How much should cities plan for the storm of the century?

Stormy Issues

by Elaine Schwartz    •    Sep 1, 2011    •    280 Views

For Hurricane Irene relief, the debate is again about the debt.

Let’s start with the Congress.

  1. Expressed by Texas Representative Ron Paul, government should not play a role because “intrusive” bureaucracy” hinders local people and volunteers. Instead, private insurance is the key.
  2. At the other extreme is Vermont Senator Bernard Sander’s position. He has said that we should unite as a nation, absorb the cost, and help each other when faced with a disaster.
  3. The third point of view comes from Virginia Representative Eric Cantor. Yes, he says we have a responsibility to help each other. However, emergency spending has to be offset by cuts elsewhere.

And now, the economists….

The Economic Lesson

While Paul Krugman and Steven Landsburg disagree, each relates his position on disaster relief to marginal benefit and marginal cost. Whether discussing corporate profit or disaster relief, the point at which Marginal Cost equals Marginal Benefit (MC=MB or MC = MR..Revenue) is the optimal point beyond which we should not continue a certain activity.

It makes sense. We do not want to continue most things when the cost of doing something extra exceeds the benefit of that extra amount.

However, we cannot consider the budget for Irene alone. Then, surely, MB would vastly exceed MC. Krugman and Landsburg point out that we have to look at all federal spending to assess MC and MB.

An Economic Question: After looking here, do you believe the Landsburg prom example adequately explains why he thinks Krugman is wrong?

The above post is a revised version of the original which included a summary of Krugman and Landsburg.

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