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Tuesday, June 27, 2006

Turns out I'm not so nuts after all!

Last September, I voiced concern over the loose distribution of the debit cards to Katrina victims and the essentially unchecked manner with which those funds could be spent.  27katrinaRecent reports and investigations are bearing out those concerns.

Debit cards given to people displaced by the storms were improperly used to buy diamond jewelry, a vacation in the Dominican Republic, fireworks, a $200 bottle of champagne at a Hooters in San Antonio and $300 worth of "Girls Gone Wild" videos, the audit found.  According to the GAO, $1,000 from a FEMA debit card went to a Houston divorce lawyer, $600 was spent in a strip club and $400 was spent on "adult erotica products," all of which auditors concluded were "not necessary to satisfy legitimate disaster needs."

Today's NYT has a report that elaborates on the scope of fraud involved with Katrina relief. Check it out here.  Money quote:

"The blatant fraud, the audacity of the schemes, the scale of the waste — it is just breathtaking," said Senator Susan Collins, Republican of Maine, and chairwoman of the Homeland Security and Governmental Affairs Committee.

The Times notes that the kind of fraud occurring in Katrina's wake goes well-beyond abuse of the mad-cash cards. Very sad. What lessons ought we draw for the fire next time?

Posted by Administrators on June 27, 2006 at 02:02 PM in Law and Politics | Permalink

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Comments

Kate:

Or, god forbid, chocolate.

Posted by: Paul Gowder | Jun 27, 2006 5:10:53 PM

If we wanted the relief money to be spent on food, housing, and education, we should have given out food, housing, and education vouchers. It's odd to give out cash and then complain that people spent it at Hooters. Next thing you know, we’ll complain that someone’s Earned Income Tax Credit was spent on pedicures.

Posted by: Kate Litvak | Jun 27, 2006 5:03:56 PM

I guess I have a few more questions about the "purposes intended." It seems that no matter how you slice it, it would be poor policy to have the "purpose" of restricting disaster relief grants to specified virtuous purposes.

- If we think of ourselves as altruistic, are we really altruistic in such a mean fashion? What do we think of the sort of person who gives a dollar to a homeless person and then follows him to make sure he spends it on food rather than drink? (Or, for that matter, about unrestricted government searches of public housing, or of the perennial proposals to take away public benefits as punishment for all manner of vices.) Norms of social contract say we help victims and the needy, they don't (or ought not to) say that we adopt a moralizing posture to the beneficiaries of our largess.

- Perhaps a better analogy is to government subsidized student loans. Student loans are partially social contract, and partially economic contract, and the ones with substantial interest rate subsidies for redistributive purposes are particularly social-contractey. Taking the broad view, subsidized student loans are the same as disaster relief -- they represent tax payments to those who have had the misfortune to not be born middle-class. How would we feel about restricting the "living expense" portion of student aid budgets to necessities? Perhaps issuing them a debit card that couldn't be used to buy beer? I suspect we'd find that idea somewhat troubling.

- Perhaps I'll let the econ-people supply this point, but whatever happened to revealed preferences and all that? If we want to be utilitarian about it, obviously someone got more utility out of strippers than food ... it sounds like the money was more efficiently spent.

- Dignity, see previous thread.

Posted by: Paul Gowder | Jun 27, 2006 4:21:34 PM

Paul, the difference b/w the mis-spent insurance money and the tax-based subsidy of Katrina cash is that the former is based on norms of economic contract while the latter is based on norms of social contract. If my tax dollars are to be used to subsidize relief for great misfortune that calls on me as a citizen, I feel that it's not unreasonable to limit the scope of use for those tax dollars to the purposes intended.

Posted by: Dan Markel | Jun 27, 2006 3:24:11 PM

I still don't understand your position on this at all, Dan. (I'm talking about the cash cards, not the rest.) Why begrudge people whose lives have been turned upside down a little pleasure?

If the money was being spent on biologically addictive products, I'd be concerned. There, the people might be making irrational choices to deprive themselves of real needs to feed an addiction.

If the people who spent the money on strippers rather than food then used their lack of food as an excuse to get more money out of someone, I'd be concerned. There, the people would be manipulating extra money out of the altruistic.

But if someone -- for whatever reason -- who has taken a massive financial loss and gets a small amount in compensation chooses to spend some of that on luxuries to replace the luxuries they lost, what's wrong with it?

If someone's house burns down, and they take the insurance money and use it to fund a trip around the world rather than a new house, do you scold them too?

(And what if the divorce money was spent by a victim of domestic violence? We don't know.)

Posted by: Paul Gowder | Jun 27, 2006 2:55:44 PM

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