development in flood plains. This, in turn, increases both the political pressure for more government expenditures on flood control and the monetary losses that occur when the inevitable 100-year or 500-year floods overwhelm those defenses. Those losses are then paid for by the insurance program, and the spiral starts all over again.

During the past 25 years, the Army Corps of Engineers has spent $25 billion on flood control projects, but the losses just keep on rolling like a river. Indeed, the insurance program has lost more than $40 billion in the last five years.

But cheer up, things could be worse. And they're getting there: People are now becoming so used to the idea that the federal government will pay for disasters that they are not bothering to buy even the subsidized flood insurance. In most places, less than 30 percent of the properties located in designated flood plains are covered.

The response to such developments? The feds are now working with communities, buying back properties, passing regulations, yada, yada, yada. All to try to keep people from doing what government payments make it profitable for them to do: build in flood zones. Indeed, the feds seem anxious to consider anything except the one solution--eliminating the insurance program--that might actually change the situation.
(Reason, Feb. 1999)

Unfortunately, sympathy for the losers from the hurricane will probably eliminate what little rationality remains in the flood insurance program. We'll rebuild New Orleans, and this time we'll put it 100 feet below sea level, just to show that no hurricane can intimidate us.

Most people don't have flood insurance, even though the rates are quite reasonable: "Depending on a house's location on a federal flood-risk map, flood insurance costs from $233 to $655 annually for $100,000 in coverage, with deductibles of either $500 or $1,000."

UPGRADE (09:40 a.m.): Washington writer John Tamny examines some lessons for the present drawn from the great Mississippi flood of 1927:

Despite this massive flow of taxpayer funds into the South, its economies did not boom. New Orleans, formerly the richest city in America, actually declined.

Sen. Gregg (among others) should take note. Massive aid has never worked to do more than temporarily patch an injured economy, and it won’t work this time. More important, it has to be asked whether or not today’s federal bidding wars between the political parties are examples of “moral hazard” at its worst.

This is not meant to minimize the truly awful impact of Hurricane Katrina on Louisiana and Mississippi. But if U.S. taxpayers are going to pay each time a natural disaster strikes within our borders, won’t there be less incentive on the part of states, municipalities, and builders to plan and construct cities and housing developments with local hazards in mind? Just as the existence of the IMF makes it possible for private banks to make bad loans, can it be said that the ability of the U.S. government to tax its citizenry makes city and state governments less cautious, and less mindful of the potential for disasters?

Americans have been extraordinarily generous in Katrina’s aftermath, but has their generosity been tempered by the federal response? What about local leadership? Absent the existence of federal outfits such as FEMA and the Department of Defense, does anyone honestly think that the voters of New Orleans and Louisiana would have elected such obvious incompetents as Mayor Nagin and Gov. Blanco?

The latter question is especially important as our leaders in Washington look to the break the bank with relief funds. Not only is it not compassionate to spend other peoples’ money, if the disaster in Louisiana tells us anything, the existence of the “benevolent” federal government means that ineffective local responses to local disasters will arguably increase in frequency.