Hurricane Sandy, and the Invisible Hand of Recovery

Once again, a terrible natural disaster strikes, and Americans from the Carolinas to New England are doing their best to sort through the wreckage and get their lives back to normal. Already, some, including The New York Times, have said  natural disasters prove the need for big government. In fact, disaster response provides an excellent example of how the invisible hand of the market works to alleviate suffering and bring quick relief to those in need.

I will add one caveat. Large amounts of federal money will flow to the disaster areas. To accept it is not to concede government is more important than private efforts. We live in a federal nation, and, as part of the federal compact, fortunate states (right or wrong) help those in need. What is objectionable is big government, for reasons I shall come to.

So what happens when a disaster strikes? First, we hear how many people have lost power. Restoring power is the first order of business, as access to energy is fundamental to the reconstruction process. And getting the lights back on is the prime responsibility of utilities, not government. In Maryland, for instance, the utility PEPCO, reacting to criticism of its slow response following last summer’s Derecho storm, made sure it had sufficient manpower to restore power quickly.

For local transportation system managers, inspecting and ensuring the structural integrity of standing infrastructure is the top priority following a disaster. As facilities deemed structurally sound reopen, damage is assessed and managers begin the process of acquiring the necessary funds for repair.

These decisions require specialized local knowledge, often from the private sector. Coordination among local responders is critical. The federal government often doles out funding to affected areas, but it is local officials who manage transportation systems before, during and after disasters occur.

Then there are the responses by insurance companies and other financial institutions. All my financial providers already have contacted me to offer emergency assistance. Insurance companies are flooding the airwaves with information about how to submit claims. These companies provide the liquidity to get households and communities up and running again.

Of course, the vast majority of disaster responses occur at the individual level. People need emergency supplies—water, canned goods, generators and the like. In most cases, they do not wait for the Red Cross or a government agency; they go out and get them themselves. That’s where the often derided “big box” stores such as Wal-Mart and Target [3] provide a vital service. They have procedures to ensure their supply chains respond effectively to disasters, and thus generally have the necessary goods in stock.

Big box stores also don’t merely sit and wait. They get out first and help people. As St. Lawrence University Professor Steve Horwitz  points out [4], Wal-Mart was on the scene following Hurricane Katrina long before the bureaucracies. He quotes Phillip Capitano, mayor of the New Orleans suburb of Kenner, saying, “[T]he only lifeline in Kenner was the Wal-Mart stores. We didn’t have looting on a mass scale because Wal-Mart showed up with food and water so our people could survive.” It will be interesting to see whether the lack of big box stores in Manhattan has any effect on the speed of the recovery there. Mom-and-pop stores simply can’t do what big stores can in these circumstances.

Big government, on the other hand, can get in the way. Local environmental ordinances routinely prevent utilities from trimming trees that can threaten power lines during storms. The clean-up process might be hindered by pro-union rules such as the Davis-Bacon Act, which increases the cost of federally funded construction projects.

Anti-fraud rules can hinder banks and insurers getting funds to their customers, and the  federal National Flood Insurance Program undermines the insurance process and encourages building in flood-prone areas. Anti-“price gouging” rules can cause shortages by preventing price signals from helping the market allocate resources. Finally, union lobbies and NIMBY concerns chase away big box stores.

And what about FEMA? This agency is there to help the transfer process, but its bureaucracy and empire-building get in the way. After Hurricane Katrina, for instance, it made a variety of errors [5], such as:

• It was ill-prepared to conduct the massive search-and-rescue function. Its federally coordinated building search teams found spraypainted symbols indicating state teams already had looked through the buildings.
• Its tracking of supplies was sadly lacking. Some FEMA and state workers said they had to order twice as many supplies to get half of what they needed, primarily because they had no confidence in the system.
• Agency officials disrupted supply lines, turned away [6] diesel fuel provided by the Coast Guard and three trailer trucks filled with water—provided by Wal-Mart.

There is probably a role for a small, lean, efficient government agency dedicated to disaster relief, and in particular to provide temporary respite from federal regulations such as Davis-Bacon. Yet for the most part, disaster recovery is a local, private matter. As a free people, we should recognize—and celebrate—that fact.