Repopulating New Orleans
[An unpublished paper written in February 2006.
Reprinted with permission from the author]
Our latest Nobelist in economics, Professor Thomas Schelling, offers
the following advice about New Orleans: "There is no market
solution to New Orleans. It is essentially a problem of coordinating
expectations...." By that he meant simply that each person's
incentive to move home and rebuild depends on his or her confidence
that others will do likewise. There must be "credible
commitments," Schelling said. "But achieving this
coordination in the circumstances of New Orleans seems impossible....
There are classes of problems that free markets simply do not deal
with well. If ever there was an example, the rebuilding of New Orleans
So economics has come to this. Schelling is a specialist in "complex
market behavior using game theory". His current book is Strategies
of Commitment. A reviewer praises him as one who "takes on
practical questions." Apparently practical New Orleans is too
complex for the most advanced modern theory. Only yesterday, the
approved professional posture was not to recommend programs, but just
advise timidly on how different ones might work, covering one's back
with caveats. Now our top dog has gone the next step, and advises us
that nothing can work, not even the market. A discipline with roots in
Utilitarianism has morphed into Futilitarianism. Accordingly, "prestigious"
graduate schools mill out neutered clones -- we see them in the job
market at this time every year -- with templates and techniques and
powerpoints for everything, and solutions for nothing.
Actually, there is a time-tested way to solve the problem that
defeats Schelling and his "game theory". American urban
settlers and investors have a long history of building cities by "coordinating
expectations". In 1891 the traveling Lord James Bryce noted of
Americans, "Men seem to live in the future rather than in the
present: ... they see the country not merely as it is, but as it will
be, ...". They achieved critical urban mass by faith in each
The mutual faith was economic more than theological. Bryce noted that
in 1891 "State revenue is almost wholly direct, because of the
commerce clause". The commerce clause blocked states from taxing
imports, then the major alternative to taxing property. And so "The
chief tax is in every State (and locality) a property tax,...".
This property tax at that time fell mostly on land values, because
that is most of what there was to tax. This was the mechanism for "coordinating
expectations". Each landowner felt the pressure to use his land,
knowing his neighbors felt the same pressure at the same time. (There
were also pioneering religious and ethnic groups that fostered mutual
faith, as the Greek Orthodox community is doing now in its small part
of New Orleans. In "game theory" we are all greedy monads,
so such things do not happen in the models, and who cares about the
extra-modular or "real" world outside the laptop - "relevance"
is so 1960's.)
It's not that Schelling never heard of the stimulative effect of
taxing land values. In 1971 I had the privilege of presenting it to a
seminar at the Brookings Institution. I suggested raising the land
tax, and lowering sales taxes, and taxes on buildings. Most attendees
participated with circumspect sympathy, notably excepting Thomas
Schelling. He objected that any change in tax policy would break the
social contract, destabilize expectations, shatter investor
confidence, and risk bringing the world down in ruins.
A year earlier I had spoken on the same point to a New Orleans civic
group that sponsored a Brookings urbanism program. They were charming
hosts, eager for ideas to clear "undesirable" neighborhoods,
but obsessed with preserving Le Vieux Carré, which they
saw as unique, interdependent, wholesome, a money machine, and too
fragile to survive competition that would replace it with the
commonplace. Like Schelling, they chose stasis, with the results that
we see today. Actually, there can be no stasis: buildings depreciate
every year, and need constant upkeep, operation, adaptation to
markets, and often replacement.
New Orleans also has a clutch of private universities where abstract
thoughts soar into the rare, without relieving the commonplace squalor
around them, any more than Yale, Columbia, Chicago, Penn, MIT, Duke,
Marquette, Rochester, Howard, Catholic, Hopkins, or USC uplift their
respective neighborhoods. "Slums must create great universities,
because it couldn't possibly be the other way around" -- Leonard
Styche, city planner. Tulane has long been the nursling of New
Orleans' old power elite, and nursery of the new. Loyola has selected
an extremist among extremist libertarians, Walter Block, for a
distinguished named professorship. We are still waiting for some New
Orleans professors to break from their cocoons and tell us how to save
A going city or region, destroyed by catastrophe, has an easier time
returning to critical mass than does a new city or region flying
blind. London renewed itself after the Great Fire of 1666; Northern
New England after being ravaged in King Philip's War, 1675-76;
Schenectady after Frontenac razed it in 1690; Lisbon after the quake
of 1755; Dutch cities after flooding themselves out to balk successive
Spanish, French, and German invaders; Moscow after 1812; and
Washington, D.C., after 1813. In 1848, John Stuart Mill made a major
point in his Principles on "the great rapidity with which
countries recover from a state of devastation; the disappearance, in a
short time, of all traces of the mischiefs done by earthquakes,
floods, hurricanes, and the ravages of war." Since Mill there
have been a series of such rebirths: Atlanta after Sherman; Chicago
after 1871; swaths of Wisconsin after the epic 1871 fire named for
little Peshtigo; Johnstown, PA, after its killer flood of 1889; San
Francisco after its quake and fire of 1906; Flanders after World War
I; Ventura County, California, after the St. Francis dam disaster;
Tokyo after 1926; Nanking after Japan's soldiers raped it. After World
War II came Germany's Wirtschaftswunder, and rebuilding of
Coventry, Rotterdam, Tokyo again, Hiroshima, Nagasaki, much of Russia,
Anchorage after its quake, Kobe after its, and so on, and on.
Historian Alexander Gerschenkron popularized the "advantage of a
late start" in industrial competition. Destruction provides that
advantage: wipe out the obsolescent and depreciated old capital and
the renewed city will embody the latest technology in its capital. The
rioters and arsonists of 1967 boasted with some justice that they were
doing "instant urban renewal". Burning and razing releases a
vast and seasoned land area for the new. It couples the advantage of a
late start with the forward inertia of an early start. We rightly
deplore the human cost and suffering of such wild violence. It is
better to adopt the kinder, gentler program of tax reform.
Permanent hazards may remain. Yet, Chicago was rebuilt on the
foundation of its "stinking swamp", where Chicago architects
pioneered the modern skyscraper on deep caissons. Tokyo was rebuilt at
the confluence of four tectonic plates, and after 1945 with no navy or
army of its own. San Francisco was rebuilt on the San Andreas Fault,
and went high-rise on its crazy hills while level Los Angeles was
still capping building heights and opting for sprawl. Much of the
Netherlands thrives below sea level. Hong Kong grew capitalistically
in the jaws of Mao, and Johannesburg amid newly empowered blacks with
scores to settle.
After disaster, location remains, and location makes cities. Greater
New Orleans was recently the largest port in the world, in tonnage.
People, enterprise, and investment also make cities. Herein lies the
greater hazard, for many American cities self-destruct without the
bang of natural disasters, but with a whimper of futility, like
Buffalo, Cincinnati, Detroit, Camden, or East St. Louis. New Orleans
today has a kind of dynamism that those decaying cities lack. Demand
for its real estate is holding up well, and rising in the unflooded
areas like the Gentilly Ridge. Even in the flooded and abandoned areas
there is strong demand from absentee speculators looking to hold for a
free ride up the price elevator as the efforts of others bring back
the neighborhoods. Yet, this kind of dynamism is worse than stasis.
These absentee bottom fishers choke out other buyers aiming to commit
their lives, to rebuild and reside and occupy and make neighborhoods.
As "Each man kills the thing he loves", absentee investors
collectively drive away the very people who could make their dreams
come true. Many of them have no plans, but are waiting for other
people's plans. "Coordinating expectations" like those comes
to collective failure. New Orleans' tax system, tragically, penalizes
the builders and spares the free riders.
How did other cities come back? Born-again San Francisco, 1907-30,
makes an edifying case study in success. What can it teach New
Orleans? It had no State or Federal aids to speak of. The state of
California had oil, but didn't even tax it, as Louisiana does. It did
have private insurance, but so does New Orleans today. It had no power
to tax sales or incomes. It had no lock on Sierra water to sell its
neighbors, as now; no finished Panama Canal, as now; no regional
monopoly comparable to New Orleans' hold on the vast Mississippi
Valley. Unlike rival Los Angeles (whose smog lay in the future) it had
cold fog, cold-water beaches, no local fuel, nor semitropical farm
products, nor easy mountain passes to the east. Its rail and shipping
connections were inferior to the major rail and port and shipbuilding
complex in rival Oakland, and even to inland Stockton's. It was hilly;
much of its flatter space was landfill, in jeopardy both to
liquefaction of soil in another quake, and precarious titles (due to
the public trust doctrine). Its great bridges were unbuilt -- it was
more island than peninsula. It was known for eccentricity, drunken
sailors, tong wars, labor strife, racism, vice, vigilantism, and civic
scandals. In its hinterland, mining was fading; irrigation barely
beginning. Lumbering was far north around Eureka; wine around Napa;
deciduous fruit around San Jose. Berkeley had the State University,
Sacramento the Capitol, Palo Alto Stanford, Oakland and Alameda the
major U.S. Naval supply center. How did a City with so few assets
raise funds to repair its broken infrastructure and rise from its
ashes? It had only the local property tax, and much of this tax base
was burned to the ground. The answer is that it taxed the ground
itself, raising money while also kindling a new kind of fire under
landowners to get on with it, or get out of the way.
Historians have obsessed over the quake and fire, but blanked out the
recovery. We do know, though, that in 1907 San Francisco elected a
reform Mayor, Edward Robeson Taylor, with a uniquely relevant
background: he had helped Henry George write Progress and Poverty
in 1879. George, of course, is the one who wrote and campaigned for
the cause of raising most revenues from a tax on the value of land,
exempting labor and buildings. George, Jr.'s bio of his dad calls
Taylor the only one who vetted the entire MS. George's academic
biographer, Charles Barker, credits Taylor with adding style and class
to the work, and some ideas along with it. Taylor's call for action
appears on p.396, introducing "The Application of the Remedy".
If you had been a partner in writing Progress and Poverty, and
composed its call for action, and became reform Mayor of a razed city
with nothing to tax but land value, what would you do?
Reams are in print about how Henry George was not elected Mayor of
New York, but nothing about how his colleague E.R. Taylor WAS elected
Mayor of San Francisco. While George was barnstorming New York City
and the world as an outsider, Taylor stayed home and rose quietly to
the top as an insider.
In 1907, single-tax was in the air. It was natural and easy to go
along with Cleveland (Mayors Tom Johnson and Newton Baker), Detroit
(Mayor Hazen Pingree), Toledo (Mayors Samuel Jones and Brand
Whitlock), Milwaukee (Victor Berger and Mayor Daniel Hoan), Chicago
(Mayor Edward F. Dunne, J.P. Altgeld, Ida Tarbell, Henry D. Lloyd,
Louis F. Post, Clarence Darrow, Edgar Lee Masters, Jane Addams, et
al.), Vancouver (6-time Mayor Louis Denison "Single-tax"
Taylor), Houston (Assessor J.J. Pastoriza), San Diego (Assessor Harris
Moody), Edmonton, many smaller cities, and doubtless other big cities
yet to be researched, that chose to tax buildings less and land more.
It was the Golden Age of American cities when they grew like fury, and
also with grace: "The City Beautiful" was the motif,
expressed in parks and expositions like San Francisco's 1915
Panama-Pacific International Exposition.
San Francisco bounced back so fast its population grew by 22%,
1900-10, in the very wake of its destruction; it grew another 22%,
1910-20; and another 25%, 1920-30, becoming the 10th largest American
city. It did this without expanding its land base, as rival Los
Angeles did; and while providing wide parks and public spaces. Indeed
it had to pull back from the treacherous filled-in level lands that
had given way in the quake. On its hills and dales it housed, and
linked with mass transit, a denser population than any city except the
Manhattan Borough of New York. For a sense of its gradients, see the
chase scenes from the films Bullitt or Trench Coat. It is these people
and their good works that made San Francisco so famously livable, the
cynosure of so many eyes, and gave it the massed economic power later
to bridge the Bay and the Golden Gate, grab water from the High
Sierra, finance the fabulous growth of intensive irrigated farming in
the Central Valley, and become the financial, cultural, and tourism
center of the Pacific coast.
Mayor Nagin of New Orleans tells the world that Katrina wiped out
most of his tax base, so he is impotent. By contrast, in 1907 Mayor
Taylor's Committee on Assessment, Revenue, and Taxation reported
sanguinely that revenues were still adequate. How could that be?
Because before the quake and fire razed the city, 75% of its real
estate tax base was already land value (S.F. Municipal Reports, FY
1906 and 1907, p. 777). S.F. also taxed "personal"
(movable) property, but it was much less than real estate, and "secured"
by land. The coterminous County and School District used the same tax
base. If we saw such a situation today we would say the local people
had adopted most of Henry George's single tax program de facto,
whether or not they said so publicly.
It was a jolt to replace the lost part of the tax base by taxing land
value more, but small enough to be doable. This firm tax base also
sustained S.F.'s credit to finance the great burst of civic works that
was to follow. Taylor retired in 1909, but soon laid his hands on
James Rolph, who remained Mayor for 19 years, 1911-30, a period of
civic unity and public works. "Sunny Jim" Rolph expanded
city enterprise into water supply, planning, municipally owned mass
transit, the Panama-Pacific International Exposition, and the
matchless Civic Center. S.F. supplemented the property tax by levying
special assessments on land values enhanced by public works like the
Stockton Street and Twin Peaks Tunnels. Good fiscal policy did not
turn all the knaves into saints, as Gray Brechin has documented in
Imperial San Francisco. Rolph burned out after 1918 or so, and
fell into bad company with venal bankers and imperialist engineers.
But San Francisco still rose and throve.
New Orleans has its own special problem, sited below the Mississippi
River and its levees. Milton Friedman and his like-thinkers proclaim
that markets have solutions for everything that governments botch.
Building levees, however, demands cooperation guided by some overall
authority, which is what governments are for. A levee protects the
land behind it only by shunting water onto other lands, which then
require their own levees to shunt the water back, and downstream, and
even, as it turned out, upstream. Competition among levee-builders is
no panacea, but an endless vicious spiral or "positive feedback
loop". Over a century it has led step-by-step to levees four
stories high. At one time some engineers, spurred on by ambitious
local levee districts, thought that such levees would cause the River
to scour its bed and sink down, but the opposite has occurred.
Analytically, the problem is analogous to that of rivals pumping
water or oil from a common pool; or fishermen competing by taking fish
from each other. In those other contexts, private-property fanatics
(i.e. most modern economists) see a "tragedy of the commons"
and prescribe privatization, an idea that fits their doctrinaire
thinking as comfortably as an old shoe. Levees, however, are there to
protect lands already private, and call for different thinking.
Since the Mississippi Valley covers half the country, the central
authority has to be Federal. In the great flood of 1927, Calvin
Coolidge let Herbert Hoover make himself czar of the river system.
Hoover, who fostered cartels in industry, declared that prosperity can
be organized by "cooperative group effort and planning" --
i.e. by coordinating expectations consciously, from the top down. It
was too late, however, to keep the power elite of New Orleans, who ran
Louisiana, from dynamiting the levee protecting St. Bernard and
Plaquemines Parishes, saving the City by flooding the rednecks. These
responded by electing Huey Long Governor in 1928, breaking New
Orleans' hegemony for good.
Meantime, Hoover and a few rich power-brokers organized the Tri-State
Flood Control Commission to coordinate efforts among at least
Louisiana, Mississippi, and Arkansas. The upshot was to strengthen
Federal authority by giving Federal dollars for levees without
requiring any local matching. Coordination was achieved by making
local governments plaintive supplicants (like Mayor Nagin and Governor
Blanco) at the public trough, brokered by the highly politicized U.S.
Army Engineer Corps. Over time this arrangement has entailed less
coordination, and more pork - the opposite of what San Francisco faced
Hoover's czardom also came too late to allocate lands for a bypass or
spillway, such as the broad one west of Sacramento that protects the
lower Sacramento Valley. Too many oxen would be gored to make good
politics. The New Deal did begin the massive program of reservoirs up
north, to supplement the levees down south. Well and good, even if you
harbor doubts about big dams, but they offered no protection against
Katrina's attack from the south, any more than the guns of Singapore,
fixed to shoot out to sea, could protect that city from the Japanese
overland attack from the north in 1942. The overbuilt levees, legacy
of 150 years of the slow vicious spiral of misdirected competition to
beggar-thy-neighbor, finally betrayed the city.
What to do now? A strong dose of Georgist tax policy will revive the
private sector of any city, and the surrounding rural areas too. As to
flood control, we need an integrated system that will sacrifice some
lands as spillways to protect others, and a tax system that will
compensate the losers (including the landless) from the gains of the
winners. Given such integration, engineers since James B. Eads in 1870
have developed workable plans for the whole river system. It would
take a catastrophe to shock Americans into such a new mode of thinking
-- but the catastrophe just occurred, so let's get thinking.