August 29th will mark the 10th anniversary of Hurricane Katrina making landfall as a Category 3 hurricane. The failure of the storm surge protections from Florida to Texas, and especially in New Orleans, is considered one of the worst engineering failures by the Army Corps of Engineers in its history. The policy responses from local, state, and national public officials are also considered to have been woefully inadequate. The entire episode represents a classic case study in how government failure can compound the fury of nature through the folly of man. What are the lessons that can be learned from this?

The Political Economy of Everyday Life

We, just like you, sat and watched on CNN the heart-wrenching catastrophe unfold in New Orleans. The research team I formed upon my arrival at George Mason University and the Mercatus Center in 1998 was already developing the theoretical framework for studying what we termed “the political economy of everyday life.” We used this theoretical lens to approach research questions in the aftermath of Hurricane Katrina. I will begin by explaining our approach and early research, and I will demonstrate how we it applied it to understanding the challenges associated with rebounding from Hurricane Katrina.

The roots of this framework were forged in the study of the existing socialist economies of Eastern and Central Europe and the former Soviet Union. The “official” system operating in these economies hid from view the actual operating principles that explained the socialist realities across these countries. To actually understand how the Soviet economy operated, for example, it was not enough to study the five-year planning schemes of Gosplan or the accounting of material balances throughout the state enterprise system. And it certainly wasn’t enough to study the official growth rates provided by the Soviet government, nor even the revised figures that circulated in the West. No, the only way to make sense of this economic system was to dig deeper and try to grasp the political economy of everyday life.

This meant understanding how blat sought to ease the tensions in both the producer and consumer sector, how the tolkachi negotiated the imbalances in the production sector, and how the black market operated to bring some modicum of relief amidst continuous frustration of shortages and poor quality within the consumer sector. The glue that kept the former socialist economies in operation was the “unplanned” system built on theft and entrepreneurial reallocation of bureaucratic supplies so that goods could be produced and black-market dealings so that those goods could be delivered. Imagine an entire economy that operated under the same principles as the ticket scalping market works in the US, or even the market for cocaine in the US (see Boettke 1993, 46–72). As the Russian joke relays, “a state shortage of buns and a state shortage of sausage is a sandwich sold out the back window.”

Now this economy is a far cry from the socialist ideal of a coherent and comprehensive central plan, but that isn’t because of a lack of trying — it is because of the fundamental impossibility for such a system to actually work. Absent a coherent economic criterion for the allocation of scarce material resources, the socialist economies were political economies in the worst meaning of that term. When this system broke down in the late 1980s and early 1990s, the fundamental transition question was not merely one of getting the prices right but of getting the institutions right, which itself was a function of getting the ideas right (see Boettke, Coyne, Leeson, and Sautet 2005).

A Functioning Society is like a Three-legged Bar Stool

In order to capture this nested nature, we developed the analogy of a three-legged bar stool, where the legs represent each of the above sectors, and the seat of the chair represents the social system of exchange and production in its entirety. The robustness of that chair — its ability to operate under unfavorable circumstances — is a function of the equal strength of each of the legs. Weakness in any one of the legs would cause the system to wobble, and weaknesses in all three would cause the system to collapse under the weight of unfavorable conditions. Our intellectual attentions were drawn to exploring not only transitioning economies, but also less developed economies, failed and weak states, and postwar reconstructions (see e.g., Aligica and Evans 2009; Boettke 1994, 2001; Coyne 2008, 2013; Coyne and Leeson 2009; Powell 2007, 2014; Leeson 2014). This research program produced a very impressive number of publications among our research team at Mercatus, which worked under the banner of the Global Prosperity Initiative and Enterprise Africa. At the height of our research efforts, we had teams of researchers in the field from China to Botswana and from Eastern Europe to Latin America. Books, articles, and PhD and MA theses flowed as a consequence of this research program in comparative historical political economy (see Boettke, Coyne, and Leeson 2008, 2013 and the references therein).

As we developed our theoretical framework, we dove deeper into the investigations of the foundations of the Austrian school of economics. These foundations emphasize the entrepreneurial market process (Ludwig von Mises, F. A. Hayek, and Israel Kirzner), the Virginia School of Political Economy with its focus on the constitutional level of analysis as well as the strategic play within any given set of political rules (James Buchanan and Gordon Tullock), and the Bloomington School of Institutional Analysis of Development with its emphasis on the rules in use as opposed to the rules in form and its focus on citizen coproduction of the communities they reside in (Vincent Ostrom and Elinor Ostrom). These intellectual foundations and approaches were a constant theme in our teaching and research, and our unique blend of these different traditions defined our Mercatus Center approach to political economy of everyday life, both theoretically and empirically (see, e.g., Aligica and Boettke 2009; Aligica 2014).

It is important to explain this history because it was in this intellectual context that the events around Hurricane Katrina have to be understood in order to appreciate our rationale behind undertaking the Gulf Coast Recovery Project in 2005 and continuing it to this day (see Boettke et al 2007 for an early summary of the project). Our research efforts were already aimed at studying transitioning societies and the efforts to reconstruct failed and weak states — as we took inspiration from John Stuart Mill’s poignant observation in Principles of Political Economy:

What has so often excited wonder, the great rapidity with which countries recover from a state of devastation; the disappearance, in a short time, of all traces of the mischiefs done by earthquakes, floods, hurricanes, and the ravages of war. An enemy lays waste a country by fire and sword, and destroys or carries away nearly all the moveable wealth existing in it: all the inhabitants are ruined, and yet in a few years after, everything is much as it was before. (The Collected Works of John Stuart Mill, 2:75)

Disaster economics from our perspective is but one example in the broader category of development economics. So we were persuaded that the lessons we had learned about the nested nature of economic-financial (private), political-legal (public), and social-cultural (civil society) dimensions of political economy could be applied to make better sense of the unfolding tragedy of the fury of nature being compounded by human folly than the more mainstream approaches to economics and social science.

The more mainstream approach to these questions focused on models of optimal decision-making (or absence of) and aggregate measures of economic performance — with little reference to the rules that enable groups to live better together and realize the gains from productive specialization and peaceful cooperation. Rendering intelligible the behavior and institutional patterns one observes during the crisis and its aftermath was the hallmark of our research efforts as opposed to the language of prediction and control. Katrina was a “natural experiment” in the social sciences, but our approach was grounded in the relatively dirty empirics of anthropology and ethnography, rather than the relatively clean empirics of laboratory experiments or computer simulations. The Austrian school emphasis on subjectivism and local knowledge, combined with the Bloomington school emphasis on how individuals frame and understand their circumstances and the de facto rules in use (as opposed to exclusively focusing on the de jure rules), set a research agenda that required field work. Analytically, however, the Virginia school emphasis on the consistent and persistent application of the economic way of thinking to all human endeavors — be they taking place in the marketplace, in city hall, or in the church pews — meant that our efforts would be disciplined in a way that is lacking in social science approaches that reject economic analysis.

Recovering from Hurricane Katrina

The structure of the research teams in the Gulf Coast Recovery Project reflects this methodological and analytical perspective. Our original intent was to engage in a five-year longitudinal study of disaster and recovery, examine the lessons learned from this “natural experiment” of dispersing of private capital, public capital, and social capital, and see how (and if) the disaster area can be reformed and built up in such a way to produce a thriving and vibrant community. And, if not, we wanted to identify impediments that challenge Mill’s classic observation about the great rapidity with which communities can rebuild themselves. Our work was methodologically, analytically, and even ideologically challenging to conventional thinking, and this “daring to be different” motto was a rallying point for the scholars we chose to work with.

Within weeks of the wreckage of Hurricane Katrina, we were making trips to the New Orleans region. It’s important to remember that 80 percent of the geographic region was impacted by the storm surge after the hurricane had dissipated, and that meant the electric grid and other basic utilities were devastated. Debris was immediately removed, but rebuilding took a much longer time to get going due to a variety of factors that our work set out to explain. We organized ourselves into three teams of researchers focusing on private sector, public sector, and civil society. Each team was then staffed with a co-research leader and then a group of graduate student research assistants. As the Principle Investigator (PI) for the Global Prosperity Initiative and then Enterprise Africa, I also assumed this role as the PI for the Gulf Coast Recovery Project. Sanford Ikeda, Peter Gordon, and Steven Horwitz were the original lead scholars on the private sector, and Horwitz in particular addressed early on the role that the big-box stores such as Wal-Mart played in providing much-needed supplies in the immediate aftermath of the hurricane, but also the role that commerce played in aiding the return to normalcy during the recovery period. Russell Sobel and Peter Leeson were the original lead scholars on the public sector area, and they produced papers exploring the level of public corruption, the failure of FEMA, and the failure of government effort to plan the recovery process. Emily Chamlee-Wright and Virgil Storr were the original lead scholars in the civil society and social capital area of our research efforts. In addition to their analytical work in the field of what has come to be termed “cultural economy,” Chamlee-Wright and Storr, along with Nona Martin Storr, began to collect an oral history of the recovery process. Deep in the field with a variety of what could be dubbed ethnographic techniques of analysis — from soak and poke observation to structured interviews to oral history — they explored why some people came back and rebuilt their communities and others did not.

In the aftermath of Katrina and the dispersion of the population, the great political economist Thomas Schelling posed the puzzle of rebuilding as a coordination problem in collective action. Schelling postulated that this coordination problem could not be solved without government central direction providing the focal point that all the groups could rely on in their decision to bounce back. Chamlee-Wright and Storr’s work challenged this Schelling point without denying the central truth of his observation that this was a coordination problem of extreme difficulty. But rather than government per se, Chamlee-Wright and Storr found strong civil society “entrepreneurs” who provided the necessary Schelling focal point, either in the absence of the state or in spite of the state, be they church leaders or school superintendents.

All three teams of researchers produced a stream of policy papers for Mercatus and other public policy outlets, presentations and testimony on Capitol Hill, op-eds and magazine articles, journal articles in professional outlets as well as chapters in books, and scholarly books. And, again, like the previous research and graduation education involvement with the Global Prosperity Initiative and Enterprise Africa, a generation of doctoral dissertations and master’s theses were written under the banner of the Gulf Coast Recovery Project. These in turn led to ongoing research programs in the political economy of everyday life that sought to dig deeper into the underlying conditions of the private sector, public sector, and civil society that enable self-governing democratic citizens to cope effectively with distribution to normalcy either from natural disaster or man-made disasters.

Several important lessons flow from our studies, including:

  1. the nested nature of the private, public and social sectors cannot be ignored;
  2. initial conditions in the private, public, and social sectors determine the resiliency of the communities;
  3. individuals and communities are far more robust and resilient than existing theories of cultural dependency predict;
  4. commercial society provides the social space for the building of effective social capital and civil society;
  5. self-governing democracies operate best when government organization follows the principle of subsidiarity and gives priority to local governance over state and national policy initiatives.

With the publication this summer of How We Came Back: Voices from Post-Katrina New Orleans, the products of the Gulf Coast Recovery Project continue to flow. Research projects among graduate students and alumni continue in the area of the entrepreneurial market process, the constitutional level of analysis and strategic behavior within government, and the informal rules that enable social groups to engage in effective collective action. Studies have been conducted in the economic history of earlier disaster recovery efforts, such as Emily Skarbek’s work on the Chicago Fire of 1871, as well as work on the bureaucratic difficulties in accomplishing government-led efforts at humanitarian assistance, as found in Chris Coyne’s Doing Bad By Doing Good: Why Humanitarian Action Fails. In addition, our teams have continued to produce studies directly related to natural disasters as we sent teams into the field immediately after tornados ravaged the towns of Tuscaloosa, Alabama, and Joplin, Mississippi. Also, Virgil Storr, Stefanie Haeffele-Balch, and Laura Grube’s Community Revival in the Wake of Disaster: Lessons in Local Entrepreneurship, to be published later this year, examines the role of social and commercial entrepreneurship in promoting post-disaster community rebound in New Orleans as well as in New York and New Jersey after Hurricane Sandy. Although we embarked on the Hurricane Katrina project 10 years ago, the lessons we learned from the research and the new avenues of investigation that came about through the project thrive in our work today.

Click to learn more about Mercatus disaster recovery research.

Peter Boettke is the University Professor of Economics and Philosophy, George Mason University; BB&T Professor for the Study of Capitalism at the Mercatus Center at George Mason University; and director, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center. Support from the Mercatus Center both financial and intellectual is gratefully acknowledged. The usual caveat applies.

Mercatus on Policy

Expert commentary from scholars at the Mercatus Center at George Mason University

Peter Boettke

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University Professor of Economics & Philosophy at George Mason University

Mercatus on Policy

Expert commentary from scholars at the Mercatus Center at George Mason University

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