Hurricane Katrina and the levees: taxation, calculation, and the matrix of capital

Abstract

PurposeThe purpose of this paper is to analyze the havoc created by Hurricane Katrina from the viewpoint of Austrian Economics. The aim is to look specifically at the malinvested capital that came about because of the construction of the complex levee system around New Orleans.Design/methodology/approachThe paper applies Austrian Economics, and especially the economic analysis of Carl Menger.FindingsIt is found that there indeed was much malinvested capital in New Orleans, and the situation was made worse because the levee system upon which everything else depended was unfit to withstand a storm the size of Katrina.Research limitations/implicationsResearch implications include the examination of other situations in which large amounts of government capital help to leverage other investments, but the original government capital itself proves to be unsustainable.Practical implicationsThe practical implications include a warning to people who we believe should base large amounts of private investment upon government projects that have a political basis, but either cannot withstand natural forces or simply are untenable.Originality/valueThe new aspect of this paper is the larger‐scale application of Austrian business cycle theory to a specific instance, as opposed to applying it to the economy at large.

Individual preferences for reducing flood risk to near zero through elevation

“…Second, heightening dikes increases feelings of safety among households and investors, which stimulates further economic and urban development in vulnerable areas (Vis et al 2003). The latter has been called the "levee effect" (Anderson and Kjar 2008). As an illustration, it is projected that between 500,000 and 1,500,000 new houses will be built in the next 30 to 40 years in the Netherlands (MNP 2007).…”