The Economics of Disaster
Hurricane Sandy was one of the worst natural disasters the East Coast has ever seen. Cleanup and recovery will take months, if not years and estimates run in the tens of billions of dollars. Parts of New York and New Jersey will never be the same. Entire seashore communities have been wiped out, but the determination to rebuild has been lauded as courageous and admirable. Yet as with all natural disasters, Sandy raises uncomfortable questions about the extent to which taxpayers should fund the cleanup and the extent to which government programs create moral hazards.
For example, FEMA and the National Flood Insurance Program (NFIP) are expected to pick up the tab for much of the flood damage caused by the hurricane. Of course, this will mean more federal debt and inflation for the rest of us, since the program only has about $4 billion to work with and is already $18 billion in debt from hurricanes Katrina and Rita. Many think there is a need for the government to provide flood insurance of this kind. After all, the market would never provide insurance in flood prone areas at an affordable price. But shouldn't that tell us something?
Shouldn't that tell us that it is a losing proposition to insure homes in coastal areas and flood plains often threatened by severe and destructive weather patterns? And if it's a losing proposition, should taxpayers subsidize the inevitable losses arising from federal flood insurance?
The NFIP disguises the real cost of flood insurance in flood prone areas, which influences homebuilding and sales in such areas. Recklessly taking unwise risks when risk is underpriced is known as moral hazard. When politicians decide that private insurance premiums are too high, as with houses built in flood plains, the solution is to under-price the risk through federal subsidies. The obvious and expected outcome is more danger to life and limb when disaster strikes.
Even NFIP has been forced to raise rates significantly in coastal areas, and is now dropping second homes from coverage altogether.
Many assume it is compassionate to entrust government central planners with disaster recovery. However, the greatest compassion brings results, not just good intentions. And we've seen how bureaucratic organizations like FEMA mismanaged recovery and relief in the wake of hurricanes Katrina and Ike. Organizations such as the Red Cross and private companies like Home Depot and Duracell have already stepped in admirably to help those in need, and we can only hope FEMA has learned this time not to impede and frustrate private efforts as they have in the past.
Above all, my thoughts and prayers are with the victims of Hurricane Sandy in this tremendously difficult time and hope they can get their lives put back together as quickly and seamlessly as possible.
Posted by DarbyJie on 11/06/12 07:56 PM
Thank God for those who combine their good intelligence with morality, human compassion, and common sense. It is people like Seer who've always represented bedrock Americana, and what de Toqueville was referring to when he said that "America is great because America is good."
Thank you Seer for not making human lives into a profit-and-loss accounting
problem. [Those Borgs still have a long road ahead of them if they think to change humans into their soul-less 'twins.' Ha! ;)]
Thanks too for adding some cheer to this day.
Posted by seer on 11/06/12 07:02 PM
One final thought. Those people living in these areas hit by the worst storm in years have NO RIGHT to bitch because their lives have not been restored to normal in a week. Electrical workers were immediately dispatched from Ohio and other states to help with the restoration of power. These power workers are doing all they can to restore power. They should be thankful instead of whining.
Posted by seer on 11/06/12 06:55 PM
I have mixed feelings about this piece. I agree those who build on sand and do Not insure their homes are Not to be compensated. That New Orleans was partially re-built is as insane as building below sea level was in the first place. However, the US armed forces could be employed to help preserve peace and help with clean-up as could those whose homes have been damaged. A lot of people have lived in those areas Not on the ocean for generations. They became victim of "normalcy bias" which affects all humans. Some could not afford to move or were too old to contemplate such moves. I suspect Mr. Paul is a climate change denier and he himself is a victim of normalcy bias. What will he say when a 1/3 of Texas is under water along with all of New York City? We cannot stop these earth changes but we can certainly help those affected by such. If we cut foreign aid, this would pay for this help.
Posted by James Jaeger on 11/06/12 03:08 PM
I don't know about you, but I took my big red magic marker to the voting booth just in case there was no official "write-in" space. Luckily there was a space for write-ins, and I wrote in RON PAUL for president.
This is what any loyal Ron Paul fan will do because they know that there is no such thing as a "spoiler vote." As we explicated in the movie SPOILER, there is little difference between the Democrats and Republicans, so a vote for either one will in essence have the same results. Both expand the state endlessly: the Democrats with social programs and the GOP with military/war programs. Further, both Obama and Romney are members of the Counsel on Foreign Relations so they take their marching orders from the UN Globalists, not WE THE PEOPLE.
At this time 40% of the electorate is INDEPENDENT. This means 40% have no loyalty to either entrenched party, but more importantly this means independents are open to a third party candidate. If Independents doggedly vote their conscience for a Constitutional candidate who will truly bring change, each election term the percentage of Independents will grow and we will eventually be able to force the DemoPublican Conspiracy out -- as George Washington and the Founders would have done a long time ago.
In this election, if 40% write in RON PAUL, it will be a serious wake up call to the debt-generating, war-profiteering Establishment. Watch "SPOILER - How a Third Political Party Could Win" for details and substantiation of my claims above. Trailer at http://youtu.be/4TkHCJpgg8Y and the full movie at http://youtu.be/GbF5loRF61U
Posted by dan haggerty on 11/06/12 03:04 PM
I would disagree with Dr. Paul on one point. WHile the Red Cross may be private it is as close to being a government bureaucracy as possible. The Red Cross occupies a position as "first of the first" responders and has therefore become complacent. The residents of Staten Island yesterday had scathing words for The RC for their poor performance in disaster relief after Sandy. One person said all they got from the RC were blankets that resembled towels and were useless. This from an organization whose CEO, Marsha J. Evans earns $651,957 plus expenses. Sounds just like government to me.
Posted by jrxtrmadura on 11/06/12 12:00 PM
Dear Dr. Paul, Perhaps what also needs to be mentioned here is that in typical fashion FEMA and the NFIP are inextricably entertwined with coverage for flood insurance based on FEMAs unscientific,illogical,and byzantine flood risk maps for many areas of the country that are at much lower risk.The stiff premiums for many of these inland areas(mandatory for thousands and thousands carrying a mortgage)are a nightmare of ever increasing costs which subsidize the foolhardy in high risk areas and this useless agency.