A Billion Here, a Billion There

by Jim Davies

Towards the end of a recent Strike The Root article I predicted that New Orleans would be rebuilt regardless of cost, by the FedGov's use of money stolen from you and me, and with none of the discipline over spending that would be imposed by a free market--which would, of course, properly address the primary question in the first place, of whether it's a good idea to rebuild a city vulnerable to flooding in an area of high unemployment.  

Right on cue, President Bush--who must obviously have read what I wrote--has announced that New Orleans will be rebuilt, courtesy of the FedGov; and since he forgot to mention any limit to the price to be paid, we can safely assume that there isn't one. The day prior, LA Governor Blanco (who belongs to the other, D division of the ruling Party) was more explicit; the city will indeed be rebuilt regardless of cost but the FedGov will pick up the tab because her coffers are, alas, empty. I am not making this up.  

Congress fell over itself to shovel South the first $60 billion of your treasure, reportedly already spent by the experts in making money disappear, and the talk now is of around $200 billion to do the rest. It's worth trying to count the zeros in such a number, just to make sure nobody up there in D.C. hasn't got a decimal point out of place.  

As I understand it, New Orleans has a 500,000 population of whom perhaps 80% live in the floodable area. At 2.5 per house that would mean there are 160,000 homes in need of repair or replacement. That's less than the 250,000 mentioned by the City's Mayor, but in his excitement during the crisis he has been known to exaggerate a little, on occasion.  

Let's be pessimistic and assume that all 160,000 will need a complete rebuild.  

Now, this is a low-wage area and they are for the most part rather simple houses, not Southern plantation mansions. With such an enormous project there can be no doubt that huge economies of scale would be enjoyed, and we hope that commercial builders will actually compete to do the work; all of which says that the reconstruction could (assuming a free market) be done for a rather low cost, per house. The land is already there; lot prices are zero. Do I hear $100,000 per house? Yes, I think I do. And that would include clearance of the lot and making bonfires of the existing wreckage provided the EPA will keep its distance.  

Now do the math: 160,000 houses @ $100,000 per house is $16 billion.  

Of course, there's more. "Infrastructure" needs a rebuild; roads need cleaning, drains need scrubbing and repairing, cables and water pipes and phone wires need checking and replacing where damaged. How can we estimate what that would all cost? Well, a rough guess would be to reduce it to the cost per home; if a simple new house is built, what's the cost of providing for it all those services? Would $15,000 cover it, or 15% of the building cost? No? How about $25,000 then? Surely not more. In the latter case, 160,000 times $25,000 is another $4B. Subtotal so far: $20 billion.  

Lastly there are those infamous government levees, which were built too low. They need raising by 5 or 10 feet, and that task isn't trivial; an awful lot of earth needs to be moved. I've no idea of the cost of doing that, except that across the lane from me is a new golf course. Three years ago the Club built a beautiful 18-hole course for under $12 million. Forest had to be cleared, land drains and sprinkler systems had to be laid, earth was moved over almost every yard of the course to landscape it nicely, and then super-quality turf was grown and manicured. The whole length is eight miles, and the fairways are no wider than an enlarged levee. That all works out to be $1.5 million (with an M) per mile.  

Would levees cost more? Perhaps; some of the earth and rubble would have to be brought from afar, and all those boys with fingers in the dykes would have to be relieved when proper repairs were made to the weak bits. But basically, the job is a gigantic landfill, not much more. The Pittsburgh Post-Gazette tells us there are 125 miles of levee around the city, so if we take that $1.5M per mile golf course figure and apply it to this task, we have a first, rough estimate of $188 million. Even in the political arena, one CA report says levee repair costs $5,000 per foot, or $26.4M per mile, which would rack it up to $3.3 billion for 125 miles--a mere (26.4/1.5 = ) 18 times the cost of creating a luxury golf course in the market arena. 

Add either of those to the running total of $20B above, and we have my guesstimate of $20.2B to rebuild New Orleans , or $23.3B if the CA pol is right about levees. Assuming anybody (except politicians and government contractors) actually wants to, and watches his own money being spent.  

That compares with the rumored $200B by a ratio of 1:10 so yes, I think the folk in D.C. did put the decimal point in the wrong place. Or more likely, they just reasonably assumed that the work would be done not by free-market competitors bidding for the real money of real people, but by government spending someone else's.  

To put it all a different way: if the $200B is correct, then when all is said and done each and every modest new New Orleans home will have cost us $1.25 million, courtesy of the political class.