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.

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129 Comments:

  1. So much sense, America is so stupid. I voted for Gary Johnson.

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  2. Try the Union victory of the Civil War. Lincoln was a huge advocate of overbearing, powerful, centralized federal government, and a crusher of state’s rights.

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  3. We need to phase out federal flood insurance. The homes in flood planes that were lost can be “reimbursed” to the owners who currently are covered by the insurance with the stipulation that they do NOT rebuild. They can take the money and build inland. Eventually, Federal lands will prevail in flood planes and natural growth and habitats will re-grow, with the most beautiful areas reserved for public enjoyment with trails and beaches. That is the sane action. Subsidizing foolish behavior is not sane. It is also not good for the environment and it is dangerous. The Bible says that the foolish man builds his house upon the sand….and how true it is.

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    • sad said: “We need to phase out federal flood insurance. The homes in flood planes that were lost can be “reimbursed” to the owners who currently are covered by the insurance with the stipulation that they do NOT rebuild. They can take the money and build inland. Eventually, Federal lands will prevail in flood planes and natural growth and habitats will re-grow, with the most beautiful areas reserved for public enjoyment with trails and beaches. That is the sane action. Subsidizing foolish behavior is not sane. It is also not good for the environment and it is dangerous.”

      He said exactly what I wanted to say, yet he/or she?, said it much better.

      If you help the folks survive by funding new homes for them, do so only with the provision that no one will ever rebuild in that potential flood zone.
      These so called “100, or 500 year floods may soon be occurring with alarming frequency now that our planet is having “hot flashes”.

      And we now have enough to worry about with natural disasters that we do NOT need to go having another war – thank you very kindly.

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  4. All the rich people living on their beach front properties and voting for Romney saying they hate the government are now crying that they want FEMA and government assistance. Didnt Jesus warn us not to build the house on sand?

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  5. ummm where did you write it in last Friday? lol….. You do realize the election is not until tomorrow right?

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  6. I agree, but do recognize that the government, along with non-profit organizations, can pitch in and aid in clean up and food and water and shelter supplies. But we the people should not be taxed further based on where others choose to live. Now, if we weren’t in these wars and didn’t spend so much on foreign aid, then I personally would not see a problem with it. But we just cannot afford it!

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  7. You live in an area where there is a risk of flood, hurricane, or tornado destruction, then you take that risk. You yourself should have the insurance to compensate. And churches and non-profit organizations should be able to pitch in. I think government should send aid for clean up and food/water and temporary assistance when needed. And if we get out of these damn wars and stop our foreign aid, then we can actually do a better job here at home!

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  8. What Ron Paul is saying is, should we be responsible for reckless Life Styles?? If YOU SMOKE should I Pay for YOUR ignorance?? So the point is why should we all pay for recklessness of those that live in a Beach Front Home and be liable too them granting insurance and raising our premiums… If I stock a 3 month backup of food should I be responsible for those ignorant ppl that don’t?
    Personal Accountability is true FREEDOM for all. If you like working in mine fields so be it… That’s on you

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  9. That what I did last Friday. I couldn’t live with myself had I voted any other way.

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  10. Come on.

    Ron Paul needs to grow up.

    At times I almost like him (that is until I hear shit like this).

    What the fuck!

    Why even have a government at all ?

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  11. The dial tone made me flinch.

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  12. Its no use ron paul supporter its not good. The WW3 had begun so prepare yourself there wont be a better future and freedom for all of us.WE THE PEOPLE can fight against NWO scumpigs who did to us. Until NOW!

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