The great Mississippi has overflowed its banks, inundating towns and cities along its course in what some are calling a “hundred year flood”. Memphis has been struck, the waters have reached the bottom of Beale Street. New Orleans is bracing for the onslaught of the waters:
New Orleans is having a bad case of nerves. The Mississippi River has flooded catastrophically upstream and its swelling waters are moving inexorably down toward the Big Easy — and its traumatic memories of recent disasters, Katrina and the Gulf oil spill. “We’re in a weird situation,” observes Linda Jackson, an activist in the Lower Ninth Ward. Her district is particularly anxious: the neighborhood has two functioning bridges from which people can see the swelling Mississippi. The river is already at the top of many levees. The murky, dark green river is unusually choppy, causing ferries to sometimes rock uneasily. Cruise ships appear taller among this city’s bundle of downtown skyscrapers. The whole thing is drawing hordes of people to the levees, prompting the authorities to close some sections. In the Uptown area, overlooking the river, a part of the levee is a bit of dirt held together by wood — and the dirt is falling in some spots.
“Anytime we see water,” Mike Couste, an executive chef, said at the levee near the Audubon Zoo early Tuesday afternoon, “we get nervous.” Says Jackson, the neighborhood activist: “It’s only a matter of time before we flood again.”
People who farm the bottom land are philosophical. It is the richest farmland because it is flooded periodically. They knew the risks but they thought the rewards were worth them.
Some people live in the bottom land. They’ve lost everything now because they weren’t eligible for flood insurance. Some will cut their losses and leave. Others will return to rebuild as best they can. They don’t know any other way of life.
Civil engineers don’t design the systems of steel, concrete, and earth that are their work to withstand any conceivable stresses. That would be impossibly and unjustifiably expensive. Nothing would ever be built. Systems are built to withstand a 10 year flood, a 20 year flood, a 50 year flood. This spring’s floods are straining those systems but so far they’ve behaved as they were designed to.
Levees in Missouri have been detonated. That’s as designed. The last time that was done was more than 70 years ago. The Ensley Berm at Memphis is being reinforced and so far it’s holding.
People who live far from the river and thought themselves safe are being flooded out, too, as the waters back up every tributary. This is as designed, too.
The institutions that shore up our society have met their own hundred year flood and it strongly appears to me that they are failing. Last week the Medicare trustees announced that the Medicare Trust Fund will be actuarially insolvent in 2024. It will come much sooner than that because the assumptions on which they base their conclusions (as pointed out by their own actuaries) are hopelessly optimistic. Insolvency will come for Social Security much sooner than expected as well.
Bruce Krasting notes that the Highway Trust Fund, too, is failing:
Another trust fund going broke. In a year! Actually, these trust funds don’t go broke, they just cutback on what they are paying out. How big a cutback?
The cutback would need to be one-third.
Some of the pain is self-inflicted. We have known that the Baby Boomers would grow old and retire for nearly 70 years. It is no surprise.
I suspect that we didn’t expect a housing bubble and a financial crisis to coincide with that demographic inevitability although, as I’ve been saying here for some time, I believe that these things are all interrelated.
We are in the middle of a hundred year flood. The end of Beale Street is flooded. We need to start seeking higher ground.
The time to shore up is before the house is flooded, not after. Trying to do so afterwards will result in greater loss and a poorer job. Don’t complain that you liked your patio the way it was. The flood can’t be stopped.
Heh. You took a left turn there I didn’t see coming, Dave.
“Some of the pain is self-inflicted. We have known that the Baby Boomers would grow old and retire for nearly 70 years. It is no surprise.”
Absolutely true. But who is self? As I’ve noted before, I’ve railed about this for years to no effect. Its Financial Planning 101. So who – like those who took their chances in the flood plain for potential personal gain – should bear the costs? Those who planned, or those who did not?
“I suspect that we didn’t expect a housing bubble and a financial crisis to coincide with that demographic inevitability although…………”
Probably correct on “coincide” but do EZ credit cycles end? Yes. Very predictable.
“as I’ve been saying here for some time, I believe that these things are all interrelated.”
I’d be interested in your view on “interrelated.” Yes, at some point the baby boomers will download to bonds from equities, jettison a home and reduce consumption, but how interrelated to the credit cycle?
“Don’t complain that you liked your patio the way it was. The flood can’t be stopped.”
I’ll only complain if those who were irresponsible in managing their personal affairs now look to me for the solution. I’ve oft noted that we live way below our means. Always have. I started significant saving (not trusting social security) at age 22. Never bought a house, boats, lavish vacations etc close to what we could have. But many have lived wildly outside their means. Are we now to support this irresponsible error in judgment just because we are money pots?
I’ll complain if my patio doesn’t look the way it should. Those who are just now financially sobering up should not.
The other part to point out is that no one anticipated that we would develop into a two tiered society. Those at the bottom have little chance of developing much of the way in savings. Their kids have little chance of going to the good schools that greatly enhance the chance of success. I expect 6 figure people to have saved enough. For those below the median income, it is much tougher.
Query-What happens to our economy if we were to become a China like savings economy? How well do we fare if consumers stop spending?
Steve
Other than those of us who’ve been complaining about it for the last thirty years or so, you mean.
But you bring up a good point. Median wages have been largely stagnant for many years even while median compensation has risen. Had median wages only risen a point or two faster the Social Security Trust Fund would be in excellent shape.
That would do nothing for Medicare. The reason for the discrepancy between median wages and median compensation is largely due to an increasing proportion of compensation being taken in the form of healthcare insurance.
After the economic collapse I think it would be fine. Consumption is something like 85% of the economy.
“They’ve lost everything now because they weren’t eligible for flood insurance”
How can someone not be eligible for flood insurance?
“People who live far from the river and thought themselves safe are being flooded out, too, as the waters back up every tributary. This is as designed, too.”
And those folks, sadly, believed they’d never need flood insurance.
Like Drew I think the answer/art is to live well, below your means. All it takes is a little creativity. Of course it sometimes takes a little effort to find that creativity. It may not be the first thing that comes to mind when friends or neighbors buy themselves a new ____.
In macro, things do look bad. But what can we do?
I don’t think we can do more than hope that those in “less planned” situations now find some creativity.
I’m not as close to this as I used to be and am just going from memory but the situation is something like this. Federal flood insurance initially became available in the late 60s sometime. Since then it’s essentially become the only kind of flood insurance that’s available anywhere there’s any real risk. Naturally, its availability has encouraged more people to live in high risk areas.
In the early 80s (1983?) following the Mississippi floods the law was amended to render new structures or those that have undergone major improvement ineligible for federal flood insurance.
“I’ll only complain if those who were irresponsible in managing their personal affairs now look to me for the solution. I’ve oft noted that we live way below our means.”
Look, Drew, you’re being just a tad hypocritical here. Our economy has been fueled for umpteen years by consumption — and much of that by folks consuming beyond their means — and you and your’s have benefited from that. So, rather than tout your moral superiority, you might reflect on your good fortune as having been effected by that which you so tiresomely deplore.
The last big flood was in 1973, the first time the Morganza spillway was opened.
It could have taken until the early ’80’s for an insurance law to pass, but I couldn’t say.
One way someone could be ineligible (I looked it up) is if his or her community does not participate in the National Flood Insurance Program (NFIP). Which, I guess, makes the plight of those folks not on the flood plain whose communities are about to be inundated all the more precarious. I’m assuming that many of those communities do not participate in the NFIP. I would hope that there is some kind of federal relief available for these folks., though.
sam, one issue is that if the feds pay out on flood claim they may condition the payout on signing over a flood easement. You never quite own your land free and clear thereafter; the feds maintain a right to flood it. The riverbottoms in Missouri that were flooded by exploding the levies were subject to a legal right for the feds do so (yet Missouri tried to stop it in the courts anyway). This is the most likely scenario for bottom land.
In residential areas, the issue is more likely that the owner doesn’t want to pay the extra cost of flood insurance and if they don’t get a mortgage from a federal bank or otherwise federally-backed, they are not required by law to get flood insurance. There is a free rider problem in the system.
“There is a free rider problem in the system.”
Yeah, I do see the potential for that. But if it’s a 100-year flood, I’m not sure I can blame those not living on the flood plain, and now being inundated, for their lack of insurance.
There is an out, which I have taken, even though I live about ten blocks from the Mississippi bridge on Hwy 84 . I couldn’t say that there’s time for residents downriver.
Link: http://www.2theadvocate.com/news/No-delay-in-some-cases-to-get-flood-insurance.html
Semi. Both bad luck and bad planning are in evidence. Bad luck doesn’t exonerate bad planning though.
@sam, the big flooding we’re about to see is in the Atchafalaya basin, which I suspect is largely uninsurable. Background here:
http://www.nola.com/opinions/index.ssf/2011/05/floodway_into_the_atchafalaya.html
I believe flood insurance is for natural catastrophes and not manmade damages from opening spillways.
This article:
http://www.katc.com/news/butte-la-rose-residents-worry-about-flood-insurance/
would indicate that it’s mixed, Mr. Shaw.
I hope you keep dry Ms. Gore. I’m mainly speculating on the availability of flood insurance in the Atchafalaya Basin, not all of Louisiana. The article I linked to shows a concerted effort to keep development out the basin and where it’s allowed, it’s not being protected from floods because it’s a spillway.
Interestlingly, your article contradicts what I’ve read elsewhere about flood insurance from opening the spillways:
“The farmers who own the crops have insurance. But insurance covers only an act of God or natural disaster. Opening the spillway is a human decision made to try to avert a natural disaster, so the farmers would be out of luck.”
“’Some of our farmers would lose everything they have,’ said Polozola, president of a district board representing St. Landry and two neighboring parishes. The farmers are appealing to the Army Corps of Engineers to write insurance companies a letter calling the spillway opening a natural event.”
http://www.washingtonpost.com/national/in-louisiana-a-choice-between-two-floods/2011/05/11/AFrjFotG_story_1.html
“I believe flood insurance is for natural catastrophes and not manmade damages from opening spillways.”
Well, that really sucks. To repeat, I do hope there’s some kind of relief available to those folks. This is happening to them through no real fault of their own. I suppose one could argue the contrary by saying, “There was always a chance of this happening, so they gambled and lost.” But, while that might be rational, I’d argue it’s unreasonable.
The article references South Louisianans, specifically in the basin. As you all know, the Washington Post has better information on the color of Sally Quinn’s panties than Cajun country.
I ‘spect we’ll be fine, Mr. Shaw, but I hope you’ll be as amused as I that we are on flood alert evacuation level #2, which advises residents to put all their important documents in one place. You advised me to do that several weeks ago.
You know I look at this whole thing as a great example of the failure of (discretionary) government via time inconsistency. Building in flood plains is one of the classic examples.
It is one of the reasons why rational discretionary policy is, IMO, impossible. Anyone who hopes for such outcomes has that hurdle to clear, and then we look at events like this.
Prediction: most people responding to this comment, if any do, will miss the completely obvious.
Dave,
You fail to ask why this is so. I think this is so for a number of reasons:
1. Increasing the non-wage portion of compensation allows people to avoid taxes and consume more of a good that at the very least is a normal good.
2. Government policies have resulted in a excessive growth rate in health care costs.
3. Points 1 & 2 reinforce each other to some extent.
These points are all a result of government meddling in the market. During WWII the government wanted to keep prices low so they fixed wages, but allowed employers to compete via benefits packages. In looking back at this…does it qualify as “rational policy?”
Wow, just wow. The idea here is that because everyone else was irresponsible and Drew wasn’t and did well he owes the irresponsible? Talk about totally f*cked up incentives. This is a horrible world view in that it will simply ensure that most people behave irresponsibly. Keep it up long enough and even guys like Drew might figure why not join them as I keep getting screwed over. And when there are no more responsible people to bailout the irresponsible well…I think you can see how weak your position is.
Yes, but even with “bad luck” you have to be careful. If you aren’t you could very well end up creating more bad planning.
We’re talking about 25,000 people here, about 11,000 structures, about 18,000 acres of cropland.
It’s a small town by any measure. Many of these parishes are protected by their own ring levees. People are shoring their homes up with sandbags. Come to it, they aren’t asking for much.
It’s a bad analogy, Mr. Schuler.
“Wow, just wow. The idea here is that because everyone else was irresponsible and Drew wasn’t and did well he owes the irresponsible? Talk about totally f*cked up incentives. ”
Oh bite me, Verdon. I only made an historical observation. Our economy was and is fueled by consumption, and in so far as onyone has benefited from our economy, it’s because of that. You deny that?
My wiser elder Sam, it comes down to whether you like crawfish and zydeco.
“You know I look at this whole thing as a great example of the failure of (discretionary) government via time inconsistency. Building in flood plains is one of the classic examples.”
If it really is a once in one hundred years event, I suspect building in flood plains is rational, at least for farming and small communities.
“2. Government policies have resulted in a excessive growth rate in health care costs.”
It really is not all government. That is where you are wrong. The technology advancements mean that care was going to cost more no matter what payment system you choose. Also, the countries with lower costs, and first world level care, are the ones with more government involvement.
Steve
So, because of this “fact” that entitles the irresponsible to a claim on the responsible? Do you deny that was the implication of your post?
This also provides an excellent scenario for time inconsistency problem with discretionary policy.
1. The government says, if you behave in a reckless manner and consume too much, run up too much personal debt, etc. don’t expect to be bailed out.
2. Reasonable people know that if enough people engage in precisely this kind of reckless manner the government will cave to political pressure and bail them out.
3. So people are more likely to engage in reckless behavior.
4. Rinse and repeat a few times and see where you end up.
If it also sounds like the problem with “too big to fail” good job, you can see one of the problems with way our government is run.
Now, can we hear more about that mythical savior rational (discretionary) government policy?
Well, no. No more crawfish and Zydeco for you. Have a good time in Ohio.
“So, because of this “fact†that entitles the irresponsible to a claim on the responsible? Do you deny that was the implication of your post?”
Yes, I goddamned do. That’s another discussion entirely. My observation would be the beginning point of that discussion.
Well, if the people who are doing it aren’t asking for a bailout and are being responsible in what they do with their excess earnings. That is, if living there and farming produces greater output and thus a greater profit and they squirrel away a percentage year-in-year-out to basically self insure against the 100 year flood yeah maybe.
But are they doing that? Or are they going to want a big transfer payment? If they did not self-insure and they are expecting/hoping for a transfer payment then no. Either that or the extra profits should be entirely taxed away so that people are indifferent to moving there.
Really? Lets see:
Medicare: government
Medicaid: government
Benefits being un-taxed: government
Demographics: not government
Health care is a superior good: not government
You’re right, but government seems to have done its share.
Lets be clear: lower monetary costs.
Funny, that is the charge leveled against economists…that we only consider money.
But I’m not seeing that here, Steve. It’s a bad analogy. From what I’ve read, therresidenst receive a letter every year that reminds them that they are living in flood zone. They have done their level best to protect ther communities.
What now?
Sorry, looking at the quote you were responding to it wasn’t all that clear to me sam.
And I don’t think Drew was touting his moral superiority, just that he doesn’t want to have to pay for other people’s foolish mistakes.
Well, damn, condemn the farm property in Missouri.
The ideal, is to not live in a flood plain, or if you do be prepared to deal with the costs. If the costs are actually split with those not living in the flood plain, then more people than otherwise would will move into the flood plain.
Think of it this way, suppose 100 people could live on the flood plain and be self-sufficient. That is they plan for the 100 year flood and when it comes they have enough resources (or money) set aside to deal with the costs of such a flood. But the government comes along and says, “Here, we’ll cover up to 50% of your expenses.” Now 200 people move into the flood plain and all else being equal you have now doubled your (social) costs of bailing out those damaged by living on a flood plain.
Alternatively we could tell people, sure go ahead and live on the flood plain, but any excess benefits you derive from living there will be taxed away 100%. If you lived off the flood plain and made (using a made up number for explanatory purposes) $100, but on the flood plain you made $150 that extra $50 is taxed away. Now people are indifferent to living on the flood plain or not.
While this example is extremely simplistic is highlights at least to some degree what “rational policy” would look like. But we don’t do that. Sometimes rational policy has to let people make a bad calls and suffer the consequences. But that is way too easy to demagogue. On top of this is the time inconsistency problem. Even if we lived on Vulcan and everyone said, “Oh yeah, good points, that is the kind of policy we’ll set up.” Once that 100 year flood hits, switching to another policy (i.e. cutting taxes for those living on the flood plain) always look better. A vulcan would switch to such a policy. Forward looking people expect such a switch you once again you end up with more people living on the flood plain than is optimal.
I would suggest that you are talking about development on the the Gulf Coast more than any farmer.
I would also suggest that having a monumental river pass your doorstep taxes your nerves.
Janis,
Yeah, the Gulf Coast would also work, but so do flood zones. And I am well aware of the emotional aspects of the problem, but from a “rational policy” stand point they should never be the driver behind policy…in fact that is what we currently have “emotional policy”, and look at the mess we are in now, a debt-to-GDP ratio approaching unity with no end in sight.
I don’t think that living in flood zones on the Mississippi is reprehensible.
Do you know what the Mississippi basin looks like?
http://www.mvn.usace.army.mil/bcarre/missdrainage.asp
Good luck.
I didn’t say living in the Mississippi basin was reprehensible.
What is reprehensible are the various policies we’ve put in place over the decades that pose a very serious threat to the fiscal stability of the United States and the well being of its citizens. The issues surrounding the problems with flooding along rivers and the policy responses have provided Dave with a way to discuss the problems. I just chipped in with my own views based on what I know.
Building factories in the flood plain would be stupid, but we are talking about farms. If people can farm for a hundred years on very fertile land between floods, that should probably be a net plus to the state. It would be difficult, I think, for insurance companies to come up with enough money at once to put the farms functioning again after a flood, but I suspect it could be done by a state if it wanted. If it is analyzed and found to be a net positive, I would have no problem with the state funding insurance for the flood area.
Steve
“Look, Drew, you’re being just a tad hypocritical here. Our economy has been fueled for umpteen years by consumption — and much of that by folks consuming beyond their means — and you and your’s have benefited from that. So, rather than tout your moral superiority, you might reflect on your good fortune as having been effected by that which you so tiresomely deplore.”
Well, sam, if in any way shape or form you can demonstrate that unwarranted consumption of others has benefited me, I’ll listen. But I already know the answer, it hasn’t, and you can’t make the case on your best day. So stick it up your obviously envious ass. Speaking of tiresome and boring, have you had a thoughtful remark on the state of our economy, how we got here, or what we might do about it in, oh, a year? And in any way shape or form do you think you could contribute to a recovery.
Please do inform us.
And I don’t think Drew was touting his moral superiority, just that he doesn’t want to have to pay for other people’s foolish mistakes.
What, like getting fired during a crash and being unemployed for years? I didn’t buy a house I couldn’t afford. I didn’t buy a boat. I didn’t take fancy vacations, unless you consider California City (in the middle of the Mojave) fancy. I did lose my job at the start of the wave. No one was hiring. One company I interviewed with in 2008 shut down their HR department shortly after I interviewed, and then the whole division I might have been working in. There weren’t ANY jobs, not even shit jobs. And after being out of work about six months no one would even copnsider hiring me. I’m poor because I cannot get a job. No job means no income. After three years of no iincome I am far beyond broke. And I personally know a few DOZEN people in the same boat.
So explain to me why I am such a horrible person? Your arguement basically is that the rich are virtuous, and the poor are moral degenerates. Otherwise they would be rich.
And let’s be clear – Drew’s position, and yours, doesn’t just protect those virtuous souls such as your own selves – you are also protecting the Vikram Pandits and Rick Scotts of the world. (Pandit has helped destroy about 93% of C’s value while collecting about $200,000,000. Rick Scott got rich off the government teat and by stealing hunudreds of millions of dollars from Medicare.) THOSE are the virtuous souls that you are standing up for. The real mistake is that the poor just don’t steal enough.
And one more thing. If the rich feal they have no responsibility to help the peasants, then don’t be surprised when the peasants go all French Revolution on your asses. That utter lack of resposibility cuts both ways.
And in any way shape or form do you think you could contribute to a recovery.
I can’t answer for sam, but I can answer for myself. No, I cannot contribute to a recovery. I cannot even find a fucking job. Even the goddamned drug dealers aren’t hiring anymore.
“So stick it up your obviously envious ass.”
Ah, the invocation of class envy as the predicate of any criticism of you. That’s truly pathetic. You do go on, though, marinating in that economic solipsism you find so comforting.
A few things on flood insurance:
There is bi-partisan legislation moving through Congress to reduce the subsidies in this program, possibly privatizing it.
While I agree with Steve Verdon about the problems of subsidized flood insurance, that’s not the totality of the program. Communities enter the flood insurance program in order to access some of it’s benefits and in return are required to enforce land use restrictions and building code requirements that over time should reduce risks. The effectiveness of these measures is questioned.
I believe there is a significant difference between flooding problems along the rivers and the coasts. The rivers are no longer natural bodies, they are a series of artificial ponds operated by the governement that largely control most flooding problem, but increase the risk of catastrophic events. I think we should cut subsidies to the coasts completely.
I believe the 100-year flood plain maps (more accurately, the 1% risk per annum of flooding maps) are as reliable as the rating agencies on MBSs.
“There is bi-partisan legislation moving through Congress to reduce the subsidies in this program, possibly privatizing it.”
Didn’t the government get into it because private insurers wouldn’t?
sam, I don’t know that it wasn’t available before. Today, with below market pricing and a federal requirement to have it to get a federally regulated mortgage, less than a third of Louisianans have flood insurance today. I think the problem was that it’s too expensive for the average homeowner; may still be so. But I don’t like paying two or three times to rebuild someone’s vacation home on Grand Isle.
“Flood insurance coverage was virtually unavailable from the private insurance markets, however, because insurers could not profitably sell coverage at an affordable price due to the catastrophic nature of flooding and insurers’ inability to develop actuarial rates that reflected the flood hazard risk.”
http://www.fas.org/sgp/crs/misc/RL32972.pdf
I imagine that subsequent floodplain mapping and government studies make actuarial rates available today, but (1) private insurance won’t voluntarily cover special hazard areas; and (2) the cost will be prohibitively high for average homeowners.
steve,
Yes, it could very well be a “net plus” for society. However, the situation is one where you have a potential for cost shifting. For example if the discounted excess profits of farming in a flood zone is $100, the costs are $20 (due to flooding), and the benefits to society are $10 and society picks up $15 of the costs then it is a net loss for everyone else, in other words policy has set up what is basically a transfer system to those living in the flood plain. I’m not saying it shouldn’t be subsidized at some level, but if you subsidize it too much, then you create a bigger mess.
Now coming up with “rational policy” is going to be really really hard here. But this was one of the criticisms of Hayek against centralized planning–the informational requirements are massive….too massive for a politically driven government to acquire, analyze and then use to implement “rational policy”.
Icepick,
No, I’m pretty sure that Drew was talking about things like the horribad bailout of GM. Talk about a complete clusterf*ck.
And did you see the research that the stimulus spending has saved 450,000 government jobs and prevented the formation of over 1,000,000 private sector jobs? And think of the stimulus spending this way, at a price tag of around $750,000,000 even if there are 15,000,000 unemployed people they could have sent each one a check for $50,000.
Mr. Verdon, are you conflating your overall repugnance to farm subsidies with a rare event?
That’s a question, not a challenge.
Janis,
No, my point is that while it may be desirable to utilize flood zone land for farming, if policy is not crafted well you’d end up with a sub-optimal outcome. Either too many or too few people living there and utilizing the land. Carefully crafted policy is extremely hard to come by, IMO. In fact, I don’t think we can “rationalize” much of our policies in general.
Don’t get me wrong, some element of cost shifting may be justified. If by farming in a flood zone more food is produced and food prices come down, then that is a good thing. But I don’t think the cost shifting should be 100%. Finding the right split, or even getting close, would be very, very hard. I would even argue that the tendency will be to shift too much of the costs away from those living in such areas.
aka “Romance?”
Before you go further, I cop to it. Romance , I mean. I’ve lived in a fourth-floor walk-up in New York, a rooming house in Portland, OR, and a studio or two in Dallas.