Taxpayers Pay People to Be Hurricane Risk Takers

Florida wouldn’t be less popular if insurance were properly priced. A lot else would be different

By Holman W. Jenkins. Excerpts:

"today’s rising storm damage is due mainly to more people putting up more expensive and elaborate structures in places where destructive weather is a predictable hazard."

"They do so not least because of the availability of federal rebuilding money, including federal flood insurance that is underpriced and subsidized by taxpayers who don’t benefit from beachfront charms."

"“We call weather-related catastrophes ‘natural disasters,’ ” observed a 2016 Stanford Law Review study, but the losses are often due to “questionable government policies.”"

"But a second effect has also been in evidence for decades: a steady decline in death rates from severe weather."

"Better building codes, better planning, better weather forecasting—all make killer hurricanes less deadly than those experienced by our forebears in the days before man-made climate change."

"In an unlikely summoning of congressional spine on subsidized insurance, even then Americans would build on coastal plains. They would insure their own risks from their personal piggy banks if necessary; they would build more cheaply so they could afford a total loss every 30 years or so.

That’s how Americans survived before federal flood insurance in 1968, shouldering the full cost for the amenities they value. And Americans today are richer and have better risk-management tools at their disposal."

Make Disaster Recovery a Success: Local entrepreneurs are better suited to drive recovery efforts after natural disasters

By Virgil Henry Storr and Stefanie Haeffele-Balch writing for USA Today. They are both with Mercatus.

"Frontline and NPR recently aired a special on the "Business of Disaster" which investigated issues with flood insurance and aid distribution after Hurricane Sandy. In it they find disaster victims have been systematically underpaid on flood insurance claims, aid programs have been slow to distribute funds and homeowners have spent years dealing with regulatory red tape just to get back to the homes and communities they love.

The main takeaway from the special was that the public-private partnerships tasked with implementing disaster recovery programs failed to provide the resources and support communities needed to rebuild after the storm. For instance, the companies who were selected to handle flood insurance found ways to increase their profits and limit payouts. Additionally, the Federal Emergency Management Agency failed to adequately oversee the actions of their partners in the flood insurance program and to enforce best practices. Similarly, the NYC "Build It Back" program has failed to effectively distribute funds to homeowners in need and had several issues with unqualified contractors.

The entangled relationship between public and private entities results in high administrative and overhead costs with little relief to those who need it the most. As Brad Gair, a New York City disaster recovery manager, said during the special, "Did we put a bunch of money out? Yes. Is everybody mad? Yes. Did people get what they needed to get back into a home? No."

Such major issues, however, are not new. The aftermath of Hurricane Katrina, Hurricane Andrew and other disasters were equally troubled with errors, ranging from major mistakes in distributing funds to outright fraud. While FEMA, the U.S. Department of Housing and Urban Development and NYC Build It Back have all implemented reforms and promised improvements, these issues will most likely persist. Gair concluded, "You can't expect any government large or small to create a $2 billion corporation and expect them to roll that out in any short period of time and not have a chaotic mess. You can't build this thing on the fly and expect it to work."

While top-down efforts often fail to distribute funds quickly and effectively, local efforts driven by entrepreneurs and community leaders can initiate disaster recovery faster.

After Hurricanes Katrina and Sandy, we interviewed hundreds of residents working to rebuild their homes, reopen their businesses and revive their communities. For instance, in the Orthodox Jewish community in Rockaway, New York, a group of rabbis and residents were able to provide disaster relief and recovery in the weeks following Hurricane Sandy. Under the direction of Rabbi Bender (founder of Achiezer, a community resource center in Rockaway) and the Davis Memorial Fund, these religious and community leaders initiated the Community Assistance Fund as a way to collect donations and distribute resources to residents in need.

The Community Assistance Fund was essentially a bank account that was overseen by volunteer lawyers and accountants. Residents applied for funds through their local rabbi, and decisions were made quickly about what level of assistance was needed. Residents could receive funds through three avenues: (1) $2,000-3,000 to purchase immediate needs, such as generators; (2) around $10,000 for quick repairs, such as pumping water out of their basement and replacing drywall and appliances; and (3) major financial assistance to rebuild their homes.

Through the Community Assistance Fund, the community raised over $11 million and helped over 1,000 families – all within months of the storm. In the summer after Sandy, Rabbi Bender noted, "The staggering fact from this, which I am extremely proud of, and I want you to watch the media and the Attorney General speaking about the fact that a lot of places who raised money for Sandy, but it still didn't [get] out. We raised it, $11 million, and we gave out $11 million and there was no overhead cost."

The community in Rockaway did not wait for FEMA, HUD or another agency to come to them but instead forged ahead and found ways to obtain resources on their own. Their success was tied to their knowledge of each other's needs and finding creative ways to overcome adversity.

While they acted quickly, finding unique ways to circumvent the red tape typically associated with disaster relief efforts, other communities have not been so fortunate. In the lessons of recent disasters, both the failure of major government programs and the success of small, community-driven initiatives, policymakers should seek to give local residents and entrepreneurs the space to drive recovery rather than throwing more funding at failing programs. The more barriers we eliminate to disaster victims the faster they can get the resources they need, the faster disaster victims will return and rebuild, and the community becomes more resilient.

Top-down bureaucratic benevolence usually leads to stifling red tape and delayed recovery, just as the Frontline and NPR special showed us. We should recognize the inherent limitations of top-down recovery programs and should encourage the people who know the affected area the best, the local entrepreneurs and community leaders, to lead change from the bottom up."

Toledo residents should be complaining about greedy water-hoarding panic buyers during the city’s water crisis

Great post by Mark Perry.

"Toledo, Ohio is facing a water shortage/crisis resulting from toxins that have fouled the city’s water supply, possibly from algae in Lake Erie. City officials have issued warnings not to drink the water and the governor declared a state of emergency. Worried residents descended on stores, quickly clearing shelves of bottled water, according to this news report.

As usually happens with any temporary shortage, e.g. temporary shortages of water, generators, chain saws, plywood, etc. following a natural disaster, the Toledo water shortage has yielded these perfectly predictable results: a) rising market prices at many retailers reflecting the sharp decline in supply and rise in demand, b) panic buying and hoarding on behalf of many consumers in response to the temporary shortage, and c) claims of “unfair” price gouging. And as also usually happens, the Toledo water hoarders and panic buyers receive no criticism at all for significantly exacerbating the shortage with their greedy behavior. On the other hand, the “price gougers” receive almost 100% of the criticism – even though the “price gougers” should be commended for accurately and realistically pricing a scarce commodity according to market forces, which significantly facilitates the efficient allocation of Toledo’s scarce water in this case.

Here’s a little editing of another news report from Toledo’s ABC TV station on the local water shortage (“Toleodans complain about
price gouginggreedy water-hoarders during water crisis”), re-directing some of the blame from price gougers to the greedy water-hoarding panic buyers.

Lots of our viewers called with complaints about
price gouginggreedy panic buying during Toledo’s water crisis. While the water supply was low, prices went sky-high and greedy consumers are buying more water than they really need and are hoarding it.

When word that Toledo’s water was not safe to drink got out, the rush of greedy waters hoarders was on at places like Costco.

Chelsa Sparks said, “if I don’t have water, my baby doesn’t eat. So that’s going to be an issue. I resent the fact that so many greedy water hoarders are panic buying and unnecessarily buying so much of the water for themselves without thinking of vulnerable populations, like families with children.” 

Some like Claudia Roberts didn’t get there in time. “We waited an hour and 15 minutes. Nothing, it was all gone. The greedy water hoarders bought it all up in no time, leaving nothing for the rest of us.”

Others decided to
take advantage of the situationhelp conserve scarce water like the guy we found selling water for $20 bucks a case to allocate a scarce resource to those who value it most highly, like families with children. He said the price was high to pay for his expenses and to allocate a scare resource in the most efficient way possible – with market prices that accurately reflect the relative scarcity of water.

We also found water listed on Craigslist for $10. A 13ABC photographer spent $13 for a 40 pack of water that still had a sticker on the side saying 40 bottle for under 10 cents.

If you suspect
price gougingretailers of engaging in first-come, first-served pricing that fosters greed-based water hoarding, panic buying, and unnecessary water shortages you can
save your receipt andcontact the Ohio Attorney General.

MP: There are really only two choices for water in Toledo: a) allow water to be priced according to market forces which will accurately and truthfully reflect the underlying conditions of supply and demand, and allocate the scarce water efficiently, or b) artificially, by government mandates against “price gouging,” prevent water prices from rising to their true market level, and allocate water inefficiently, e.g. first-come, first served. If doing the most good for the most people is the criterion, then there’s no question that Option A – market prices – is superior to Option B – government-mandated prices, e.g. price controls."

hurricanes did not increase economic growth in the U.S.

See So Much for Hurricanes as Stimulus, Part Deux from "Division of Labor."

"In a recent paper in REStat, Eric Strobl found that hurricanes did not increase economic growth in the U.S. Now he has a paper in the Journal of Development Economics that has similar findings for Latin American and Carribbean countries; the abstract:

In this paper we investigate the macroeconomic impact of natural disasters in developing countries by examining hurricane strikes in the Central American and Caribbean regions. Our innovation in this regard is to employ a wind field model on hurricane track data to arrive at a more scientifically based index of potential local destruction. This index allows us to identify damages at a detailed geographical level, compare hurricanes' destructiveness, as well as identify the countries that are most affected, without having to rely on potentially questionable monetary loss estimates. Combining our destruction index with macroeconomic data we show that the average hurricane strike caused output to fall by at least 0.83 percentage points in the region, although this depends on controlling for local economic characteristics of the country affected and what time of the year the storm strikes.

Of course, Strobl and others could publish 50 papers with similar conclusions and it wouldn't stop some doofus from proclaiming that the aftermath of some hurricane or other disaster will be greater prosperity."