Mises Daily Articles
Katrina and Socialist Central Planning
Watching the Capitol Hill hearings on what went wrong after Hurricane Katrina provided a glimpse of what it must have been like in the Politburo in the 1950s. The Soviet bureaucrats would gather with the party officials and factory managers to figure out why grain production was down or why shop shelves were empty or why the bread lines were ever longer and the quality ever worse.
They gathered under the conviction that they had a workable system that was being rendered unworkable because of the incompetence of certain key players in the chain of command. No one was permitted to say that the command system itself was the problem; this would too contrary to the prevailing political ethos. Instead, they had to place blame on someone, as if all problems could be reduced to issues of obedience. It was always a scramble. Whoever was finally said to be at fault faced certain ruin.
To be sure, there was plenty of blame to go around. With rats in a maze, there is a sense in which they are all responsible for not having found the exit. If those rats could also organize into a hierarchy of control and hold trials, it would surely produce quite a show with many victims. But at the end of the day, the rats would be no closer to getting out of the maze. And so it was in the US Congress: the hearings produced a great show with no results that will make a difference for our future.
The Soviet system had to fully unravel before it became permissible to state what it used to be a crime even to think: you can't manage an economy. You can make every demand, issue a million commands, exhaust every financial resource in the state's account, elevate some people and demote others, dress up in a military costume and make grand pronouncements from a glorified pedestal, cut off fingers, toes, and heads, but in the end, you can't make the economy perform in a way that serves the people unless you let market forces work.
Not just the Soviets had to learn this. Authoritarian regimes from the beginning of time have attempted to defy the laws of economics, step on the interests of the merchant class, control and redirect the wishes of consumers and entrepreneurs, bend and kick prices and wages this way and that, and inhibit trade in every way. But they cannot finally overpower the driving desire on the part of people to control their own fate and not be subject to the slavery that is collectivism of all colors, whether red, green, or brown.
Someday, the US managers of crises will have to realize this same point. But for now, they are like Soviet bureaucrats scrambling to make an unworkable system function, and creating a scene that is as farcical as it is tragic.
Consider first how the much-glorified Department of Homeland Security responded to the Katrina crisis. There is a mysterious missing day between the time the hurricane hit and the levees broke and flooded New Orleans. During this strange Monday, August 29 — a day in which there was a window of opportunity to prevent the meltdown of civilization — why didn't federal officials respond or even pretend to respond?
The head of the Department of Homeland Security, Michael Chertoff, said that he read in the Tuesday morning newspaper that, according to the headline, "New Orleans Dodged the Bullet." So, to his mind, there was nothing to do. This was his testimony. This is not exactly an awe-inspiring admission, but it speaks to a truth that few are willing to admit: government officials live normal lives. They do not partake of the mind of God. They get their news just like you and me. And they have far less information than the body of knowledge generated by the signaling process of the market economy and the private sector.
We might even say that they are in effect sub-normal in intelligence, because government officials stand outside of society, cut off from normal channels of information that the rest of us take for granted. They are isolated from markets and the regular pressures of life. They are not owners of what they control, and have no real stake in the value of their product. They are surrounded by some of the most peculiar people in the world, namely lifetime bureaucrats, power-mad politicians, and lobbyists on the make. This is their world and this is what they know.
Now, they enjoy the illusion of being better informed than the rest of us, so it would never occur to a high official to surf Google News to find out what is really going on. Thus was it apparently beyond the capacity of FEMA to find out that the National Weather Service had issued a flood warning soon after the hurricane hit. The National Weather Service in turn was only reporting what many private local media outlets were saying.
Certainly the municipal government of New Orleans got the message. It issued a warning to residents, and then all the officials packed up their stuff and headed to Baton Rouge. I suppose that this was the plan that the bureaucrats came up with after having received a $500,000 federal grant in 1997 to design a comprehensive plan for evacuation. Half a million dollars later, they agreed what the plan should be. Two words: let's go!
Now, we can learn from observing this. It is always the case that the government's first interest in a crisis is the protection of itself. The public interest is way down the list. Government employees have no ancient code that requires them to go down with the ship. The seafaring captain might feel disgrace if he lost his crew and passengers but returned safely to shore, but the government bureaucrat would see this as nothing but rational self-interest at work. From their point of view, public service is not a suicide pact.
If this is so, are we wise to expect government service at times of crisis? Well, here is where it gets complicated. They always promise that they will take care of us. On the day the Hurricane hit, for example, President Bush made the following announcement: "For those of you who are concerned about whether or not we're prepared to help, don't be. We are. We're in place. We've got equipment in place, supplies in place. And once the — once we're able to assess the damage, we'll be able to move in and help those good folks in the affected areas."
Well, given the calamity that followed, this statement by Bush might as well have been a Soviet propaganda poster about the glorious future of socialism.
If the only response by government were to turn and run, they could be accused of hypocrisy, but it would be better than the alternative of bad government that stayed to ruin the work that markets and private individuals do.
As the Hurricane approached, for example, Mr. Bush, along with nearly every office holder in the entire region, immediately announced that there would be no tolerance of so-called price gouging. What is and what is not gouging remain #ff0000 by law, but there are still criminal penalties attached to doing it. If you raise your prices to the point where you attract a complaint, there is a good chance that you will be thrashed as a gouger.
And yet, we have to ask ourselves what the purpose of a price is. It is a signaling device that allows market players, including both producers and consumers, to adjust their economic behavior in light of supply and demand. If supply remains the same and demand rises, the price too will have to rise so the market can clear properly. Otherwise there will be shortages and surpluses that will prove to be a benefit to no one. William Anderson has called gouging rules a form of back-door price control, and he is right. They create victims, encourage economic dislocations, and foster black markets.
One might think that a Republican administration would understand this, but reflect on the fact that Iraq still has very strict price controls on gasoline, controls that were instituted by the US after Saddam was overthrown. Don't think for a minute that it is beyond the capacity of the Bush administration to do what the Nixon administration did, which was to believe that the laws of markets can be overridden by regulatory force.
Anti-gouging laws, to the extent they are obeyed, will create shortages. But in telling the sad tale of Katrina, I would like to begin not with a case of shortage, but with a strange case of surplus.
One week after the hurricane, FEMA ordered the Army Corps of Engineers to buy 211 million pounds of ice from IAP Worldwide Services of Florida. Trucking companies were notified of a grand opportunity since the government was paying the bills for delivery, and the dispatchers sent out the word. There is no space to explore the workings of IAP Worldwide, but I will observe that the company, which exists solely to get paid by your tax dollars as a federal contractor, has a new CEO who most recently held the position of vice president of national security programs for the notorious Kellogg Brown and Root. His name is David Swindle.
But back to the story of the ensuing chaos. One trucker picked up ice in Greenville, Pennsylvania, and was told to drive it to Carthage, Missouri. When he arrived in Carthage, he was told by a FEMA official to go to Montgomery, Alabama. After a day and a half sitting in Montgomery, he was told to go to Camp Shelby, Mississippi, after which he was sent to Selma, Alabama, after which he was sent to Emporia, Virginia, where he stayed for a week burning fuel, until he was sent to North Carolina, and finally to Fremont, Nebraska, where he dropped the ice in a government storage unit. That's 4,000 miles over two weeks.
This was hardly the only case.
The news media chronicled the stories of these truckers. A truck full of ice was sent from Dubuque, Iowa, to Meridian, Mississippi, then to Barksdale Base in Louisiana, then to Columbia, South Carolina, and finally to Cumberland, Maryland, where he waited for six days before being sent to Bettendorf, Iowa, where the ice was unloaded. Another truck was sent from Wisconsin to Missouri to Selma to Memphis, before finally dropping off the ice in a storage unit.
Do you know how many drivers were enlisted in this incredible charade? 4,000. No one knows for sure how much ice ever got through or how much good it did, if any.
In one of the first incidents reported of what was to be two weeks of catastrophe, a group of volunteer fire fighters from Houston came to New Orleans wanting to help. They were told to wait. They waited 48 hours and were ordered to go back. A group of doctors from Maryland tried to get in but FEMA sent them on to the Red Cross, which said it could do nothing without the approval of federal health officials.
After the New Orleans mayor made a call for firefighters to come help, hundreds of volunteers were sent to Atlanta, where they were put in a conference room at the Sheraton hotel and subjected to seminars on sexual harassment and other bureaucratic matters. They were then told that their job would be to distribute flyers with a message on it: call 1-800-621-FEMA. Many or even most of these well-trained people caught on to the racket and left town. Those who stuck it out and headed for Louisiana were aghast that their first assignment was not to fight fires, which had been raging for a week, but to escort President Bush on his TV-laden tour of the area.
You can see all the photos on WhiteHouse.gov.
In fact, FEMA refused offers of help of all sorts, mainly because of issues of control. FEMA declined helped from Amtrak in evacuating people from New Orleans. The Chicago municipal government was trying to send volunteers from the fire department, police department, and hospitals. FEMA said no. The same happened to New Mexico, whose governor volunteered equipment and personnel.
FEMA prevented Wal-Mart from delivering three tank trucks of water, and the Coast Guard from delivering 1,000 gallons of diesel fuel. It even cut the communications lines for Jefferson Parish. The local sheriff ending up posting armed guards to protect the restored lines from FEMA — an interesting model that many communities around the country would do well to imitate in the future.
A chief medical officer for a large ambulance company says he was unable to find helicopters to pick up dying patients at the Superdome. He walked outside and discovered that two helicopters, donated by an oil services company, had been ordered to wait in the parking lot. Morticians attempted to donate their help. But FEMA said absolutely not, on grounds that they were not officially certified by FEMA to perform such services, so the bodies of the dead piled higher.
As for the National Guard, for days it would not allow reporters into the superdome where tens of thousands were trapped. People were hungry and thirsty, but the National Guard would not allow the Red Cross to deliver any food.
Here is the astounding statement from the spokesperson of the Red Cross: "The Homeland Security Department has requested and continues to request that the American Red Cross not come back into New Orleans… Right now access is controlled by the National Guard and local authorities…. We cannot get into New Orleans against their orders."
The Salvation Army attempted to rescue two of its own officers trapped in a building and on dialysis. They rented three boats for a rescue. But they were not allowed through, though to be fair the Salvation Army did not specifically name the government as at fault, but it did point out that all private efforts were running into similar kinds of obstacles, so the message was clear.
Meanwhile, the USS Bataan, a floating hospital for 600 patients, that had ridden out the storm, was still sitting empty by the third day, not permitted to do its job.
An astounding case of ineptness comes to us from the case of three Duke University students who drove to New Orleans to help but were turned away by the National Guard. They had seen the news and knew that they could help, and wondered why they should be pushed around by bureaucrats. Being college sophomores, they took a risk. They forged press credentials, with fake IDs and shirts and the works. They went back and adopted a haughty tone. The National Guard waved them through.
Then the students drove to the Convention Center. There they found thousands of sick, hungry, thirsty, and dying people in desperate need. They found a man who had welts all over his body. He was in a tree covered with fire ants as the waters rose, and there he stayed there being bitten repeatedly for up to 24 hours.
The boys picked him up along with three others and drove them to a Baton Rouge hospital. They made another trip there and back with more people before they began to become frightened of what the government might do to them. On one return trip, they observed 150 empty buses driving the other way — and they have a video to prove it.
One can only express astonishment at how the government treated the tens of thousands of people that it had herded like cattle into large public spaces. For reasons that are still unclear, the government couldn't get its act together on transporting them out even as the people themselves were forbidden to leave. Once the central planners decided to move all these people from the Superdome to the Astrodome, no means of transport arrived, even as aerial photos showed miles and miles of public buses available.
Indeed, the first bus to reach Houston was not driven or approved by the government. It was commandeered by 20-year-old named Jabbar Gibson, who drove it from the floods and picked up as many people as he could and drove all the way to Houston, a 13-hours drive! He beat the government's system by a day. Meanwhile, the tens of thousands of people who had been shoved into the Superdome on Sunday, before the floods came, were still suffering in that massive calamity by Friday and Saturday.
Perhaps the most astounding case of incompetence has received the least attention. It relates to a 500-boat flotilla stretching over 5 miles that left for New Orleans from Acadiana Mall in Lafayette. It involved 1,000 people who had hoped to rescue hospital patients and take them to safety. It consisted of private boaters, fishermen, hunters, and others who had spent their entire lives navigating the waterways of Louisiana.
Once this caravan arrived, they were turned away by the Department of Wildlife and Fisheries, now being run by FEMA. All five hundred boats were ordered out.
After pleading, some people were told that they could take the boats to a rescue operation launch site. They reported that at this site, there were 200 agents of the government standing around doing absolutely nothing even as people were dying in hospitals and thousands were desperate to get out. After three hours, even these few boats were told to go away.
Now, President Bush has been criticized for being out to lunch on all of this. Indeed, some staff members put together a DVD of the evening news coverage for him to watch on Air Force One, which was the only way they could get him to understand the depth of the crisis. The purpose of the action was not so much to help people, of course, but rather to stop the meltdown of the president's reputation.
In fact, by the time he actually arrived in Louisiana, food and medicine deliveries, such as they were, had to be halted on order of the White House, to make room for the presidential caravan.
Then there was the matter of the government's proposed cash gifts to the victims of Katrina. Most FEMA employees knew nothing about it when their phones and offices were mauled by people demanding their cash. FEMA's website registration for victims required Internet Explorer 6.0 and could not work with any other browser. Of course this is somewhat academic, since most of the victims had no computer access at all. But those who called the number were often told to go online to register. Most of the time, people couldn't get through on the phone or online.
In one particularly interesting detail, Katrina triggered the first use of the Department of Homeland Security's great accomplishment since it was created after 9-11: the National Response Plan, a 426-page central plan for dealing with a crisis on the level of the post-Katrina floods. Here is how the government describes it:
"The National Response Plan establishes a comprehensive all-hazards approach to enhance the ability of the United States to manage domestic incidents. The plan incorporates best practices and procedures from incident management disciplines — homeland security, emergency management, law enforcement, firefighting, public works, public health, responder and recovery worker health and safety, emergency medical services, and the private sector — and integrates them into a unified structure. It forms the bases of how the federal government coordinates with state, local, and tribal governments and the private sector during incidents."
What happened to the National Response Plan after the floods? It remained what it always was: a colorful PDF download, a thick book on the management shelves, an item in the Government Printing Office catalog, bird-cage liner, and many other things. One thing it was not was a national response plan that did all those glorious things listed above. As with all these plans from time immemorial, it was a dead letter.
As for the National Guard, it did what the military does best: it started harassing the residents. Working with the police, it began to enforce an order for everyone to evacuate. As the New York Times summarized the order: "no civilians in New Orleans will be allowed to carry pistols, shotguns, or other firearms of any kind."
The National Guard allowed themselves to be videotaped going from house to house, and mansion to mansion, knocking down doors, searching for weapons, handcuffing owners and humiliating them. They called them the "holdouts," a phrase out of Baghdad.
One storm trooper — that's a pretty good name for them — was asked whether he would shoot residents if they resisted. Yes, he said. He added, "It's surreal. You never expect to do this in your own country."
The police also broke into the offices of a heroic little company in New Orleans that did not flee. Its name is DirectNIC, an Internet Service Provider, and it was staffed by friends of the Mises Institute. Through careful preparations, good generators, lots of fuel, and vast amounts of courage, this company kept providing internet service throughout. For several days after the flooding, it was the only source of information coming out of New Orleans. They had a camera on the streets below, and ventured out to take pictures of the scenes. They were first to report the looting, the explosions, the fires, and to chronicle the craziness. They became so good at acquiring fuel that they military actually came to them for diesel.
Millions were logging into their feed, and for four of the most critical days the Mises Institute actually provided the group with an external server in order to make their broadcasts possible. They were showing what the mainstream media would not show and could not show. But late one night, there was a pounding at the door. The National Guard had seen lights in the window and demanded to know what was going on in this room. Though these young people had already been interviewed on MSNBC, Fox, and were the talk of the blogosphere, the troops knew nothing about them. Astounded and confused at what they saw, the troops allowed their pictures to be taken and went on their way.
I've provided a look at some of the terrible failures by the government — not only failing to do what it claims it will do, but actively working to prevent others from helping out. The cost to human life and prosperity is incalculable. But, one might say, at least the government is generous now in preparing to spend perhaps $250 billion to clean up and reconstruct what was destroyed.
But who will get this money and where will it go? Cynics could not be more correct: the first companies to receive the money were our old friend Kellogg Brown and Root, a current client of President Bush's former campaign manager and former head of FEMA. KBR is a subsidiary of Halliburton, the company formerly headed by Dick Cheney. Another winner is Bechtel, whose former head is now in charge of Bush's Overseas Private Investment Corporation. The top rebuilding priority: repairing government military bases in Louisiana and Mississippi.
If you work for one of these companies, you will do very well by this aid. As for the victims, everyone knows that what rebuilding they do will come from their own savings. You can expect no assistance from this monstrosity that taxes and controls you relentlessly on the pretext that it will protect you and care for you when no one else will.
Fortunately for people who lived in flooded areas, they did not face the crisis alone. The private commercial sector, along with thousands of religious charities, was there to help. Indeed, John Tierney of the New York Times was one of the few mainstream journalists to note that Wal-Mart improved its image after Katrina. Its stores in the disaster-stricken areas still carried generators in areas. Wal-Mart trucks rode into to areas immediately following the hurricane and gave away chain saws, boots, sheets, and clothes for shelters, plus water and ice. It alone had prepared for emergency with its own emergency operations center.
Chris Westley further noted that Wal-Mart gave $20 million in cash donations, 1,500 truckloads of free merchandise, food for 100,000 meals, and the promise of a job for every one of its displaced workers. After comparing FEMA's failures with Wal-Mart's successes, he concluded that the government emergency management ought to be abolished.
Tierney, meanwhile, drew the wrong conclusion. He says that the Wal-Mart CEO "is the kind of leader we need to oversee the tens or hundreds of billions that Washington will be spending on the Gulf Coast. Scott could insist on low everyday prices while still leaving the area as well prepared for the next disaster as Wal-Mart was for Katrina."
In fact, if Lee Scott were given a government job, it would only be a matter of time before he became just another Michael Brown, the disgraced former FEMA head. This isn't a matter of character. It is a matter of the maze in which you find yourself — the one made by the market so that it has large exit signs, or the one that is government's, that is, the one with no exits at all.
As Walter Block, Mark Thornton, and many others have shown, it was not the storm as such that did the damage, but the failure of the government levees. Combined with the levees-only river management strategy of the Army Corps of Engineers, the floods were a disaster waiting to happen. Just imagine if the town were private like your home or car. Insurance companies would have taken a huge role in risk assessment, not only charging more for higher risk but insisting on management strategies that reduce risk and rewarding those who adopt those strategies with better premiums. This works on the same principles as you home owners' insurance, which combines rules and incentives to reduce the likelihood of losses.
Government insurance, however, makes us less cautious and more willing to take risks. It prices coverage from losses far too low and creates an environment where disasters like flooding are waiting to happen. With programs like subsidized flood insurance, government is like a bad mother who pays her children to run with scissors.
Government ownership is even worse because there are no signaling systems in operation at all. It was also government that created a false sense of security for people in New Orleans, who were led to believe that the levees would hold and pumps would work. And when the floods finally did come, they were told the government would be there to manage the crisis.
But the government cannot manage crisis, as the response to Katrina demonstrated. The local government fled. The state government was dithering. And the federal government actively worked to prevent good things from happening. The thousands and millions of acts of private heroism that took place after Katrina occurred despite the government and not because of it.
And yet what lessons does the political culture want us to take from this? It is the same lessons we are instructed to learn after NASA spends and spends and still can't seem to make a reliable space shuttle. We are told that NASA needs more money. The public schools absorb many times more — thousands times more — in resources than private schools, and still can't perform well. So we are told that they need more money.
The federal government spends trillions over years to "protect" the country and can't fend off a handful of malcontents with an agenda. And so we are told that the government needs to start several new wars and erect a massive new bureaucracy and put sections of the country under martial law at the slightest sign of trouble.
So too, Congress can allocate a trillion dollars to fix every levee, fully preventing the last catastrophe, but not the next one. The real problem is the same in all these cases, not insufficient resources but public ownership and management.
Public ownership has encouraged people to adopt a negligent attitude toward even such obvious risks. Private developers and owners, in contrast, demand to know every possible scenario as a way to protect their property. But public owners have no real stake in the outcome and lack the economic capacity to calibrate resource allocation to risk assessment. In other words, the government manages irresponsibly and incompetently.
Actually, it was Mr. Bush who said one of the most sensible things, on September 2, 2005: "If you want to help, if you're listening to this broadcast, contribute cash to the Salvation Army and the Red Cross…. They're on the front lines providing help to the people who need help."
But it was two weeks later when his other instincts kicked in and he delivered a very different message, one that is deeply alarming. He said: "It is now clear that a challenge on this scale requires greater federal authority and a broader role for the armed forces — the institution of our government most capable of massive logistical operations on a moment's notice."
Interesting that his beloved military was not there at a moment's notice. It now cites its own failures as the great excuse to expand its powers. So the government will spend the next several years preparing for another Katrina that will never come, just as it spent the last several years preparing for another 9-11 that will never come. The next crisis will be something completely unexpected, and once again the government will fail. But we will be left with a government with some very bad habits, among which are declarations of martial law, mandatory evacuations, gun and price controls, and other totalitarian ways.
And given that that this is a Republican administration with its own internal culture, and its attachment to military means, we get what can only be described as the continuation of the fascist track: the militarization of the country under its own armed forces.
So far as I know, this passing remark by Mr. Bush has provoked no commentary in the national press. Commentators in the organized conservative movement have displayed an appalling deference to administration's priorities, with National Review consistently arguing for more spending and militarization, Rush Limbaugh calling for price gougers to be strung up, and even some free-market friends calling for billions to rebuild New Orleans as a way of showing terrorists that we won't let the weather get in the way of progress. On the last point, I kid you not.
Conservatives have been especially bad on tolerating egregious uses of the military. We need to reflect on what it means to have the military take over in the event of crisis. What kind of ideology promotes such things, and looks the other way when it happens? I think I know, and it serves as a reminder that not all threats to freedom come from the Left.
A clue comes from the neo-Nazi novel called the Turner Diaries, sometimes cited as the motivating force for the bombing of the Oklahoma federal building, which ends in what the author regards as a political utopia. After a world war that exterminates all non-whites, a military regime takes over the United States and centrally plans the economy under permanent martial law. All food and water are distributed on military trucks, all production takes place on a planned basis, and the merchant class is required to obey or be shot.
The author describes this race-based national socialism as if it is a system with an inherent appeal to the reader, and perhaps there are people economically ignorant enough and full of enough loathing for humanity and freedom to regard it as attractive. I do know that in our own times there are people waiting in the wings who long for power and who are drawn to the ideal of a militarized society and a centrally managed economy. Some call themselves conservatives, and they are as much a threat to civilization as those who call themselves liberals.
But let me end with several notes of optimism. The first is implied in all that I said above. The government cannot actually do what it promises, and there is a way in which we can only be thankful for that. It cannot succeed in managing a central plan. Its plans will always fail. The government tries to use its failures as an excuse for more power, but with every failure comes a substantial degree of public humiliation for the public sector, and that humiliation can provide a basis for the undoing of government authority.
Some people say that a loss of government authority will mean the breakdown of civilization. Actually it will create the preconditions for the reestablishment of civilization, and in a state of freedom that can happen very quickly. The aftermath of Katrina illustrated in a million individual acts of charity and enterprise that people can manage their affairs, even amidst the chaos.
The calamity following Katrina was an egregious display, one that gave the federal government a black eye. The Democrats will continue to use this to harm the Republicans, which is fine by me, but it is not just Mr. Bush that is suffering, but the whole apparatus of central planning by decree from above. A government that cannot manage a crisis should not be trusted to manage anything at all. Thanks to Katrina and its dreadful aftermath, I think it's fair to say that the age of not trusting government has returned with a vengeance.
It took decades for the rot to give way underneath the Soviet apparatus of central planning. But eventually the implausibility of the entire project was no longer possible to deny. It gave way under an intellectual reaction against the whole of socialism. We are seeing something like that take place today, as government fails in Iraq and New Orleans and in every place around the country and the world where it causes problems and creates no solutions.
The age of confident central planning is behind us. Right now, the state is just trying to keep its head above water. If freedom is to have a future, the time will come when it will sink to an ignoble end, and we will wonder how we ever believed in this myth called government crisis management.
The advocates of freedom and the partisans of private enterprise will be there with the intellectual equivalent of flotillas, barges, buses, helicopters, and the whole apparatus necessary to rescue liberty from every attempt to kill it. And when our City on a Hill comes to be, it will be privately built to withstand any flood.
This speech was given at the Supporters Summit, October 7, 2005, Auburn, Alabama. Listen to it here.