When natural disaster strikes, the mainstream media and government are often quick to swoop in to use the situation to further their own ends. Dr. Eric Graf, of the Universidad de Francisco Marroquin (UFM) is skeptical about government disaster relief in the wake of Hurricane Harvey, which left a trail of devastation and flooding in the metropolitan Houston area, including 66 confirmed casualties and $70 billion in damage.
Is a big government disaster relief package the answer, and how does a government response distort the market and, despite good intentions, lead to unforeseen political and economic consequences down the road?
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Dr. Graf who grew up in the Houston area, is skeptical of the Trump administration’s response to Harvey, and how it relates to moral hazard theory. He also argues that natural disasters are now spawning a new “charity-governmental agency complex”…one of which we must be wary.
“I was referring to Eisenhower’s famous military industrial complex…beware the military industrial complex, and in the United States today, somebody needs to say beware the charity-governmental agency complex, because that’s what this is. This is a hurricane, it’s just like all the others, it’s big, it’s nasty, it dumps a lot of water, and all those areas that you know are going to flood, flood, and then everybody screams bloody murder. I think it’s horrible…I don’t want to diminish the suffering of people involved…but I also have to say that it’s a hurricane, and Houstonians have experienced a number of hurricanes over the years, and this whole concept that the government is the new insurer for everything is really debilitating, and that’s the kind of coverage that you just don’t see.”
The government’s response raises a serious question: should the government step in and act as the insurer for all when natural disaster strikes? Graf argues that such a governmental response incentivizes free-riders building in flood plains:
“These kinds of disasters are nature’s way of signalling the cost of living in certain places…everybody and his mother knew that New Orleans was doomed, it was built below a river, the Army Corps of Engineers…they’ve been calling for improving that dike system for decades, I think you could say the same thing about Houston…there are some levees there to the west of town that I never saw water in, and they’re topping so people are going to get some water in the…I lived in Briar Grove…and we had flood insurance…you play for flood insurance all your life, and then you find out everybody gets bailed out by the government. this is really not an astonishing event, it shouldn’t be surprising to anyone…and i really think that the coverage should focus on the real meaning here which is that people are building where they should not be building, at least not without insurance.”
As Dr. Graf notes, this is a tragedy for the victims and should be treated as such. However, a perusal of US disasters by death toll reveals that the US…particularly its coastal regions; has long faced the threat of major natural disasters. In 1900, for example, the Galveston Hurricane left an estimated death toll of 6,000 to 12,000 in its wake.
It seems reasonable enough to question whether government policies should be encouraging people to live and build in areas prone to natural disasters, while eschewing the private insurance market.