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Moral hazard: Should taxpayers have to bail out disaster-prone regions?
Elaine Hague looks over her flooded back yard on Nov. 1, 2012 in the Ocean Breeze area of the Staten Island borough of New York City.
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This is going to be a different kind of Thanksgiving for a lot of people in the Northeast. People who're thankful they survived Sandy and thankful for the government help they're getting to rebuild.
Rebuilding in the wake of Sandy will likely cost taxpayers tens of billions of dollars. And that cost is raising questions about whether it makes sense to keep building in places where nature just knocks it right back down again.
Tornadoes don't destroy the same town eight or nine times in 25 or 30 years, but we do have coastal communities that've received federal disaster declarations seven, eight, nine times in the last three decades," says Robert Young, who directs the Center for the Study of Developed Shorelines at Western Carolina University.
Young is of the opinion that coastal residents, who live in areas prone to natural disasters, should do so without a federal bailout waiting in the wings. He feels that the government's mandate to protect communities in dangerous regions -- think fishermen in Gulf Louisiana or farmers in the Mississippi River flood plain -- is an over-reach. And that taxpayer dollars are being wasted rescuing people who should know better.
"If the coastal economy is so vibrant, they ought to be able pay their own way," reasons Young.
This is an extremely discouraging topic. Politicians and the public have such a short-term perspective, common sense voices like Young's are not heard or paid attention to. We think short-term when it comes to the damage we are doing to the environment with our activities. We think short-term when it comes to the massive debt our nation is accruing. We think short-term when it comes to rebuilding in disaster prone areas. What king of world are we leaving for our children and grandchildren? Shame on us!
There may be some good social reasons for having certain kinds of insurance provided by the govt. However, the price must reflect the risk, since other taxpayers should not subsidize risky behavior. Next, we must, as implied in the story, start drawing a line so that the insurance does not compound the problem.
Major kudos to Marketplace for even bringing up this issue.
Of course we shouldn't use general taxes to pay for flood insurance. It just encourages people to build and rebuild in those dangerous areas. It also confounds the natural pricing of risk by insurance companies that would provide feedback to people lving in those areas about the potential risks involved. Its the worst kind of welfare for the rich by which middle income people from the interior of the country are taxed to subsidize the costs of rich people with beach houses.
Before bemoaning 'our tax dollars' helping 'those people on the coasts' we should acknowledge which regions generate the most tax revenue. That said, we do need to get past the climate change deniers and start planning for the coming effects of climate change.
Thank you for this story! I live in Minnesota and whenever a coastal disaster like this happens and then people jump to rebuild, I (and my friends and family) question that decision. I agree with Young's comment that rebuilding needs to be a national debate, not a knee-jerk reaction. Climate change projections also show that it will get riskier and riskier to live in low coastal areas, so why not get out now? I appreciate Marketplace addressing this difficult issue, which most media outlets choose to ignore.
