When government fails

Sep 9th 2005
From The Economist print edition

The pathetic official response to Katrina has shocked the world. How will it change America?

ONLY those with a special pass, and under armed guard, can now go to the centre of New Orleans. The city, officials will tell you, is far more dangerous than is generally believed. But just a few people, such as scientists needing to retrieve experiments, are being allowed in.

Much of the city is a sea of filthy water. Cars, boats, trees and power-lines float on it in a tangled mass. The water stinks. On higher ground some parts remain oddly untouched, save for massive oaks lying in the road and huge plumes of smoke from various distant fires. But on every side the city is empty. The only sound is of helicopters overhead, dropping water on the fires. The only people are National Guard companies at the intersections, guns at the ready—and, on St Charles Avenue, one lone jogger, running on the streetcar tracks.

Slowly, falteringly and much too late, America began to respond this week to the devastation wrought by Hurricane Katrina. Troops and supplies poured into New Orleans, even as survivors were bused away. The city’s Superdome and convention centre, both epicentres of horror in the days after the hurricane, are now empty. The broken levees are being fixed, and water is even being pumped out. By mid-week only 60% of New Orleans, rather than 80%, remained under water. Police were preparing to remove any remaining people by force. The death toll is still unclear, though Ray Nagin, New Orleans’s mayor, talks of 10,000 dead.

As relief stumbles along, the political blame-game is in top gear. George Bush and the federal government have come under fierce attack. Though a CNN/USA Today/Gallup poll found that only 13% supposed the president should take most responsibility for the relief effort, or lack of it, both Republicans and Democrats were appalled at Mr Bush’s failure to grasp the scale of the catastrophe; shocked that his senior staff were absent, or on holiday, while thousands of Americans were stranded without food and water; and aghast at the bumbling response of the Federal Emergency Management Agency (FEMA), which is charged with coping when disasters strike. America’s enemies, from Cuba to Iran, lined up with unconcealed smirks to offer doctors and aid.

Karl Rove, Mr Bush’s political Svengali, moved into damage-control mode. Top officials, from Donald Rumsfeld to Condoleezza Rice, were packed off to visit the disaster zone. Mr Bush himself went back again to hug refugees, and said, unpromisingly, that he would launch an investigation. The White House spin-machine whirled into action, trying to shift blame to local and state officials. The federal government, claimed Michael Chertoff, head of the Department of Homeland Security, had only a supporting role to play; it could not, he implied, do much if the locals were incompetent. That did not, however, stop the administration from unceremoniously relieving FEMA head Michael Brown of hurricane duty on Friday and packing him off to Washington while Thad Allen, a vice-admiral in the coast guard, takes his place.

Local and state officials have fought their corner. Kathleen Blanco, the Democratic governor of Louisiana, refused to let the federal government take control of the National Guard relief effort in her state, fearing this would allow the Bush team to blame her for any earlier incompetence. Instead, she hired James Lee Witt, the head of FEMA in the Clinton administration, to advise her on disaster relief.

Pundits explained the government’s failure in every way they pleased. Anti-war types blamed Iraq, particularly the fact that thousands of National Guard troops had been sent there. Environmental types blamed Mr Bush’s lackadaisical attitude to wetlands. Many Democrats saw it as proof that Mr Bush and the Republicans cared nothing for America’s poor and black.

Liberals argued that Katrina showed why, as James Galbraith, a vocal leftist economist at the University of Texas, put it, the “government of the United States must be big, demanding, ambitious and expensive.” A Wall Street Journal column, in contrast, argued that the hurricane showed the danger of relying too heavily on inefficient government.

The question of racism bobbed quickly to the surface. Jesse Jackson, a one-time presidential hopeful, set the tone. Inspecting the crowded pavement outside the convention centre in New Orleans, he said: “This looks like the hull of a slave ship.”

Absurd though the comparison may be, America’s racial rift has been re-opened. Almost all the desperate-looking victims on the television news are black. That partly reflects demography—New Orleans is two-thirds black. It also reflects poverty. Those who failed to leave town typically did so because they had no means of transport. Some 35% of black households lacked a car, compared with 15% of white ones.

Nonetheless, media coverage of Katrina drew furious allegations of subtle bias. Using the term “refugees” for those seeking refuge from the storm was racist, apparently, and Yahoo! News drew flak for picture captions describing a black man as “looting” and whites as “finding” goods. The agencies that supplied the pictures retorted that the captions reflected what their photographers had witnessed.

Many blacks feel that, had it been whites drowning, the federal government would have acted more swiftly to save them. An ABC poll found them 23 percentage points more likely than whites to find fault with Mr Bush’s response. “George Bush doesn’t care about black people,” suggested Kanye West, a rapper, during a televised appeal to raise money for the victims. His contention is hard to prove. Was the president indifferent, or merely incompetent? Some of Mr Bush’s supporters favour a third explanation: that Mayor Nagin (who is black) proved more adept at berating the federal government on the radio than at implementing the city’s emergency plan.

To Texas, and points north

Amid all this name-calling, there were a few odd winners. Wal-Mart, for instance, a company that is often under fire from the left for the way it treats employees, was widely praised for the efficiency and unusual generosity of its response. The firm donated $23m to the relief effort; promised jobs in other Wal-Marts for all employees dislocated by Katrina; and proved far more adept than the Feds at getting supplies quickly to where they are needed. The state of Florida, too, which is used to these things, immediately launched an impressive pre-planned relief effort that saw more than $40m in aid, together with teams of doctors and nurses, despatched to neighbouring states.

Around 1m people have been displaced by Katrina. Texas has been the destination of close to a quarter of them. Many have gone to Houston, already the fourth-biggest city in America, to camp in the Astrodome. Other Texas cities have also pitched in: San Antonio has offered temporary housing for 25,000 (as well as practice fields for New Orleans’s displaced football team). In Dallas and Austin, convention centres have become shelters.

Governor Rick Perry has been widely praised for his quick response. He has promised extra teachers for displaced schoolchildren and, with Texas’s shelters now crammed, he is co-ordinating with other states to take survivors. But the real test lies ahead. As time wears on, keeping a few hundred thousand survivors fed and clothed, not to mention pacified, is a huge challenge—especially since nobody knows when, or whether, they will go home. Texas has already had trouble; people have been turned away from the Astrodome with nowhere to go, and those who are there must endure an 11pm curfew.

Race is inevitably a factor. Most of the New Orleanians seeking public shelter are poor and black. Barbara Bush, the president’s mother, earned no thanks from him for her remark that because many survivors “were underprivileged anyway”, their Astrodome quarters are “working very well for them”. Some white Texans (including many in the Republican base) will “feel that we’ve got enough minorities in Texas already,” says Richard Murray, director of the Centre for Public Policy at the University of Houston. He predicts that the early euphoria associated with aiding survivors will probably fade, and that crime will increase tensions.

Such sentiments are likely to be echoed in other states also accepting refugees. Arkansas, for example, has opened its doors to more than 70,000 of them, turning National Guard armouries into “readiness centres” and mobilising churches to take refugees into their halls. But Arkansas is itself a poor state, with little cash to spare.

States at the other end of the Mississippi river are also preparing for an influx of Katrina victims. Minnesota has agreed to accept between 3,000 and 5,000, and will temporarily house them at a National Guard encampment in the north-west of the state. Officials say they have lined up longer-term housing for 2,000 evacuees. Wisconsin has space for 1,150 Katrina victims, and will put them up at the state fair grounds and in Milwaukee.

Ordinary citizens have also rented buses or driven down in their own cars to pick up Katrina victims. But not many refugees are willing to travel so far north. When one coach was sent down to Houston, most passengers preferred to be dropped off in Dallas. Hundreds of sympathetic families in Wisconsin and Minnesota have offered to take Katrina victims into their homes, but, as yet, few have had their offers accepted.

That may be as well. Both sides are aware of the tensions that might accrue once short-term needs are met. The refugees will overwhelmingly be black, their hosts white; evacuees will come from a place that ranks last in most measures of civic health and social cohesion, and will end up in states that rank near the top in all of those measures. No wonder the survivors would rather stay closer to home.

Who pays?

Any help offered also has a price. Jim Doyle, Wisconsin’s governor, is hoping that Mr Bush will extend the state of emergency from southern states to northern ones, so that they too can receive federal aid for taking in thousands of people. That may be too much to hope for.

Late last week, Congress agreed to provide $10.5 billion. But with FEMA spending $500m a day on relief and recovery, it was clear that this would not last long. On Thursday, Congress approved an additional $51.8 billion which the White House had requested. Together, Florida’s four hurricanes in 2004 cost the federal government $14 billion, while insurers paid out much more. This time, the ratio will be reversed.

The insurance industry is in shock. Loss-adjusters still cannot get close enough to assess much of the damage; hundreds of them have fanned out across the region, trying to work their way in from the edge to the centre of the catastrophe. Latest estimates suggest that the damage to homes, businesses and infrastructure is around $100 billion, with private insurance claims as high as $35 billion. Some property owners without flood insurance (which mortgage lenders require of most people living in flood-plains) will get relief from a federal disaster-loan programme. Only about half of property owners in New Orleans hold flood coverage, and even fewer in hard-hit patches of Mississippi and Alabama.

America’s insurers have had some bruises of late: 2004 was the worst year for catastrophes on record, and this year will surpass that. Stricter underwriting means that the industry as a whole is in better shape than it was in 2001, but Katrina will hit profits. Reinsurers, the big firms that provide a safety net in major disasters, will take the brunt of the burden. For now, the majors contend they can handle the fallout from Katrina, but losses—including those for interrupted business—are mounting by the day.

The broader economic fall-out of Katrina remains uncertain. Traditionally, big hurricanes—for all their devastation—have had only a small effect on the macroeconomy. Katrina, though, may well be a different case.

Forecasters have cut their expectations for GDP for the rest of the year—the Treasury by half a percentage point, the Congressional Budget Office (CBO) by slightly more. But some have raised them for 2006 as reconstruction efforts boost output. The CBO fears that, from now to the end of the year, 400,000 jobs may be lost, though employment is “likely to rebound” later. The big unknown remains fuel costs and the risk that soaring prices for petrol, let alone physical supply shortages, will hit consumer spending hard.

Financial markets certainly seem gloomier about the country’s growth prospects. Before Katrina hit, futures prices suggested the central bank would continue its upward march in interest rates over the next few months. Now, the markets reckon the Federal Reserve will cut this process short. But this week the president of the Chicago Fed sounded a different note, emphasising the risk of higher inflation.

And the fiscal impact could end up being sizeable. Some politicians talked of spending more than $150 billion on recovery and relief. Washington’s budget boffins worry that all kinds of other requests will be attached to money for Katrina relief, such as (paradoxically) drought relief for farmers in the mid-west. Moreover, the political aftermath of the hurricane may dampen lawmakers’ already tepid enthusiasm for budget-cutting. The 2006 budget—agreed in principle but not in detail—is supposed to include $35 billion in budget cuts over next five years, including in Medicaid, the federal-state health-care programme for the poor. Politicians will be loth to do any such trimming when America’s vulnerabilities, in almost every region of social policy, have been so ruthlessly exposed.

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