Matthew Kahn of the "Environmental and Urban Economics" blog has an excellent post on figuring out who, exactly, should have responsibility for investing in New Orleans' levees. Should the city do it? The federal government? Says Kahn:
To convince me that federal taxpayer money was needed for such a local project, you'd have to convince me that New Orleans was liquidity constrained (couldn't get a loan) or that there political leaders were over optimistic about the quality of the existing levees and thus were underestimating the benefits of upgrading the levees.
Good point, though don't we also have to factor in the fact that New Orleans' political leaders might be optimistic about the existing levees holding during their time in office? One can easily imagine a mayor thinking that, yes, the levees may be inadequate, but hey, as long as they overflow on someone else's watch, it's not worth the investment. As ever, rational actors in office don't always act in the public's long-term interest. (Plus, local corruption played a significant role in underfunding New Orleans' government.)
On the other hand, the federal government is even more likely to be risk-averse (after all, if Congressor the presidenthappens to slash funds for, say, levees in Louisiana and then disaster strikes, they incur the wrath of voters in, on average, one state out of fifty). As we've seen, it's hard for a state to depend on a federal government that sits hundreds of thousands of miles away, especially when its two sitting senators are very low-ranking members, and one (Mary Landrieu) is in the minority party. And so on. As Kahn notes, this debate becomes important as climate change ends up exposing more and more cities to the risk of flooding, and people need to figure out which protection costs should be paid for by cities themselves, and which by the federal government.