The aftermath of Hurricanes Rita and Katrina has shown how closely linked our manufacturing economy is to regional, national, and global trade. Earlier this week, in fact, we received word that foam companies were putting their customers on allocation across the country due to price spikes and lack of availability of key chemicals. These allocations will limit production at the OEM level and cause supply constraints that will be fell up and down the industrial supply chain. But in the future, barring any unforeseen crises, supply will once again meet demand for these commodities. That’s because over the long-term, capitalism is inherently resilient. Other producers, in different regions, will find new sources of supply and step in to meet demand requirements, provided they can make a sufficient profit in the process. And production and shipping will once again return to normal in the Gulf area, providing added competition and ensuring a fair market price for what is produced. The free market economy will eventually save the day.
But unfortunately, the same cannot be said for the future of New Orleans, which has lived in a subsidized, protective world since the advent of the New Deal. According to a recent article penned by Cato Institute’s Director of Health and Welfare, Michael Tanner, “the federal government has spent nearly $1.3 billion on cash welfare in Louisiana since the start of the Bush administration. That doesn’t count nearly $3 billion in food stamps. Throw in public housing, Medicaid, Child Care Development Fund, Social Service Block Grant and more than 60 other federal anti-poverty programs, and we’ve spent well over $10 billion fighting poverty in Louisiana. This doesn’t even begin to count state and local welfare spending.”
This spending has only helped make matters worse for the former citizens of New Orleans. According to Tanner, despite the spending, “nearly a third of New Orleans residents had incomes below the poverty line … Louisiana’s poverty rate is fourth highest in the nation. The state’s child poverty rate is the country’s second worst. When it comes to fighting poverty in New Orleans, we’ve spent billions, and accomplished almost nothing.”
No amount of spending would address the number one challenge to fighting poverty in the region: a limited number of jobs. But the welfare state kept people in the region, subsidizing their very existence and providing them with just enough to get by. Had residents of New Orleans been forced to move, by the market, to areas where jobs and opportunities were more plentiful―rather than being kept imprisoned and in poverty by government handouts―the population would have ultimately been better off. In fact, the dispersion of the poor population out of New Orleans due to Hurricane Katrina will probably benefit its former residents the most in the long run, as they move to areas which afford better opportunities and a chance to start over.
The worst thing that we as nation can do would be to encourage New Orleans’ poor, displaced former residents to return to the area via a government hand-out. Indeed, New Orleans should not rely on the government for rebuilding. It should rely on the market (with government incentives to encourage growth). Just as some industrial products companies (e.g., chemical concerns) may engage in some short-term profit taking, workers too have new opportunities. In fact, we heard today that fast food workers have the opportunity to obtain signing bonuses of up to $3,000 and a pay jump of nearly 100% if they move to New Orleans. The laws of supply and demand can also create some unique incentives for employees. Businesses and government should aid workers by providing training and development. If government can create the right mix of economic development opportunities and incentives for the free market to work, then New Orleans has a chance to be something better than it used to be.
