The purpose of this paper is to analyze the havoc created by Hurricane Katrina from the viewpoint of Austrian Economics. The aim is to look specifically at the malinvested capital that came about because of the construction of the complex levee system around New Orleans.
The paper applies Austrian Economics, and especially the economic analysis of Carl Menger.
It is found that there indeed was much malinvested capital in New Orleans, and the situation was made worse because the levee system upon which everything else depended was unfit to withstand a storm the size of Katrina.
Research implications include the examination of other situations in which large amounts of government capital help to leverage other investments, but the original government capital itself proves to be unsustainable.
The practical implications include a warning to people who we believe should base large amounts of private investment upon government projects that have a political basis, but either cannot withstand natural forces or simply are untenable.
The new aspect of this paper is the larger‐scale application of Austrian business cycle theory to a specific instance, as opposed to applying it to the economy at large.
