RON PAUL: THE ECONOMICS OF DISASTER
NOVEMBER 5, 2012
By Ron Paul:
Hurricane Sandy was one of the worst natural disasters the east coast has ever seen. Clean-up 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. The greatest compassion brings results, not just good intentions.
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?