by
Ron Paul

Recently
by Ron Paul: Let
the Markets Clear!

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.

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, 

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.

Above
all, my thoughts and prayers are with the victims of Hurricane Sandy
in this tremendously difficult time and hope they can get their
lives put back together as quickly and seamlessly as possible.

See
the Ron Paul File

November
7, 2012

Dr. Ron
Paul is a Republican member of Congress from Texas.

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