The Disastrous Economics Of Hurricane Sandy

Hurricane Sandy has brought one of the worst natural disasters that the east coast has ever seen. Already we’ve seen Representative Chaka Fattah (D-PA) propose a bill that would fund $12 billion to FEMA (Federal Emergency Management Agency). The clean up and recovery of the effort will take months for sure and possibly years. The question that comes to mind is, just how much should government be doing in the midst of this?

Texas Congressman Ron Paul takes on the issue in his latest edition of Texas Straight Talk. He writes, “Sandy raises uncomfortable questions about the extent to which taxpayers should fund the cleanup and the extent to which government programs create moral hazards.”

One wonders that. Of course, there is a certain expectation of governance over things, but seriously, in America there have always been charitable organizations, family, even out of state companies and such that come to the aid of citizens who are affected by disasters such as hurricanes and, for the most part, are far more effective and efficient than the federal government, with no cost to taxpayers.

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The economics of a disaster like Sandy impact businesses and individuals because of government’s intervention in the free market.

Paul writes,

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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.

As I’ve stated many times, the government is neither charged to be compassionate or full of charity with the public treasury. Paul echoes that. He writes, “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.”

The ones that bring about the greatest amount of good in the aftermath of events like Hurricane Sandy are private companies and individuals who demonstrate love for their fellow man by voluntarily providing time, money, food, water, clothing, shelter and labor to help those in need put their lives back together again. May God grant the victims of this disaster His grace and those to help them in their time of need.

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