A Chequer-Board of Nights and Days

I'm not sure how he means "their free market dreams didn't quite work out in Iraq".  To be sure, we weren't able to privatize industries quite as much as we might have liked. But the changes that were implemented were--as noted here previously--quite successful.  "[A]fter declining by 12% in 2001, 21% in 2002, and 22% in 2003 (part of which was due to the war) ... Iraq's economy grew in 2004.  In fact, it grew quite a bit.  The IMF estimated "Iraq's economic growth for 2004 will surpass 50 percent"."    And while oil sales--which accounts for 2/3rds of the Iraqi economy--have declined since the onset of the war, Iraq's economy is still projected to grow by 4% this year.  That's not strong growth, but the Iraqi economy had been consistently declining in size since the 1970s, and the insurgency is certainly a compromising factor.

Meanwhile, back to the Gulf.  Nyhan calls the proposals "half-baked Heritage Foundation policy proposals", but doesn't actually mention what those proposals are.  Or levy any actual criticism.  We are, I suppose, left to imagine that these Heritage proposals are kooky, left-field policy ideas.

Well, here are the proposals.  There's...

• ...the "Gulf Opportunity Zone", which proposes cutting the tax and regulatory barriers that disincentive business investment in the region.  Such a move "will spur investors to take business risk".  That's not controversial...that's econ 101.
• ...the "Emergency Spending" proposal, which suggests we "pay for Katrina's cleanup by redirecting existing spending".   That's the kind of proposal that John Kerry would have gotten behind just a couple years ago.  During the 90s, we had PAYGO, which compelled Congress to "require that new direct spending and revenue legislation be deficit neutral".  A year or so ago, John Kerry was pretty hot on that idea, too.   Today, though, it's "half-baked"?  
• ...the "Housing Relief" proposal, which proposed "a rent voucher/certificate program".   Half-baked?   Kevin Drum called it " a terrific idea, and one that should be supportable on a bipartisan basis".   Atrios (!) calls it "a good idea", though he thinks it will "never actually make it into a piece of legislation".  Well, not if Democratic pundits insist on calling basic free-market ideas "half-baked Heritage Foundation policy proposals".

...etc.  If these ideas are now considered "half-baked", it only goes to show how far we've drifted from the very basic free market ideas and ideals that have long distinguished the US economy.

Finally, Nyhan is skeptical of Congressman Jindal's claim that "We now have a once-in-a-lifetime opportunity to let the free market policies that we know will work for New Orleans flourish".   Nyhan calls that claim...

a perfect expression of the faith-based economic policy that has taken over the Republican Party.

 But what's "faith-based" about the notion that free market policies work?  I mean, on an empirical basis, we have quite a lot of history to demonstrate that free markets are more efficient than the alternative.  And what is it about protection of private property and voluntary exchange that's unlikely to work?

The market may not produce the results Nyhan wants, but it will certainly be more efficient than the reimplentation of the Davis-Bacon Act, (more) massive federal subsidies and (more) barriers to trade.  

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And while we're at it, Jesse Taylor from Pandagon makes some problematic criticisms, too.  (though, he gets points for his amusing nickname for John Stossel: "El Mustachio, the Lucha Libre of Lazy Libertarianism")

If all local projects, essential and whimsical, were paid for with local taxes, competition among states and cities would force them to become more efficient.

Define "local". New Orleans is one of the largest shipping ports in the world. The entire nation's economy depends in large part on that city. As much as they'd like it, you can't ship things by boat from Nebraska. ... All that's going to happen is that cities like New Orleans, economically vital but disturbingly impoverished, won't have enough money to worry about efficiency.

 Jesse seems to believe that we need New Orleans so much that we can pay billions through the government to prop it up, but there's no way that New Orleans could pay to sustain itself....by simply passing along the costs to users.

That's an odd argument to make.  

It's odd, because it seems to assume that, if the government doesn't subsidize New Orleans, the public--which, you recall "depends in large part on that city"--won't be willing to pay for the services of the port they found so valuable.  

What if we said the same thing about Chicago O'Hare airport?  It is "one of the largest shipping [air]ports in the world. The entire nation's economy depends in large part on that [airport]. As much as they'd like it, you can't ship things by boat [to] Nebraska. ... All that's going to happen is that [airports like O'Hare], economically vital but disturbingly impoverished, won't have enough money to worry about efficiency."

But is that the case?   Well, no.  "The Chicago Airport System is fully self-supporting and receives no local taxpayers dollars".

Certainly, if the federal government stopped subsidizing New Orleans, there would be an immediate incentive for some to move away from the area, but that would be a remarkably good thing for the people who stayed: less labor competition means higher wages.  

Ultimately, as Stossel contends, a lack of federal subsidies will force areas to internalize the costs of production into the prices of goods and services.   As things stand now--and Jesse notes that there is "not a single spot in America that doesn't have potentially destructive natural disasters"--we're playing by the "If You're Paying, I'll Have Top Sirloin" rules Russel Roberts noted back in 1995:

When you eat there, you usually spend about $6--you have a sandwich, some fries and a drink. Of course you'd also enjoy dessert and a second drink, but that costs an additional $4. The extra food isn't worth $4 to you, so you stick with the $6 meal.

Sometimes, you go to the same restaurant with three friends. The four of you are in the habit of splitting the check evenly. You realize after a while that the $4 drink and dessert will end up costing you only $1, because the total tab is split four ways. Should you order the drink and dessert? If you're a nice person, you might want to spare your friends from having to subsidize your extravagance. Then it dawns on you that they may be ordering extras financed out of your pocket. But they're your friends. They wouldn't do that to you and you wouldn't do that to them. And if anyone tries it among the group, social pressure will keep things under control.

But now suppose the tab is split not at each table but across the 100 diners that evening across all the tables. Now adding the $4 drink and dessert costs only 4¢. Splurging is easy to justify now. In fact you won't just add a drink and dessert; you'll upgrade to the steak and add a bottle of wine. Suppose you and everyone else each orders $40 worth of food. The tab for the entire restaurant will be $4000. Divided by the 100 diners, your bill comes to $40. Here is the irony. Like my neighbor at the theater, you'll get your "fair share." The stranger at the restaurant a few tables over pays for your meal, but you also help subsidize his. It all "evens out."

But this outcome is a disaster. When you dine alone, you spend $6. The extra $34 of steak and other treats are not worth it. But in competition with the others, you've chosen a meal far out of your price range whose enjoyment falls far short of its cost.

Self-restraint goes unrewarded. If you go back to ordering your $6 meal in hopes of saving money, your tab will be close to $40 anyway unless the other 99 diners cut back also. The good citizen feels like a chump.

Note that, despite all that additional spending, the only group coming out ahead on the deal is the resteranteur, who set up the strange rules in the first place.  

UPDATE:  As Sammler of Stone City notes, Mark Kleiman seems to agree, writing "I like the idea of giving money to individuals. So should anyone who believes in limited government. It's fast, it's efficient, and it's fair. But I'll bet any amount of money that's not what happens, since it would deprive those currently in office of the chance to hand out goodies on a discretionary basis and thus to accumulate chits in the favor bank."    Further, he writes that "making the city government a protectorate" isn't "within the authority the Federal government has, or should have."

[Cross-posted at QandO]