Knowledge and incentives in disaster relief

In a column, John, Don’t Go, in the New York Times Paul Krugman writes

FEMA’s degradation, from one of the government’s most admired agencies to a laughingstock, wasn’t an isolated event; it was the result of the G.O.P.’s underlying philosophy. Simply put, when the government is run by a political party committed to the belief that government is always the problem, never the solution, that belief tends to become a self-fulfilling prophecy. Key priorities are neglected; key functions are privatized; and key people, the competent public servants who make government work, either leave or are driven out.

But as Steven Horwitz points out in a letter to the editor of the Times, Krugman gets it wrong again,

In his September 1 column ("John, Don't Go"), Paul Krugman blames the failed response of FEMA during Hurricane Katrina on the Bush Administration’s antipathy to government. To the contrary, FEMA’s failures resulted from two problems endemic to bureaucracies no matter the party in power: a lack of local knowledge and weaker incentives than the private sector to succeed. By contrast, Wal-Mart got supplies and people into the worst-hit areas because its associates and managers had detailed knowledge of their communities and the incentive to help their neighbors that will always be absent in bureaucracies. FEMA’s warehouses of unused resources contrasted with Wal-Mart’s trucks on the move suggest that indeed the failures of Katrina were ones of bureaucratic ignorance, not administration ideology.

Hayek told us years ago about the fact that markets are the best mechanism for taking advantage of local knowledge and that a centralised bureaucracy could never gain access to such knowledge and thus could not replicate or improve on the market outcome. The results of the private versus public responses to the hurricanes is just another example of his point.