Repopulating New Orleans
GroundSwell, January-February 2006]
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 is it."
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 other's intentions.
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, 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 at least mild 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
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 tell us how
to save the City they serve.
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; D utch cities after flooding themselves out to
balk successive Spanish, French, and German invaders; Moscow after
1812; and Washington, D.C., after 1813. I n 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; t he Mississippi Valley
after the great flood of 1927; 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. H ow 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
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
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
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 pathetic 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- barrel subsidizing of
complaisant corruption in local levee districts -- the opposite of
what San Francisco faced in 1907.
Hoover's czardom also came too late to allocate lands for a bypass
or overspill, such as the broad one west of Sacramento that protects
the lower Sacramento Valley. Too many oxen would be gored. The New
Deal did begin the massive program of reservoirs up north, to
supplement the levees down south. Well and good, if you believe in
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 to benefit others, and a tax system that will
compensate the losers from the gains of the winners. Given such
integration, engineers since James B. Eads in 1870 have worked out
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 happened, so now let us think.