Student Reading
Suppose you spent most of August and early September on a desert island hideaway. You heard something about a terrible hurricane on the plane home, so first thing in the morning, you sit down to catch up on the pile of newspapers. You read this:
But if you visit the Wal-Mart and the Sam's Club stores here, you hear shoppers who have been without power for weeks marveling that there are still generators in stock (and [still] priced at $304.04). You hear about the trucks that rolled in right after the hurricane and the stuff the stores gave away: chain saws and boots for rescue workers, sheets and clothes for shelters, water and ice for the public.
"This was the only place we could find water those first days," said Rashan Smith, who was shopping with her three children at Wal-Mart on Saturday. "I still haven't managed to get through to FEMA. It's hard to say, but you get more justice at Wal-Mart." ("From FEMA to WEMA," by John Tierney, New York Times, September 20, 2005)
You'd probably think you stayed out in the sun too long on your vacation. People praising Wal-Mart?! Isn't that the store that small-town businesses and workers love to hate? The words "Wal-Mart" and "justice" in the same sentence?! What's going on?
You'd probably also be a little surprised at the level of criticism of government - federal, state, and local. After all, it hasn't been that long since 9/11 when government at all levels proved its worth in a crisis. Disasters, that's when we depend on government, right? But now, elected and appointed officials from President Bush to Louisiana Governor Kathleen Blanco to New Orleans Mayor Ray Nagin to FEMA head Michael Brown - make that "former" FEMA head Michael Brown - are being vilified as incompetent and uncaring. What happened?
An easy answer would be that government officials either didn't get it or didn't care - and many have been quick to make those accusations. But really, it's not usually very satisfying to explain things in terms of other people being mean or stupid, is it?
Economic analysis lets us go beyond finger-pointing and name-calling. One of the simplest and most basic assumptions of economic reasoning offers us insight: People act in their self-interest. Our task, in trying to explain the behavior of different groups and individuals in the aftermath of Hurricane Katrina, is figuring out what they perceived to be their self-interest.
Another way to think of self-interest is to say that people act to promote the projects that interest them. The following excerpts from news articles and columns talk about the behavior of 4 groups of responders to hurricane Katrina: individuals, non-profit organizations, businesses, and government officials. What interests them? What motivates their actions? How does each group define its self-interest? (Ignore the bolded print for now.)
At the Lighthouse Apostolic Holiness Church in east Biloxi, Betty Kelley spent Monday and Tuesday cooking stews and chicken in 30-gallon vats for hungry residents. "No one was coming in to help us. We had to do it all on our own," says Ms. Kelley. "All they have been saying is they want a hot meal."
Across the Gulf Coast region, similar scenes are playing out: small churches and private individuals trying to meet whatever needs they perceive wherever they see them. The parents of one Biloxi resident were offered food, shelter, and a cell phone by a stranger they met at a Louisiana gas station.
. . . . "It's a joke how long it has taken to get help down
here," says Todd Schweizer, one of nine men from Florida who
drove to Biloxi with 2,000 hamburgers, 2,000 hotdogs, and an enormous
grill. The men, who work for a trash-collection business, also brought
diapers, dog food, and water - $25,000 worth of products, says Mr.
Schweizer, the company's owner. "These folks need our help."
("In Biloxi, Helping Hands Are Private Groups," by Sara
B. Miller and Amanda Paulson, The Christian Science Monitor
Sept 8, 2005.)
. . . . In the weeks since the storm swamped New Orleans, Americans
have opened their wallets and poured out their hearts to help those
in need.
It is difficult to name a business that has not contributed. Local
radio stations held fundraisers. Big-name recording stars performed
concerts. Local "mom-and-pop" restaurants donated portions
of their sales.
Coca-Cola contributed $1 million to the Salvation Army. Children of
all ages set up lemonade stands. All told, individuals have donated
hundreds of millions of dollars. [Note: Recent estimates have private
donations topping $1 billion.] And it is more than money. Americans
across the country opened their homes to hurricane victims. . . .
[O]pen any newspaper, from Boston to San Diego, and you are likely
to read about hurricane survivors being welcomed by a new community.
. . . Private organizations also are pulling together to send help
to those who remain in storm-ravaged areas. The group Feeding Children
International, based in Aberdeen, SD, has sent more than 700,000 meals
to Mississippi and Louisiana. Quilters in Walworth, Wisconsin, plan
to make 1,000 blankets. ("Viewpoint: Pulling Together,"
by Matthew Spalding, Heritage Foundation, September 22, 2005.)
The straightforward generosity of the corporate sector has been well
reported. . . . As interesting, though, has been the application of
corporate best practices-from supply-chain management to logistics-to
a natural disaster.
The private-sector planning began before Katrina hit. Home Depot's
"war room" had transferred high-demand items-generators,
flashlights, batteries and lumber-to distribution areas surrounding
the strike area. Phone companies readied mobile cell towers and sent
in generators and fuel. Insurers flew in special teams and set up
hotlines to process claims. . . .
By the weekend the Chamber's CCC was turbo-charging a new computer
program, designed by tech firm i2, which served as a kind of bridal
registry for needed relief supplies. Each donor company indicated
what order it would fill, avoiding duplication or delay. IBM got to
work on a computerized job bank to help place those who'd lost work.
The American Trucking Association set up a Web site to update everyone
on road conditions.
Companies then focused on doing what each did best. In some cases
it was simply ramping up operations, as with Black & Decker, whose
employees worked Labor Day weekend to churn out extra generators.
In other cases, it was firms using their modern logistical skills
to get into hard hit areas. FedEx and other delivery companies used
computer systems with designed-in flexibility to reroute vehicles
and adjust flights to get in aid.
Wal-Mart mined its vast databases of past purchases to compile lists
of goods most desired after a hurricane. (Among the top items? Strawberry
pop tarts.) Because of its advance logistics planning, the big retail
chain was able to quickly move into devastated areas with mini Wal-Marts
to hand out goods. Other firms leveraged similar supply-chain capabilities;
Pfizer dispensed pharmaceuticals via Wal-Mart and other retailers.
. . . ("Private FEMA - In Katrina's Wake, Wal-Mart and Home Depot
Came to the Rescue," Opinion Journal. September 10, 2005.)
Among the many achievements of the human race - Chartres Cathedral,
the Mona Lisa - surely the New Orleans emergency preparedness plan
must rank among the greatest, and the fact that this plan turned out
to be irrelevant to reality should not detract from its stature as
a masterpiece of bureaucratic thinking.
The plan . . . begins with the insight: Be prepared. . . . [It] lays
out a course of action so that all personnel will know exactly what
to do in case of a hurricane. . . . In short, the plan was so beautiful,
it's too bad reality destroyed it. The plan's authors were not
stupid or venal. They are doubtless good public servants who worked
in agencies set up to prepare for this storm. And yet their elaborate
plan crumbled under the weight of the actual disaster.
. . . For the brutal fact is, government tends toward bureaucracy,
which means elaborate paper flow but ineffective action. Government
depends on planning, but planners can never really anticipate the
inevitable complexity of events. And American government is inevitably
divided and power is inevitably devolved. ("The Best-Laid Plan:
Too Bad It Flopped," by David Brooks, New York Times,
September 11, 2005.)
. . . "You'd assume FEMA would have the capacity and structure
to respond to these events in an expedient manner. That's the whole
purpose of FEMA," says Havidán Rodríguez, director
of the Disaster Research Center at the University of Delaware . .
. "This was the first opportunity the Department of Homeland
Security had to show it was well-equipped and prepared, and obviously
that was not the case."
One troubling aspect of the response, say Professor Rodríguez
and others, was the apparent lack of communication - a basic requirement
for disaster response - in the first days after Katrina. In a noted
example, FEMA chief Michael Brown told reporters he had no idea that
the thousands of people at the New Orleans Convention Center were
desperate, though images of the center had been playing all day on
television. Local officials and law enforcement officers complained
of being unable to communicate. ("In Biloxi, Helping Hands
Are Private Groups," by Sara B. Miller and Amanda Paulson, The
Christian Science Monitor Sept 8, 2005.)
. . . The president of the American Red Cross told Fox News that her
organization was eager to send relief to the beleaguered New Orleans
Convention Center and the Superdome in the days after Katrina, but
was blocked by the state's Department of Homeland Security.
A Salvation Army official said the same thing. The state insisted
it would evacuate those people, and it did not want them to decide
to stay where they were.
But they could not be evacuated until the National Guard arrived days
later and thousands were left stranded with no food, water or medicine.
Elsewhere, "We can tell you stories of 60 to 70 ambulances being
dispatched to areas and not being accessed to patients, because they
didn't have the right hanging government ID," Dr Jeffrey Guy
of the Vanderbilt Regional Burn Center told CNN on 8 September.
Meanwhile, Ken Rusnak, executive director of Angel Flights, told the
network the Louisiana governor's office would not allow his pilots
to fly 80 survivors out of the state, possibly because of worries
the state would lose its Fema reimbursement. . . . ("Viewpoint:
Pulling Together" by Matthew Spalding, Heritage Foundation, September
22, 2005.)
Student Handout:
Discussion Questions
-
How do the individuals and groups discussed in the articles define their self-interest? What incentives (rewards or punishments that act as motivations for behavior) do they face in deciding how to act? Fill out the chart below.
What is their self-interest? What incentives (rewards) did they face? How did their self-interest affect their behavior in response to Katrina? Individuals like Todd Schweitzer and Betty Kelley Organizations like the Lighthouse Church, the Salvation Army, the Red Cross Companies like Wal-Mart, Black&Decker, Pfizer Workers at Wal-Mart, Black&Decker, Fed Ex etc.
-
The idea that individuals and businesses pursue their self-interest is as old as Adam Smith, but it wasn't until the last half of the 20th century that an economist, Nobel-prize winner James Buchanan, applied this insight to individuals in government. In what has become known as "Public Choice Theory," Buchanan dispelled the idea that public servants give up their self-interest. He recognized that they are as self-interested as anyone else, but that to be successful, they must define their self-interest in terms of the demands of elected and bureaucratic institutions. In other words, no matter how selfless and altruistic they may be, they realize that they have to be elected to office or have to rise to positions of power in the bureaucracy in order to accomplish the projects they're interested in.
Think over what you know about the demands of elected office or of working in a bureaucracy. Look back at the sections of the news articles, above, that are in bold print. What are the unwritten "rules of the game" that you must follow to gain and keep power and influence?
What is their self-interest? What incentives do they face in the government institutions where they work? How did their self-interest affect their behavior in response to Katrina? Appointed officials (Like FEMA head) Elected officials Military Officials
- David Brooks's comment that "American government is inevitably
divided and power is inevitably devolved" refers to our Constitutional
principle of federalism. How does federalism affect the pursuit of
self-interest in government, and how does that help to explain some
of the problems that occurred in response to Katrina?
-
How does business or corporate structure differ from the federalist structure of government? How does that help to explain the more effective response of businesses to Katrina?
-
Read the following excerpt from an article describing the government response to Hurricane Rita. Keeping in mind that people act in their best interests, explain the why the government response to Rita was different than to Katrina.
-President Bush took an active role in monitoring preparations for Rita . . . .
-Other top officials were more actively involved in Rita preparations and remained on the case as the storm came ashore. . . .
-For Rita, FEMA was more aggressive in getting supplies into the affected areas. . . .
-FEMA also moved nearly twice as many urban search and rescue teams into the area for Rita than for Katrina . . . .
-U.S. military involvement with Hurricane Rita began while the storm was still churning across the Gulf of Mexico . . . . [T]housands of active-duty troops were placed on alert for immediate deployment before landfall
. . . . .Perhaps the most startling difference was the military's role in evacuating thousands of nursing home residents, hospital patients and other frail people ahead of Rita.
. . . Pentagon spokesman Bryan Whitman said the military conducted the evacuations at the request of the Department of Health and Human Services, a request Whitman acknowledged was "a bit outside the chain of command." Under the federal government's National Response Plan, such a request would normally come from FEMA. (Landay, Jonathan S., Seth Borenstein, and Alison Young. "Response to Rita illustrates how government failed after Katrina" Knight Ridder Newspapers, September 25, 2005. ) - It seems we need to give up the simplistic idea that the chaos that followed Hurricane Katrina was caused by mean and/or stupid people. Explain, using the concepts of self-interest and incentives (rewards), why Wal Mart came out of the Hurricane Katrina disaster smelling like a rose, and government came out smelling . . . bad.
Teacher Guide
- David Brooks's comment that "American government is inevitably
divided and power is inevitably devolved" refers to our Constitutional
principle of federalism. How does federalism affect the pursuit of
self-interest in government, and how does that help to explain some
of the problems that occurred in response to Katrina?
One of the biggest problems in the government response to Katrina was that the division of power and responsibility among local, state, and federal governments wasn't clear. "Responding to hurricanes" is not one of the powers or duties specifically listed in the Constitution. Traditionally, state governments have been the responders, with the federal government declaring disaster areas and providing relief at the request of the governor. The federal government has not, traditionally been in the forefront of response to natural disasters. On the other hand, people seem to expect that there are some things the federal government should handle because they're just too big for state government. The uncertainty and the unwillingness to overstep their bounds means that all levels of government have an incentive to hang back, not risk their resources, wait for another level to respond, and point fingers if the response is inadequate.
-
How do business or corporate structure and incentives differ from those of government? How does that help to explain the more effective response of businesses to Katrina?
In business firms, the decision-making structure is clear, and the entrepreneurial decision-makers at the top of that structure are clearly responsible for the successful pursuit of profits. This gives them incentives both to anticipate and to take risks. In government, particularly government divided into levels and branches as ours is, lines of authority and responsibility are not as clearly defined. This provides incentives against prompt action while the potential decision-makers gather information, unwilling to risk resources until the issue of accountability is settled.
-
Read the following description of the government's response to Hurricane Rita. Keeping in mind that people act in their self-interest, explain the difference in the federal government responses to Katrina and Rita?
The self-interest of elected and appointed officials remained the same - to please the electorate in order to maintain their power to accomplish the goals they had in seeking office and to keep the public happy with both the official and the political party he represents. What changed from Katrina to Rita was government officials' perception of what they had to do to maintain the public favor. For President Bush and federal officials, that meant showing a willingness to step in and take charge, to spend money and resources without waiting to see how bad the hurricane would be, and to side-step traditional procedures in an effort to be seen as more concerned about and more able to protect citizens' well-being. When government officials - beginning with President Bush - learned from Katrina that public expectations made it more risky for them to act than to not act - their willingness to risk committing resources and personnel in anticipation of Rita increased dramatically. They discovered that, given the mood and expectations of the American public, it was in their self-interest to risk extensive federal government action to make sure that Houston didn't suffer anything like Katrina's fate.
- It seems we need to give up the simplistic idea that the chaos that
followed Hurricane Katrina was caused by mean and/or stupid people.
Explain, using the concepts of self-interest and incentives (rewards),
why Wal Mart came out of the Hurricane Katrina disaster smelling like
a rose, and government came out smelling . . . bad.
Government is hampered in its response to disasters like the destruction of New Orleans because government officials - elected and appointed - usually find it in their self-interest to follow procedures, and to be cautious in committing time, money, and personnel in risky situations. All the planning in the world doesn't change the fact that government institutions don't incorporate incentives for the ad-hoc, out-of-routine response that a disaster the magnitude of Katrina demands.
Private individuals, organizations, and businesses are not hampered by the intricacies of political interactions or by procedural rules designed to reduce risk. In fact, business entrepreneurs, motivated by profit, have institutionalized the willingness to take risks and commit resources in the hope of future profit.
The profit incentive isn't new. Private enterprises like Wal-Mart have a long history of experience in getting to people the things they want and need, something they do day in and day out without us really noticing how it happens. Successful companies are successful in part because they have learned to deal with changing circumstances, to solve problems, and to overcome obstacles as they occur. The market system incorporates incentives that allow rapid reallocation of resources without any one person or group of people being in charge. Katrina gave us a clear view of what is always present in our economy, but that we rarely notice - the power of the profit motive, the experiential knowledge it generates, and the talents it attracts, to provide us the goods and services we want and need.
| What is their self-interest? | What incentives (rewards) did they face? | How did their self-interest affect their behavior in response to Katrina? | |
|---|---|---|---|
| Individuals like Todd Schweitzer and Betty Kelley | To be caring neighbors To live out their religious beliefs |
Desire to feel good about themselves Desire to do the right thing |
Donate time, energy, money Bear the cost of disrupting their own lives to help others |
| Organizations like the Lighthouse Church, the Salvation Army, the Red Cross | To be of service to others | Reputation of organization Satisfaction of doing good Make a difference |
Bear the cost of time, danger, resources in order to offer aid |
| Companies like Wal-Mart, Black&Decker, Pfizer | profit | Rewards of increasing sales encourage them to make customers happy and to further the company's reputation in the community | Take action Anticipate needs Command resources necessary to provide things people want and need |
| Workers at Wal-Mart, Black&Decker, Fed Ex etc. | To earn income to support selves, families, activities, etc. | Pay Satisfaction in job well-done |
Sacrifice holiday time Work overtime |
| What is their self-interest? | What incentives do they face in the government institutions where they work? | How did their self-interest affect their behavior in response to Katrina? | |
|---|---|---|---|
| Appointed officials (Like FEMA head) | Maintain or improve the power and funding of
their agency Increase own power within government |
Respect political boundaries - don't make enemies Protect budget |
They held back rather than taking the initiative.
Unwilling to make "hasty" decision that would risk resources, personnel, etc. Uncomfortable acting without full information, but not inclined to go out and gather information. Always follow procedures - even if causes more delay |
| Elected officials |
Maintain support of citizens |
Respect political boundaries -don't make enemies Not be wasteful of money and resources |
Hang back - each level of government waiting for another
to take action |
| Military Officials | Perpetuate public respect and support Maintain standards of military and tradition of service |
Follow the chain of command Don't overstep bounds into civilian affairs |
Waited for orders |
Sources
Brooks, David. "The Best-Laid Plan: Too Bad It Flopped,"
New York Times, September 11,
2005.
Chronicle of Philanthropy, September 9, 2005.
Ed. ("Private FEMA - In Katrina's Wake, Wal-Mart and Home Depot
Came to the Rescue,"
Opinion Journal. September 10, 2005.
http://www.opinionjournal.com/editorial/feature.html?id=110007238)
Landay, Jonathan S., Seth Borenstein, Alison Young. "Response
to Rita illustrates how
government failed after Katrina," Knight Ridder Newspapers,
September 25, 2005.
Miller, Sara B. and Amanda Paulson. "In Biloxi, Helping Hands
Are Private Groups," The
Christian Science Monitor. Sept 8, 2005.
http://www.csmonitor.com/2005/0908/p02s01-ussc.htm
Paul, Ron. "Responding to Katrina," September 13, 2005. (Congressman,
-Texas)
http://www.lewrockwell.com/paul/paul275.html)
Spalding, Matthew. "Viewpoint: Pulling Together." Heritage
Foundation, September 22,
2005. http://www.heritage.org/Press/Commentary/ed092205c.cfm)
Tierney, John. "From FEMA to WEMA," New York Times.
September 20, 2005.
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