After each major disaster, FEMA is criticized as having major failures at getting the goods and services into areas that people need. This was not only true after Hurricane Katrina, but also after Hurricanes Hugo and Andrew, as well as the Northridge earthquakes. While some hope that FEMA reforms will improve disaster response, centuries of economics research suggest otherwise. Put simply, if FEMA insists on attempting to continue to both monopolize and centrally plan the economy (the goods and services supply process) of disaster areas, by inserting itself as a bottleneck through which suppliers and demanders must get permission, it is bound to fail. Economists from Adam Smith to Nobel laureates Friedrich Hayek and Milton Friedman have stressed the inherent problems in central planning. After Hurricane Katrina, rather than promoting the type of entrepreneurial activity outlined above--they actively shut it down.
FEMA's command and control approach requires that both demands for relief and offers of supply be communicated first to the agency for approval and allocation. Private individuals and local governments who attempted to circumvent this process quickly found that FEMA would not allow it after Katrina. As Louisiana Gov. Kathleen Blanco complained, "No one ... even those at the highest level, seems to be able to break through the bureaucracy." FEMA turned away generators needed by hospitals, refused Amtrak's offer to evacuate victims, and wouldn't return calls from the American Bus Association. Sheriff Dennis Randle of Carroll County, Indiana, who had a team ready to help, was never able to navigate FEMA's approval process to enter New Orleans. FEMA failures caused millions of pounds of ice to be shipped mistakenly to Maine and Arizona, and firefighters and rescue squads to be sent to areas where they were of little help. A mobile communications unit with a chartered private plane sat in Germany for nine days because FEMA didn't return its calls. FEMA confiscated medical supplies for Methodist Hospital and fuel purchased by Jefferson Parish, and even prevented the Red Cross from entering New Orleans. The day before Katrina, Coca-Cola needed no permission to deliver Dasani bottled water to New Orleans, so why would anyone want to erect hurdles preventing those deliveries when they were needed most?
Compare this to the private sector response to Katrina. Weeks before the storm, Home Depot transferred generators, flashlights, batteries and lumber to its distribution centers near the strike area. Phone companies readied mobile cell towers and sent in generators and fuel. Insurers flew in special teams and set up claim-processing hotlines. Wal-Mart's incredible response had even its staunchest critics praising the company. Decentralized, market-based institutions utilize information and respond in a way that a centralized government planning agency simply can't. FEMA stood in the way of enterprising individuals and companies who wanted to help bring the needed goods and services into the area.
Central planning as a means to allocate resources has failed across the globe. Fixing disaster relief is simple—greater use of decentralized markets, and focusing government on its proper role. Government best supports the market system in normal times by providing law and order, contract enforcement, and major public works projects (infrastructure). The proper role of government after disasters is no different.
Effective Government disaster response should focus on:
(1) restoring law and order—protecting the life and property of citizens, and enforcing contracts and liability laws;
(2) providing emergency and rescue services;
(3) and quickly restoring infrastructure to open the channels of trade.
A FEMA that established free trade zones, in which all normal regulations, licensing, and taxes are suspended, but buyers and sellers felt secure and protected would better provide the goods and services victims need. This isn't anarchy, all normal contract and legal liability rules are enforced, people can't promise things and not live up to them or sell things that are harmful or dangerous to others. FEMA should be able to provide whatever it wants, but it should not be able to stand in the way of others providing things too. If people want, they can wait on FEMA or other help. But the victims of disasters shouldn't be actively prevented by their government form being able to contract with other private individuals for the goods and services they need, nor should entrepreneurial, enterprising Americans who want to help be actively prevented by their government from being able to offer help or to supply goods and services. By no means should individuals be forced to participate in anything. If you didn't want to go to into a free trade zone to buy ice you don't have to, but you should be allowed to if you want. After disasters, government needs to quickly repair major infrastructure, roads, bridges, etc., that allow for trade to occur--open the channels of trade. These policies EXPAND the options available to disaster victims, and EXPAND the resources flowing into the disaster areas. At a minimum any meaningful FEMA reform would make it impossible for FEMA to confiscate private property or prevent private relief suppliers from entering disaster zones.
While the trading floor of the Chicago Board of Trade, which coordinates millions of commodity exchanges a day, seems chaotic, it works to connect buyers in need with sellers who can supply. FEMA renting and employing the normal private resources of a trading floor could do more to coordinate relief efforts than FEMA internal command and control can. Such decentralized market mechanisms simply work better to make the best use of widely-dispersed local knowledge in the economy. Who around the country has the extra supplies that are needed? Where in the disaster area are they needed to be employed? These types of questions simply cannot be solved by a centrally planned government agency. The great weakness of central planning is its inability to respond quickly and adapt to changes and unforeseen circumstances. No centralized authority, no matter how well-intentioned its employees and well-functioning its internal operations, can overcome this problem. According to Nobel laureate F.A. Hayek "If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization."
In addition to private for-profit activities, the private non-profit sector should be allowed to play a greater role too. After Katrina the American Red Cross, and dozens of other non-profit providers were prevented from entering the disaster area by FEMA. But private non-profits, such as churches and other relief organizations simply deliver relief more effectively and should be allowed to do so as well. Again the claim here is that FEMA should not restrict these activities. FEMA is welcome to help as well, just not deter from the process in which enterprising and hard-working Americans want to help each other through voluntary, mutually-beneficial exchange.
Government should stick to what it does best, and creating a distribution network overnight in a shortsighted attempt to be superior to Wal-Mart’s isn’t it. After a disaster, government is and must be a productive and important part of the process—just as it is everyday in our economy—by ensuring the presence of the two things decentralized markets need to work effectively: unregulated prices and secure property rights.
