Matt has a smart post about the geography of federal assistance:
One thing that I think is worth saying about this is that it may be a lot harder to help the people who currently live in economically depressed communities than it is to help the communities themselves. Oftentimes the best way for a person to improve his or her economic condition is to move someplace else -- to somewhere where his or her skill set can provide greater rewards. But in the United States, political representation is done by geographical area, so the tendency is for the residents of a given depressed area's representatives to be represented by legislators who want to bring help to the place rather than to the people as such.
This is basically Ed Glaeser's point: we should be encouraging people to move, not bring back Buffalo's glory days.
I'm basically in sympathy, but I think that this thought needs to be tempered with an appreciation of why people stay where they are. For people like me, and Matt, and Ed Glaeser, mobility is an underlying fact of our demographic; I could move to almost any city in America right now and find someone there that I know.
After talking to the economists at Mercatus who are working on their Katrina project, however, I'm a little less gung ho on the notion that the solution for New Orleans' problems is for everyone to move to more prosperous areas. The cultural clash between New Orleans people and residents of the cities they move to is apparently pretty strong, because of things like how loud and when music should be played--questions that have no "right" answer, but which everyone feels strongly about. Even in districts where they are of the same race and rough income level as the incumbent residents, New Orleans people apparently feel ostracized. That's pretty hard to take as a permanent condition.
More importantly, poor people in New Orleans had virtually no financial capital; instead, they had very rich social capital. Networks of friends, family, and neighbors substituted for things like credit and savings when they had personal or financial problems. In a strange city, with no network and no financial resources, they feel incredibly helpless and exposed--with good reason.
Those are the same reasons that many people in declining rural and industrial cities stay where they are. When I was doing an article on the economy of upstate New York, one of the most striking things I noticed was that people who talked about moving in search of better jobs almost all had at least one close relative who had already left. The people who were afraid to go were the ones who didn't know anyone outside of Buffalo, or Rochester, or Syracuse, or Wayne County. That's a problem it would be pretty hard for the government to fix.