Why not convert New Orleans into a National Park?
I am being provocative, but very, very serious.
We have a conjunction of two issues here: 1) the largest natural disaster and 2) the biggest example of the rules vs. discretion problem, in the history of the developed world.
(For those not in the know, Kydland and Prescott won a Nobel Prize in 2004 for pointing out that it isn't very bright for the government to give people money to rebuild after a natural disaster because they will rebuild in the same spot and get clobbered again).
I'm not going to argue that we shouldn't give people money to rebuild, but rather that there should be strings attached. Specifically, give them a bonus if they move elsewhere. It doesn't have to be far - Hammond, Ponchatoula, and Baton Rouge will all do OK in a Category 5 storm.
It would be far cheaper to build in those areas, and it may be an easy thing to pull off if everyone is out of NOLA for a few months.
Then take the remaining drier and higher areas of New Orleans and build the super-levee that has been on the table for the past 5 years around them. That proposal would ring the CBD, French Quarter and other areas of historic and tourist interest. Most of this stuff is old, and it built on the more desirable higher ground. It is the construction of the last 100 years that is the problem.
Then there is the problem of the destroyed neighborhoods and the toxic gumbo swilling around them. This is an environmental hazard of unknowable long-term consequences. I am not a fan of eminent domain, nor am I phobic about environmental hazards, but this is far outside our past experience. I suggest using eminent domain extensively, bulldozing, burying and capping all the low lying areas of the city - just as you would a landfill.
Over the top of this could be built new, low population density infrastructure.
In particular, New Orleans has needed a new airport for decades. For years, the best proposal on the table has been to build an island out of fill in Lake Ponchartrain. This is much more practical now that Lake Ponchartrain has moved south. The current airport in Kenner locked in by (now wrecked) neighborhoods, and primarily serves tourists anyway. Rebuild it much closer, but outside, the super-levee.
Then connect the new airport, the area inside the super-levee, and the now more heavily populated outlying areas with a bullet train. This could run along the current I-10 - which will need to be repaired - but which is already elevated above flood level for most of the 50 mile stretch from Laplace through greater New Orleans and into St. Tammany Parish. I'm not stupid enough to think that a bullet train is cost-effective for transportation, but if your don't put stops in low lying areas, people won't build houses there in the future.
All the other destroyed and capped areas can be converted into other amenities, like golf courses, marinas, amusement parks and so on. Just don't let people build houses there again.
This proposal has the virtue that most of what tourists come to New Orleans for is still intact - except for the homes of the people who service the tourists. So, tourism - which is the biggest industry in NOLA anyway - will survive. This would even be a good time to move the Super Bowl, the Final Four, and other major sporting events into New Orleans, where seemingly most of the fans want them to be anyway.
The big potential criticism of this proposal - I'm told that Rush Limbaugh used this on air - is that the port of New Orleans is too important. This is a misnomer. As pointed out by The Quaker Economist, the Port of Louisiana - primarily located at the mouth of river is the 5th largest port in the world. Most of the shipping traffic already bypasses New Orleans proper.
I suggest that the time has come to largely abandon this site as a population center. A little history lesson shows that this site was selected as the shortest point for portage between Lake Ponchartrain and the Mississippi River. This was necessary because the 100 miles of winding river going down to the gulf was a difficult trip in the age of sail. This raison de etre is, of course, moribund.
So, leave the history and the tourism and get the vast majority of the residences and businesses out of the bowl. Nostalgia is not a good enough reason to let people rebuild in this spot. And ... make Jean Lafitte National Park the Las Vegas or Disneyworld of the 21st century.