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Wed Sep 14 10:37:57 PDT 2005

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WHEN GOVERNMENT FAILS
Sep 13th 2005  

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 broken levees are being fixed, and water is even being pumped out.
By the weekend less than 60% of New Orleans, rather than 80%, remained
under water. Police were continuing to remove any remaining people,
sometimes by force. The death toll is still unclear. Ray Nagin, New
Orleans's mayor, talked last week of 10,000 dead, though other
officials now say it could be a lot fewer than that. 

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 September 9th and packing him off to
Washington while Thad Allen, a vice-admiral in the coast guard, took
his place. On Monday, Mr Brown announced that he was resigning from the
agency.

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. 

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 have also been
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. 

Shortly after Katrina struck, 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. So, last 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 high 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 the president of the Chicago Fed has 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. 

See this article with graphics and related items at http://www.economist.com/agenda/displaystory.cfm?story_id=4382412&fsrc=nwl

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