April 25, 2007

We should have let those 20,000 people rot in the Superdome for their own moral and economic sakes!

by Dave

Volokh has a new guest-blogger, Steven Landsburg, who writes a column in Slate and has a new book, called Yet Another Freakonomics Knockoff (Hehe. I kid... it's called More Sex is Safer Sex: The Unconventional Wisdom of Economics). No link because, frankly, I really feel sorry for anyone who actually pays to read this book.

I'm not quite sure why he is guest-blogging there, as Volokh is a blawg, and Landsburg is an economist without any pretensions even to be a "Law and Economics" expert. But whatever... Prof. Volokh may, of course, allow whomever he wishes to grace (or sully) the virtual pages of his blog.

Landsburg's first post was some sort of proposal to give everyone two congressional votes... one to be used in their district and one to be used in the district of their choice. If he can't have that, he wishes congressional districts were not geographically based but instead split up by voters alphabetically by last name. He apparently prefers these decidedly non-federalist arrangements because, in his view, they would somehow restrain congresspeople from redistributing federal income tax through porkbarrel spending. In my view, these are what I call "Kucinichesque" proposals.... they are easy to make because they don't have a snowball's chance in hell of being taken seriously and are therefore not prone to being seriously challenged (which would make the giant gaping holes in them apparent to even the most myopic), and at the same time are outrageous enough to draw attention to their progenitor and help him sell a lot of books. I mean, really... in a country where less than 50% of citizens know who Nancy Pelosi is, do we really think people can stay on top of 400-whatever congressional races? Should we really discard the Constitution and start from scratch by setting congressional districts by last name?

Anyway... he followed this post up by pointing out a comment to his original post that attacked federal aid to Katrina victims on the fairly ludicrous and far reaching grounds that federal aid is unconstitutional (stifled giggle), "morally" wrong, and, get this, "destroys the moral fabric of society" (it also apparently suppresses the private insurance market and rewards risky behavior, which are somewhat less laughable rationales, but not by much).

Landsburg endorses this view, and then adds his own fascinatingly farfetched argument: Federal disaster relief to the poor harms the poor most of all! That's right.... here are the exact words: "Poor people, more than most, value cheap housing. A policy of disaster relief makes cheap housing hard to find. Therefore a policy of disaster relief is likely to impose a particular burden on the poor. If you want to help poor people, eliminating federal disaster relief is a good place to start." And it's all proven by the wonderful science of Economics! See, he's an economist, and he said that it is true, so it must be! He even used words like "therefore."

A couple of my most significant objections to Landsburg's viewpoint:

1) Faulty reasoning: In the space of a few paragraphs, Landsburg claims that housing prices are higher in New Orleans (high housing prices in NOLA prior to Katrina?) and San Francisco than they would otherwise be because we are all relying on the federal government to bail us out if there is a disaster, and therefore demand is increased for these supposedly "disaster prone" areas. This is so ridiculous on it's face that it almost doesn't deserve analysis. There is, of course, no data on this: it is for all intents and purposes impossible to isolate through regression analysis the impact that individual and group expectations of the potential for a disaster and the anticipated government response might have on the market pricing of homes. There is also nothing even akin to a survey supporting this proposition, for example something asking people whether they are more likely to move to a disaster prone area becuase they believe the government is likely to compensate them if one occurs. And of course, we all run some chance of a disaster: hurricane, earthquakes, fires, people flying planes into your buildings, tornadoes, nuts who hate taxes with a truckful of fertilizer, etc. etc. Stating it as fact here is a matter of faith, not of science; all kinds of suppositions are assumed to exist in economic theory and modeling under the "rational actor" theories, which is nothing but a model, the basic premise of which has been chipped away by empirical observation that actors are often irrational (I don't even think it has been modeled in the present example; rather, I think Landsburg just said it regardless of having no evidence at all that it is true). People are compelled to live in places because of family, jobs, lifestyle, and, yes, cost of living. However, the minute increase in demand for housing in disaster prone areas that may come from an expectation that the government will probably provide federal aid in the case of a disaster are by any possible measurement insignificant when compared to the benefit that a family recieves from federal aid in the face of the horrors of a disaster on the scale of Katrina. And that's even if they exist at all. We can get into a zillion counterarguments: for example, that people who move to "disaster prone" areas are reducing demand for "non-disaster prone" housing, and thereby driving down housing prices across the country. Or, that housing prices in "disaster prone" areas are already low, because, in Landsburg's fantasy, the "disaster-proneness" of an area is something we are actually thinking about, and therefore people are reluctant to move there, lowering demand. Or, we can point out the extremely obvious: disaster relief is such an incomplete solution to being affected by a disaster that no one in their right mind would agree to pay more money for housing in the hopes that their home mightsomeday be destroyed and then, Yippee!, they wil get to take other people's money! And so on and so forth.

It seems that Landsburg has either (a) a complete inability to understand the difference between the various symbols we call "numbers" and use as a language to compare amounts and sizes of things, (b) an inability to comprehend poverty, externalities, non-hypothetical empirical analysis of human behavior, and the actual human and economic cost that was incurred by Katrina and how much worse it would have been for both the people affected and our society and economy as a whole if there was not the availability of aid, both from charities and our tax dollars, or (c) doesn't like paying taxes, and wants to find a fancy reason for why he shouldn't pay for anything but the things he, Steve Landsburg, wants to pay for. Whichever fault of reasoning Landsburg has (I'm gonna guess it is a combination of (b) and (c)), the guy has made no linkage between the alleged increased in cost and the benefits of disaster relief, just simply stated that it was larger with no proof or logical reasoning whatsoever.

2) Morality and belief. Most of the comments on morality are from the commenter, but Landsburg obviously endorsed them. And, of course, his argument rests on some pretty big assumptions that he posits as fact, but are really libertarian ideology.

It was suggested by the commenter that the distribution of federal aid by taking it from taxpayers and giving it to victims of disasters was immoral. Now, I'm an atheist and a firm advocate of the viewpoint that morality is a social construction, but I am unaware of any major religion or moral code that supports the contention that it is immoral to tax or demand tribute. "Render unto Caesar" was not then qualified by "unless you don't like what Caesar is doing with it, particularly if he is giving it to the poor." Of course, some hardcore libertarians believe that there is a "natural" law right to ownership of property; however, there are very few adherents to this view, with most property scholars today, both legal and economic, seeing property ownership as a right extended by government for pragmatic economic reasons, and not a right extending from God or some other "natural" enabler of morality. But it's a hard time reasoning with the folks who believe such things. My only response is that on Judgement Day you can prove me wrong, and all the IRS agents will be sent straight to hell. Until then, try making that argument in court.

Rather, what I do see are moral requirements to care for those less fortunate than yourself. I see moral obligations to tithe. I see moral obligations to not question the circumstances of those less fortunate, but simply to care for them, whether sinner or saint, as, e.g., Jesus cared for prostitutes, non-believers and thieves.

As a disaster services casework supervisor for the Red Cross, I have seen thousands of cases of victims of disasters. After Katrina, wealthy victims were relatively fine... they evacuated in their cars days in advance, they had savings to get them through to resettlement or to return to rebuild (by no means, however, do I wish to diminish the pain and loss of everyone involved; I only am pointing out the relative economic position of the wealthy to those less fortunate). But for the vast majority, Federal aid and charity were not nearly enough to deal with their tragedy. Here in San Francisco (where we opened cases for over 3700 people) evacuees would show up alone or seperaated from extended family (families scattered across the country due to haphazard evacuation), without clothes, money or belongings, no social network or contacts, emotionally devastated and suffering from depression and trauma. We could give them roughly $200-250 each and provide them with a temporary hotel room funded by FEMA, the best we could do considering the number of victims.They would have to spend this money on food, new clothes, and on various sundries. They would have to deal with their trauma, isolation and grief while attempting to locate a job and make a plan for their future in a strange city. If they were lucky the money would last a week. They would come back, not out of greediness or laziness, but because they had nowhere else to turn, and we would have to turn them away.

To this situation, Landsburg and his commenter say: tough luck. Don't take my taxes to help out this people. They should have thought about it and moved to higher ground. Giving them an inentive to move to disater prone areas only encourages other poor people to suck on the government's teat. I don't care if abnormally large numbers of them commit suicide from the trauma and loneliness. I don't care if young women and some teaanagers turn to prostitution to support themselves and their children. I don't care if many of the working poor of New Orleans are now living on the streets in a far-off city. I don't care if tens of thousands of families are still not reunited. Frankly, if the elderly, disabled vets in wheelchairs, and blind people get screwed becuase their home was torn down by a natural disaster, that's not my problem. I don't care if this situation overburdens our social welfare and health systems, because, frankly, I don't think we should have those systems in the first place. I don't care if cities like Houston have a housing and crime crisis. It's their problem, not mine.

In a way, it wouldn't bother me as much if these types could just say. "You know what? I don't care. My happy suburban life is all nice and neat, and I got my eye on a new car. I can't solve the worlds problems, and frankly I am OK with that." But instead of owning up to the real driving force behind their approach, they justify their choice by contending that it would be immoral to help alleviate these people's pain. Or that it is in the poor's own best interests to not provide them with assistance.

Wow. Mind-boggling. My response is as illogical and unfeeling as their's: the world would be a better place if Landsburg and his commenter were simply removed from the gene pool. And economics proves it!

3) Autistic economics. This is a great example of a modern failure of "economics": the acolytes of the discipline believe that it answers everything in a scientific, empirical fashion. On the one hand, this example is not very good, as Landsburg's argument here is not one given to him by economic principles, but one where he started with the answer and then clothed the rationale in hocus pocus. However, note simply the presumption that application of the discipline's principles without any acknowledgement of assumptions, nor a need to test empirically the theoretical result, nor a need to be informed by other sources of what defines a "good" or a "bad" outcome. For example, consider this statement from Landsburg: "It's a general principle of economics that things tend to work out best when people have to live with the consequences of their own behavior, or, to put it another way, things tend to work out poorly when the consequences of our actions spill over onto other people." While that statement is on the one hand untrue in the sense that that is not a "general principle of economics" but, rather, an ideological conclusion derived from theories regarding the free market and the avoidance of externalities, it is comletely devoid of any external analysis to the the theory that makes it self-referentially true (and therein lies its autism). It is also untrue because economics in no way can resolve the question of what is best and what is worst. What is best and worst is informed by ideological, religious, individual, biological, environmental, and even musical, literary and artistic choices (among many, many others), and the presumption that economics alone can answer it is beyond ridiculous. But try telling that to an autistic economist.

Enough. A rare thumbs-down for the otherwise informed and rational writing at the Volokh Conspiracy. What are they thinking with this guy?

UPDATE: Landsburg, in his final post on Volokh, laments that so many people lack his logical skills and understanding of the world. He contends that evidence is unnecessary, as the theory alone is sufficient. He is thoroughly condescending as he posits truths that are self-evidently false, such as contending that "economists" are in agreement with him and hold his theory to be self-evident, while a number of counterarguments from economists in the comments to his post clearly indicate that that is not even close to true.

April 25, 2007 06:28 PM | TrackBack

Surely we could at least estimate the effects of government bailouts on people's choice of where to live by looking at other times/ places when/ where government doesn't provide such bailouts. For example, did Americans not live in disaster-prone eras prior to the expansion of the federal government? how about people in other countries that do not offer bailouts? (these countries are unlikely to be economically comparable to the U.S., however, given that most developed countries have much more government assistance than the U.S.)

Posted by: PG at April 25, 2007 11:55 PM

If you have a way of doing it, good luck! You're talking about trying to control for a very minor effect (measuring the effect of a potential government disaster bailout - a incredibly small pool of data and a miniscule effect on housing prices - on the otherwise overwhelming set of incentives involved in the housing market: employment, industries, cost of living, quality of life, taxation, families, love affairs, individual quirky desires, migration patterns, weather patterns, technological changes affecting industries, etc. ad infinitum.

Which is what makes this guy's contention so absurd: He is basing an ideological argument (that we shouldn't be taxed to provide federal aid to disaster victims) on a facially illogical hypothesis (that the beneficiaries of Federal aid are, in fact, worse off because of its availabilty to them), that he justifies on an argument that is also contradictory to common sense (that the market raises prices on housing because people want to move to cities where they stand the chance of receiving federal aid in the case of a disaster). Measuring such an effect empirically is practically impossible, and if it does exist would likely be miniscule (there is absolutely no way that the availability of federal aid has a significant effect compared to all of the things that we CAN prove do have a substantial effect on housing prices, such as employment, quality of life, cost of living, yadda yadda yadda. Just compare SF and NOLA on disaster prone-ness, employment and housing prices).

Posted by: Dave at April 26, 2007 01:57 AM

It seems to me that Landsburg gets the point exactly backward. The problem with federal flood insurance is not that it raises the price of dangerous housing but rather that it reduces it.

The National Flood Insurance Program is a subsidy, because it is available well below the price that the market would demand for a particular flood risk. As one of the VC commenters points out, a big part of why it came about is because the relatively wealthy, politically connected people who can afford to buy desirable beachfront property found that the flood risk on such property was so high that private flood insurance was prohibitively expensive, so they could not get mortgages to build their beach houses. They turned to the Government, and the NFIP was born. It insures $250K of flood damage at a price well below market (which killed the private market for flood insurance), and because it's below-market, it LOWERS the price of dangerous flood-prone housing. Without it, the only way the land would be available for building is if the owner paid a steep insurance cost.

This has unintended consequences in places like New Orleans, where it's the poor, not the rich, who live in flood-prone areas. Federally-subsidized flood insurance makes their housing cheaper in flood plains just like expensive beach houses (even if they're just renters); i.e., it makes it easier for the poor to live in dangerous areas. As has been pointed out, they carry much higher risks in natural disasters because of their inability to evacuate as easily. I'm not exactly sure what the substitution effects are, though. Without subsidized flood insurance, this low-income housing would disappear, since landlords couldn't insure it economically. Eventually, more housing would be built in non-flood areas, enabling the poor to find safer homes, but there would be a transition period where housing costs would rise.

But now I'm just rambling.

Posted by: Tom T. at April 26, 2007 08:51 PM

Perhaps he was behind the brilliant decision to decline 854 million in foreign aid offered to the Katrina victims.

Here's another troubling Landsburg column, trying to cast(e) doubt on whether the poor deserve life support:

Posted by: Frank at April 29, 2007 10:42 PM

PG - As for whether we could prove whether or not there is an effect on housing prices, Landsburg doesn't seem to care. Check out his final blog post (linked in the update in the main text), where he essentially states that evidence would be useless, because a logical assumption from the general theory is all that is needed.

Tom T. - Yes and no on your theory. As to no, Landsburg's argument is that availability of federal aid, whether in the form of FEMA aid or flood insurance at a below-market cost, has the effect of providing a increase to the price of housing (because you are getting more than you would if either of these things were available). He argues this boost is received by the original seller of the property once the improvement is made clear to the market. That is theoretically true, but the question is whether empirically it is true (it's farfetched that the market actualizes this theoretical increase) or if it is not countered, if it exists at all, by other forces. So on the narrow focus that Landsburg brings, no, federal aid would not lower prices.

But those "other forces" might be, among others, what makes your thoery correct. If insurers would not insure, and there was no federal aid or insurance, coastal areas such as NOLA may not have much housing development, thereby decreasing supply of housing. The government's formal and informal insurance at reduced and no cost allows development, and thus, among other things, may decrease prices. In the larger picture, your approach is probably correct. It is Landsburg's inability to see the big picture and his desire to reduce a complex system to a simple formula that trips him up (if we are to pretend that he is not just ideologically driven).

Prof. Pasquale - Thanks for the comment. Yes... in reviewing all of his work at Slate and elsewhere, it appears he is a bit of a hack. He is riding the wave of "clever" economics.... and trying to sell some books and some ideology at the same time. Although I am on the one hand tempted to write to Slate and advise them to dump him for being a discredit to his profession, on the other hand I think it is amazing that someone as psychotically pro-rich as he is is still allowed to express his views on a left -leaning site like Slate. It reassures me that I am right when I contend there is no such thing as the liberal press!

Posted by: Dave at April 29, 2007 11:44 PM

Contrary to what Landsburg theorizes, NOLA was actually one of the least expensive places in the US to live before Katrina. As has become apparent, many did not have flood insurance, so its availability below market value is a moot point. If Landsburg really understood economics, he would recognize NOLA's importance to the global economy and realize that people live here because they have to. Most working the refinery, port, and oil-drilling jobs don't make much, but are doing jobs that must be done, else the cost of everything in the country would go up.

Posted by: PBG at May 22, 2007 11:19 PM
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