Katrina and the Public Sector

by James K. Galbraith

Hurricane Katrina has suddenly ended a 30-year illusion—that the era of big government is over. This illusion began with the New York fiscal crisis in 1975 and the California property tax revolt of 1978. It was carried to the national stage by Ronald Reagan in 1980, endorsed by Bill Clinton in 1996, and brought to its apocalyptic unraveling by George W. Bush. We see its consequences in New Orleans.

So now we know. The proper government of the United States must be big, demanding, ambitious, and expensive. It requires the incessant management of environmental forces, the repair and growth of transportation networks, provision of education and health care—and planning for disasters. It is a job for dedicated, competent, professional public servants, with clear missions, big budgets, and accountability for results.

In New Orleans, the levees were sinking; their survival demanded funds that Team Bush diverted to Iraq. Since no barriers could have withstood a direct hit by a category 4 or 5 hurricane, a proper evacuation plan would have mobilized buses, helicopters, aircraft, and the military before the storm hit. As it was, the levees were destroyed by a glancing blow. And the free market evacuation spared anyone with a working car and a tank of gas. But not anyone else.

Mercifully as the water drains, fewer bodies are surfacing than was feared. Equally, the relocation of the displaced population has, by all accounts, gone well. Credit goes to the receiving cities, including many in Texas, who decided to do the job first and count the costs later. And it goes to the many thousands of volunteers who jumped at the chance to help. There was in this, one detects, a stirring personal solidarity, in part precisely because the performance of Bush’s government was so appallingly bad.

Still, much of New Orleans is ruined, and her people are scattered across the country. What next? Private capital will reopen the hotels and the French Quarter, but it will not rebuild the city. Every neighborhood will face neighborhood effects: the fact that no single private investment will pay off unless many others join in. There is no chance that the areas housing New Orleans’ poor or even much of her middle class will recover on their own.

This means that there are two possible outcomes. The first is that most of New Orleans and its Mississippi neighbors will become a fetid, post-apocalyptic campground. The second is that they will be rebuilt and protected—to the extent possible—with public funds. And in that case, the question becomes: Who will control those funds and how will they be used?

The entire ecology of the Gulf Coast is at issue. Why not therefore establish a Gulf Coast Authority, modeled on the TVA, headquartered in New Orleans, with plenary powers to manage the outflow of the Mississippi, levees, wetlands, barrier islands and planned reconstruction of the devastated region? Plans for such a program have existed for years. They should now be implemented under public authority with a strong technical and environmental base. The Bush alternative, which is to throw tens of billions at Halliburton and Bechtel and let them do it, was tried just recently in Iraq. It didn’t work very well there.

Rebuilding the city itself poses different problems. Business leaders are already at work on commercial recovery plans and it would not be a bad idea for the Democratic Party to help them out, by holding its convention there in 2008. But business leaders do not speak for the displaced poor and the middle class. Indeed they speak, largely, against those interests; they would like the rebuilt city to be smaller, whiter, and richer than what was there before.

It is not for business leaders to say who will live in New Orleans. True, many in the previous population will move on by their own choice and not return. But if the core of the city is rebuilt for Republicans, its margins will fill with immigrants from Mexico, Central America, and Asia. Without anyone speaking for them, they could be forced to inhabit one of America’s most squalid slums.

Thus the New Orleans revival requires something daring: a new democratic urbanism, designed to make the city livable for people of modest means and to bring home those evacuees who want to return. There should be a master plan, including housing, public transportation, and public amenities. Representatives of the displaced should have a voice; there should be evacuee organizations to provide that voice. And when circumstances permit—perhaps sooner rather than later—the exiles should have resources to help them return, if they choose, and jobs in the rebuilding effort waiting for them when they get home.

Many will ask, can “we” afford it? It’s a misguided question, since the alternative of doing nothing is more costly. The job ahead cannot be avoided; we have to deal with the situation on Gulf Coast. Our choices are limited to costly decisions that will make matters worse and costly decisions that will make them better. And this is true not only of New Orleans. Once a good model takes hold, there is no reason it should not spread to other parts of the country. We have an entire generation of neglect and decay to overcome.

On whom should the burdens fall? Surely, first and foremost on those who can most afford it, and on programs we don’t need. A windfall profits tax on energy companies, fair restoration of the estate tax, increasing tax rates on dividends and capital gains would top my list. A full-bore attack on offshore tax shelters would help. And while we’re at it, let’s sacrifice Missile Defense—a contractors’ boondoggle of no defense value. And let’s begin to phase down our military adventurism around the world, beginning of course in Iraq.

But since these are capital improvements, whose benefits should last for centuries, it is appropriate that they be funded partly by deficit spending. In a word, the spending should come first and taxes later, out of the larger economy that investment can create. For this, deficit-phobic Democrats especially have to relearn their economics and rethink their politics. You can’t get serious about the crisis in New Orleans and nationwide and continue to posture about fiscal austerity and balanced budgets. Are you reading, Hillary Clinton?

George Bush is taking a beating for stocking FEMA with incompetent cronies. He deserves it. But this abuse of power is not the whole Katrina story. And replacing Bush is not a sufficient condition for progress. The ideas that Bush stands for, including many that Democrats have foolishly accepted, also stand exposed as frauds. It’s time for them to go. The era of “the era of big government is over” is over. And not a minute too soon.

James K. Galbraith is Chair of Economists for Peace and Security; he teaches at the Lyndon B. Johnson School of Public Affairs, the University of Texas at Austin.