Notwithstanding all the promises of government aid, President Bush is leaving the reconstruction of New Orleans largely to the private sector. I love markets, but the problem is that while free markets can create great wealth, those markets cannot work without some strong, credible collective action underpinning them.
Nobel Prize winning economist Thomas Schelling summed it up the problem in New Orleans: “It is essentially a problem of coordinating expectations. If we all expect each other to come back, then we will. If we don’t, we won’t.” That’s where the government comes in–setting the safety standards, building the infrastructure, making the collective commitments–in short, helping parties achieve coordination that they cannot create on their own.
This morning Peter Gosslin follows families making decisions about whether to rebuild in New Orleans. His story is a textbook version when collective action is needed–and what happens when it is missing. Without collective assurances–strong levies and road repairs, for example–individuals don’t believe their neighbors will invest and rebuild. And if they don’t know their neighbors are likely to invest, then they can’t run the risk of rebuilding either.
New Orleans seems to present the worst of all possible rebuilding options. Billions of dollars are pumped into disparate projects with no assurance that the basics will be in place for a revitalized city. There is no national commitment either to do what it takes to build the needed infrastructure or to declare that the old New Orleans is gone and it won’t be rebuilt. The so-called recovery plan in New Orleans seems tailor-made to let private contractors get rich while proving that government can’t work.
The great question facing America is what we can do individually and what we need to do collectively. Government policies that lean too heavily in one direction or the other will cripple our country. New Orleans can’t jumpstart its free market without some strong collective action.
