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POV: Have Gun, Will Nudge
by Ayn Rand | March 1962
It's Not the Unions — It's the Labor Laws
by Doug Altner | March 19, 2014
Regulatory Strangulation
by Steve Simpson | March 13, 2014
Obamacare creates a new class of free riders
by Rituparna Basu | January 23, 2014
Obamacare Is Suffocating An Already Sick Health Insurance Patient
by Rituparna Basu | January 22, 2014
The Broken State of American Health Insurance Prior to the Affordable Care Act: A Market Rife with Government Distortion
by Rituparna Basu | January 21, 2014
Obamacare is Really, Really Bad for You, Especially If You're Young
by Rituparna Basu | August 21, 2013
Justice Department should let US Airways & American Airlines merger proceed
by Tom Bowden | August 16, 2013
Why Is Apple Inc. On Trial? For Good Behavior, It Turns Out
by Tom Bowden | June 20, 2013
The Forgotten Man of the Minimum-Wage Debate
by Doug Altner | June 19, 2013
Why Delivering Beer Isn’t Easy
by Doug Altner | June 11, 2013
What Explains GM’s Problems With The UAW?
by Doug Altner | May 20, 2013
What Are The Search Results When You Google ‘Antitrust’?
by Tom Bowden | April 18, 2013
To Protect the Defenseless, We Must Abolish the Minimum Wage
by Don Watkins | March 27, 2013
I’ll Buy My Own Contraception, Thanks
by Rituparna Basu | November 13, 2012
Why The Glass-Steagall Myth Persists
by Yaron Brook | November 12, 2012
Why Ayn Rand’s Absence From Last Thursday’s Debate Benefits Big Government
by Yaron Brook | October 15, 2012
Changing the Debate: How to Move from an Entitlement State to a Free Market
by Don Watkins | July 02, 2012
3 Things Everyone Needs to Know About the Apple Antitrust Case
by Don Watkins | April 10, 2012
What's Really Wrong with Entitlements
by Don Watkins | February 21, 2012
The Entitlement State Is Morally Bankrupt
by Don Watkins | September 13, 2011
How Important Is the Obamacare Litigation?
by Tom Bowden | August 12, 2011
Atlas Shrugged: With America on the Brink, Should You “Go Galt” and Strike?
by Onkar Ghate | April 29, 2011
The Road to Socialized Medicine Is Paved With Pre-existing Conditions (Part 3)
by Yaron Brook | April 06, 2011
The Road to Socialized Medicine Is Paved with Pre-existing Conditions (Part 2)
by Yaron Brook | March 10, 2011
In Defense of Finance
by Yaron Brook | February 15, 2011
The Road to Socialized Medicine Is Paved with Pre-existing Conditions
by Yaron Brook | February 10, 2011
The Avastin Travesty
by Tom Bowden | December 12, 2010
Apple Now Targeted for Success Like Microsoft Was in the 1990s
by Tom Bowden | October 04, 2010
The Un-American Dream
by Don Watkins | August 27, 2010
What About Private Health Emergencies?
by Tom Bowden | April 08, 2010
What’s Really Driving the Toyota Controversy?
by Don Watkins | March 26, 2010
Anti-Smoking Paternalism: A Cancer on American Liberty
by Don Watkins | March 06, 2010
Apple vs. GM: Ayn Rand Knew the Difference. Do You?
by Don Watkins | March 02, 2010
Smash the Labor Monopolies!
by Tom Bowden | September 15, 2009
America’s Unfree Market
by Yaron Brook | May 2009
Atlas Shrugged and the Housing Crisis that Government Built
by Yaron Brook | March 2009
The Green Energy Fantasy
by Keith Lockitch | February 25, 2009
Stop Blaming Capitalism for Government Failures
by Yaron Brook | November 13, 2008
The Resurgence of Big Government
by Yaron Brook | Fall 2008
The Government Did It
by Yaron Brook | July 18, 2008
From Flat World To Free World
by Yaron Brook | June 26, 2008
How Government Makes Disasters More Disastrous
by Tom Bowden | April 29, 2008
Life And Taxes
by Yaron Brook | April 17, 2008
War On Free Political Speech
by Yaron Brook | March 21, 2008
To Stimulate The Economy, Liberate It
by Yaron Brook | February 14, 2008
Exploiters vs. Victims in the Grocery Strike
by Elan Journo | January 30, 2004
Prescription Drug Benefits Violate the Rights of Drug Companies
by Onkar Ghate | July 24, 2002
Drop the Antitrust Case Against Microsoft
by Onkar Ghate | March 17, 2002


Government And Business in Voice for Reason
Government & BusinessRegulations

How Government Makes Disasters More Disastrous

by Tom Bowden | April 29, 2008

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.

About The Author

Tom Bowden

Analyst and Outreach Liaison, Ayn Rand Institute