Disaster Relief Economics - NYTimes.com: What the government should do, in this case, is set all the marginals equal: the marginal benefit of an additional dollar spent on bombs, dental work, national parks, soup kitchens, etc, should all be equal, and this common marginal benefit should equal the marginal cost of raising an additional dollar of revenue.
Now suppose a disaster strikes. What this does is raise the marginal benefit of spending on disaster relief. The appropriate response is to move all the marginals to get them in line: spend less on everything else, and also raise more in taxes. So even there it shouldn’t be all offsetting spending cuts.
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