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.


  • Voting for the lesser of two evils is still voting for evil…who’s wasting their vote?

  • Let’s address the geo-engineering.

  • More like MONOPOLY lol

  • how is voting for your choice, which is the purpose of an election, a waste? what is your logic behind your reasoning? This is only a way to get dumb people to keep the 2 party duopoly in power indefinitely. so what you are saying is that people should vote for someone they don’t agree with because somehow that’s not throwing their vote away?? how about you vote for whoever you want and stop trying to fool people into keeping the two party system of corruption and deceit alive.

  • Respectfully, I say to you: Our country was not created on the idea of only a two party system. A vote is worth something if it has a purpose. And that’s up to the person to define what that is if they choose to exercise their freedom to think creatively and not with a level of complacency. And you have the freedom to be complacent too. That’s what is great about this country. You have your opinion and I can have mine. “Effort and courage are not enough without purpose and direction” -JFK

  • Is it just youtube streaming on my machine, or does the audio for this play weird? (For example, getting digitally stretched in random places and some other audio noise.)

  • dont vote! Save your energy 2012

  • Dr. Paul you make perfect sense. I live in an area that was destroyed by a man made flood but the powers that be have the people convinced that it was natural. Time will tell whether or not the people will understand the issues around here but I appreciate all you have done and continue to do for liberty!

  • i hope nothing bad happens to him that he needs the government to help him out.

  • I would like him to be president but honesty if you vote for him you are basically throwing away your vote

  • When you figure all of the massive moral hazard that must exist considering how huge the government is it seems like a miracle that anything runs at all!

  • Just like the first revolution, this one has to be an incremental, step by step climb to freedom. If you vote for Gary Johnson and the Libertarian party on Nov 6, it will lead the system one step closer to healing itself. If the Libertarians can get 12% of the vote, the next election will see a real opportunity for those who want to live free to gain control.

  • Just build a Flood Defence like The British have in London….its not practical to rebuild a City like New York further inland

  • wayyy ahead of u!

  • What’s going on with the sound on these lately? I noticed it was messed up last week as well.

  • I just purchased my own insurance, why cant others?

  • /watch?v=IEbmXDFywY4&feature=g-u-u

  • Make the state of New York and New Jersey pay for it. Make Bloomberg pay for it.


  • True Libertarians before 300