Friday, September 16, 2005

Predicting the Future of New Orleans

In the short run, New Orleans will experience a construction boom. Who will get those jobs? Will local politicians require that locals receive a certain percentage of those jobs? Will low skilled immigrants start to move to New Orleans to work in high paying construction? I'm thinking about the medium term. Will New Orleans suffer an extreme "brain drain"?

The facts are pretty clear.

1. New Orleans has a humid climate and the skilled care deeply about urban quality of life.

2. New Orleans will have a soaked durable housing stock and the mold and the destruction will be costly to clear out. Such low quality housing could act as a poverty magnet and this will lead to "middle class flight".

3. Tourism and construction are not high skilled industries.

What could jump start this economy? I'm not even going to mention light rail transit projects, sports stadiums or cultural centers; these are not the keys to urban growth.

My one productive idea revolves around Tulane University. Permit me to digress. Last year California passed a stemcell initiative that earmarks billions of dollars to do such research. Rumor has it that leading scientists at Ivy League schools are considering moving to Berkeley, UCLA and Stanford to have access to this money.

With this in mind, could New Orleans attract and retain some skilled if the Federal Government could commit to funding grants at Tulane in this school's special niche. (I know nothing about Tulane but every serious university has a research niche).

An old question asks "Why is Silicon Valley in Silicon Valley?". If the politicians in New Orleans could answer this question, they could begin to think about how
to use the billions of dollars they are about to receive to actually create
some sustainable growth.

ON AN unrelated note, I just saw a blog asking whether companies that go bankrupt
should be excused from their past environmental obligations. Suppose that bankruptcy did provide this protection, then a perverse "option value" would be created; companies could take few costly ex-ante precautions against environmental disasters and if such a bad event occurs the company could then file for bankruptcy. There seems to be an extreme moral hazard problem here.

I would like to see a study measure how much chemical industry firms do invest in precautions that reduce the probability of another Bhopal/Union Carbide especially in an era when juries come back with pretty wild verdicts.