The Free Market Can Do a Better Job

Russell S. Sobel, a visiting scholar in entrepreneurship in the School of Business Administration at The Citadel, has published academic articles on the economics of FEMA.

UPDATED OCTOBER 31, 2012, 4:34 AM | NYTIMES.com

After FEMA’s troubling responses to Hurricanes Katrina, Hugo and Andrew, and the Northridge earthquakes, some hoped that reforms would improve the agency’s disaster response. Centuries of economics research suggests otherwise. Put simply, if FEMA continues to centrally plan the economies of disaster areas, it is bound to fail. Economists from Adam Smith to Friedrich Hayek to Milton Friedman have stressed the inherent problems in central planning.

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. The proper role of government after disasters is no different. 
Government disaster response should focus on: restoring law and order and protecting the life and property of citizens; providing emergency services; 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 were suspended, and in which buyers and sellers felt secure and protected -- would better provide the goods and services victims need.

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. By renting the trading floor and using the exchange, supplies and services would be better allocated to disaster victims than they are now by FEMA. Such mechanisms simply work better to make the best use of widely dispersed local knowledge in the economy.

In addition to private for-profit activities, the private nonprofit sector should be allowed to play a greater role too. Private nonprofits, like churches and other relief organizations, simply deliver relief more effectively.

Government should stick to what it does best, and creating a distribution network overnight 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 every day in our economy — by ensuring the presence of the two things decentralized markets need to work effectively: unregulated prices and secure property rights.

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