Edward L. Glaeser. “Should the Government Rebuild New Orleans, Or Just Give Residents Checks?”. The Economist’s Voice. Vol 2, Issue 4, 2005. – Should the Government Rebuild, Or Should Residents Get Checks or Vouchers?
We could try to make good on the idea that the government provides insurance by rebuilding the city. Alternatively, we could provide residents with checks or vouchers, and let them make their own decisions about how to spend that money—including the decision about where to locate, or relocate, themselves.
When your car is damaged you can often “cash out” and receive cash to do with as you wish instead of having your car repaired. And, when your car is “totaled,” the insurance company generally won’t fix your car at all, it will only provide
cash compensation, and you decide how to spend it.
In the context of the President’s comments, there is a big difference between rebuilding lives and rebuilding communities. Given limited funds, the two objectives may well conflict, and the usual lesson from economics is that people are better off if they are given money and allowed to make their own decisions, much as they are with car insurance.
The case for rebuilding New Orleans, then, depends on whether the residents of New Orleans will be made better off by this spending, than by being given checks or vouchers. Vouchers or Checks Would Be Life-Changing For Poor New Orleans Residents To put the numbers in context, imagine that we were to spend $100 billion dollars on infrastructure for the residents of the city. An alternative to this spending is to give each one of the city of New Orleans’ residents a check for more than $200,000.
Annual per capita income in that city is less than $20,000, so this check would amount to ten years’ income, on average—a hefty, and potentially life-changing sum. That is enough to send several children to college, to buy a modest home, and/or to relocate and start a dreamed-of business.
If this money were spread over the 1.33 million residents in the New Orleans metropolitan area, each resident would still receive $75,000, still enough to pay for a home in many areas of the country.
Can the benefits to the residents’ of local infrastructure possibly equal the benefits for receiving three or ten years’ income as a lump sum? One has to wonder.
[…]If the American Community Survey is to be believed (this is based on a smallish sample), New Orleans has lost another 40,000 inhabitants between 2000 and 2004. The 4.1 percent growth of the New Orleans metropolitan area in the 1990s put it far below the average U.S. population growth. It is hard to find a sunbelt city that is doing as badly as New Orleans. All of this information cuts strongly against any claim that the rebuilding of New Orleans would be more beneficial for its residents, than their receiving a large check or voucher that would enable them not only to rebuild, but to transform, their lives.