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How Government Makes Disasters More Disastrous

By Thomas A. Bowden

In a speech from New Orleans last week, Republican presidential candidate John McCain lashed out at the Bush administration for its response to Hurricane Katrina. McCain's remarks, which appeared calculated to make disaster relief a key campaign issue, revived harsh memories of the savage storm that inundated the Mississippi Delta in late August 2005, leaving more than 1,800 people dead and causing widespread property damage.

Although the floodwaters long ago receded, government officials are still counting the disaster's costs. Earlier this year, the U.S. Army Corps of Engineers disclosed that 489,000 claimants are seeking damages caused by poorly designed levees. Of those claimants, 247 want more than $1 billion each, including one whopper for $3 quadrillion (a stack of a quadrillion dollar coins would reach beyond Saturn).

The tax dollars spent resolving those claims will augment the tens of billions already paid to restore and repopulate New Orleans, a below-sea-level bowl situated precariously amidst a lake, a major river, and a gulf, in a known path for hurricanes.

Disasters can sometimes shock a nation into questioning entrenched practices. But Hurricane Katrina, perhaps the worst natural disaster ever to befall America, has failed to spark serious challenge to long-standing government policies that actively promote building and living in disaster-prone areas.

The Katrina tragedy should have called into question the so-called safety net composed of government policies that actually encourage people to embrace risks they would otherwise shun--to build in defiance of historically obvious dangers, secure in the knowledge that innocent others will be forced to share the costs when the worst happens.

Without blaming the victims for having followed their own government's lead, it is time to question whether those policies should continue.

The first strands of today's safety net were spun in the nineteenth century, as the Army Corps of Engineers shouldered the burden of constructing and maintaining levees and other flood controls along the Mississippi River. From then to now, Congress and the states have responded to each new flood by installing newer, higher, and stronger barriers at public expense, as if the preservation of a city like New Orleans in its historical location were a self-evident necessity.

Throughout the twentieth century, new strands were woven into the safety net, first in the form of loans to disaster victims, then by direct grants, infrastructure repairs, loan guarantees, job training, subsidized investments, health care, debris removal, and a host of similar rehabilitative measures.

In 1968, the National Flood Insurance Program began supplying subsidized coverage for structures and their contents in flood-prone areas. Similar state-subsidized insurance programs arose for hurricanes in Florida and earthquakes in California. In 1978, the Federal Emergency Management Agency was created to coordinate the increasingly complex job of government disaster response.

At each juncture, more aid was funneled to disaster victims without serious challenge to the wisdom of encouraging people to occupy vulnerable locations.

In response to Mississippi floods, Florida hurricanes, and California earthquakes, the number of major disaster declarations almost doubled from the 1980s to the 1990s, from an annual average of 24 up to 46. At century's end, Congress was paying an average of $3.7 billion a year in supplemental disaster aid, with state taxpayers contributing many millions more. As of August 2007, Katrina relief alone had cost federal taxpayers $114 billion.

By gradual steps, this disaster safety net became part of the legal landscape, taken for granted by private investors and owners deciding to undertake new projects or rebuild storm-damaged areas. Relief programs--by minimizing, disguising, and shifting the real risks of defying natural hazards--became an active force distorting private decision-making and inviting even worse future tragedies.

Thus if a pre-Katrina Mississippian asked himself, "Should I build my house 10 feet above sea level, a quarter-mile from the Gulf Coast?" the answer came back: "Sure, why not? The government will look after me if disaster strikes."

This entitlement mentality ensured that each new tragedy would generate fresh demands to expand the safety net. In Katrina's aftermath, those demands centered on State Farm, which dared to deny certain claims under homeowners policies that covered wind damage but expressly excluded floods. Mississippi's attorney general immediately sued to void flood exclusion clauses as "unconscionable" and "contrary to public policy" and even launched a criminal investigation of State Farm's claims adjusting practices.

Last year, a jury inflamed by adverse public opinion awarded $1 million in punitive damages against State Farm for having stood on its contract rights in a dispute involving a single house. That case was recently reversed on appeal, but the victory is cold comfort for State Farm, which in the meantime elected prudently to calm the litigation storm by paying tens of millions of dollars to settle claims for unproven wind damage. Voila! The safety net had a brand new strand, woven at the insurance company's expense.

Disgusted, State Farm announced last year that it would cease writing new homeowners policies in Mississippi.

As more private insurers withdraw from high-hazard areas--or raise their rates to reflect the staggering legal and public relations costs of offering disaster insurance--a predictable lament arises: the free market has failed, and government must fill the vacuum so that the statist safety net remains strong. Thus it surprises no one to hear Florida Gov. Charlie Crist challenging this year's presidential candidates to support creation of a federal catastrophic fund that would keep insurance premiums artificially low in disaster-prone areas across the country.

But the solution is not more of the market distortions and perverse incentives that have lured so many people into harm's way. The solution is to replace the prevailing entitlement mentality with a free market in disaster prevention, insurance, and recovery.

In a free market--without tax-paid levees, government disaster relief, or subsidized insurance--anyone who contemplates building or buying property in a high-hazard area will need to face hard facts about the local history of natural disasters, the efficacy and cost of preventive measures, and the availability of insurance.

For example, the high price--or total unavailability--of private insurance will resound like a clanging alarm bell, signaling the market's objective view that a particular building plan is abnormally risky compared to less dangerous locales.

With their own lives and wealth at stake, people will have every incentive to evaluate risks objectively. And if hardy souls still choose to occupy and fortify New Orleans, or build on an earthquake fault, or live in a tornado alley, the risk and reward will be theirs alone. No longer will government make disasters more disastrous by pretending that citizens have a right to defy the forces of nature at others' expense.

Thomas A. Bowden is an analyst at the Ayn Rand Institute, focusing on legal issues. Mr. Bowden is a former attorney and law school instructor who practiced for twenty years in Baltimore, Maryland. The Ayn Rand Institute promotes Objectivism, the philosophy of Ayn Rand--author of "Atlas Shrugged" and "The Fountainhead." Contact the writer at media@aynrand.org.

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[syrakusos]

Nicely written.

Weather is often stronger than houses. There is no surprise in that, no matter where on Earth (or any other planet) you live. The misallocation of risk has resulted in more effort put into fixing the past than in preventing the future, or profiting from it.

It is a common point of argument that while governments seek to redress the past, businesses pursue profits by predicting the future. ("If we launch this advertising campaign, we can boost sales by 3%." ... "This new product will attract a million new buyers.") Of course, predictions may fail. ("Difficult to see. Always in motion is the future. " -- Yoda.) The Ford Edsel, New Coke, and too many others * show that graduating from business school is no key to the magic kingdom. The difference, of course, is that metaphysically, the past is immutable while the future is undetermined. So, whatever small successes there are in life -- fire, the wheel, open-heart surgery, jet aircraft -- we make some progress.

Imagine what it would be like if there were a market incentive to create housing suitable for a hurricane or earthquake or avalanche. I mean, you get buried in 100 feet of mountain snow and your house not only bears the stress, but reacts, say, by melting it and storing it for the fuel cells or laundry. Hurricane coming? Everyoe powers up and dives below the chop. But the governments we insist on do our bidding and accede to our demands and attempt to remedy the past by rewarding people who fail to prepare for very predictable futures.

Imagine if earthquakes (hurricanes, etc.) were welcomed as bounty -- if only all that energy could be put to use...

-------------------------

* Broken promises - product launches that failed - New Food Products Annual

http://findarticles.com/p/articles/mi_m328...163/ai_15433379

* Learning From Failure: Apple's Most Notorious Flops By Bryan Gardiner

http://www.wired.com/gadgets/mac/multimedi...ery_apple_flops

Edited April 30, 2008 by Michael E. Marotta

[Robert Campbell]

A good solid op-ed. I wish more of ARI's were like it...

Bowden mentions all of the tax money that's gone into the levees around New Orleans.

He doesn't bring up the fact that the port of New Orleans continues to function because the Mississippi is being kept in its current channel via a huge Federally built and maintained diversion wall up in northern Louisiana. Without the Old River Control Structure, the Mississippi would have done what the Arkansas is already doing and punched through the middle of Atchafalaya Swamp 75 years ago. Ol' Father of Waters would now be meeting the Gulf in the vicinity of Morgan City, relegating Baton Rouge and N'Awlins to a secondary bayou.

Robert Campbell