In this working paper, Sanford Ikeda and Peter Gordon follow Glaeser and Gyourko (2005) in arguing that government programs that help to sustain poverty can establish a lower bound by transforming a declining city into what we call a "welfare city." Their data show that New Orleans has been such a city. Consequently, it was ill-prepared to recover from a large-scale natural disaster and bears some of the blame for regional under-performance. With time and the right institutions in place, especially of the thin-at-the-top variety, New Orleans can re-emerge as a living, entrepreneurial city. They highlight Robert Nelson's concept of the "private neighborhood," which enables local communities to choose the thickness of their own rules, as one such institution.