Ron Paul: Federal Flood Insurance – A Moral Hazard We Can’t Afford

by Ron Paul

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.


  • guitarplayer4real

    Insurance is currently the biggest scam on the planet… Just look at the sheer number of commercials and insurance companies, look at how you are now FORCED to pay for the irresponsible just so you can drive a car or own a home. I know a dude who has been in 13 automobile accidents! And if you think this is rare or isolated then you need a hole in your head. The responsible pay to exist because the irresponsible wreak havoc on the rest of us, on top of all that, the ins guy drives a Porsche.

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  • Surfisher


    ***Petition for Texas to secede from US reaches threshold for White House response***

    The People are finally Waking Up!

    The petition on asks the Obama administration to “peacefully grant the State of Texas to withdraw from the United States of America and create its own new government.” The petition had surpassed 34,000 signatures as of Monday evening.

    Similar petitions from other states have also been filed including: Alabama, Arizona, Arkansas, Colorado, Florida, Georgia, Indiana, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Carolina and Tennessee. However, unlike the petition from Texas, none of these states had reached the 25,000-signature threshold to get an official White House response as of Monday evening.

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  • indoctus41

    I think Ron Paul is mad. Just in case Duracell and Home Depot decide to step in to help flood victims from time to time, we should not spend any money on federal flood insurance for victims.

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  • George

    I don’t understand why we do not have barrier islands. We’ve developed space into beach home; instead create a new habitat for wildlife, native plant species etc… when hurricanes etc wash ashore, the damage is minimal, non existent.

    People do NOT need to live along the shore. If they want too, their insurance should have a waiver. I do NOT want to pay for someone who builds a home within feet of the ocean. It doesn’t make sense.

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