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Hurricanes, floods, tornadoes, blizzards, and fires all happen, as sure as the sun rises. When they do happen, they leave a wake of destruction and ruin lives. Since the government cannot stop these events from happening, what can it do? What steps should be taken to mitigate damages and compensate the victims? What responsibility does the individual hold? Is the U.S. government trying to provide citizens with insurance against Mother Nature?
Hurricane Sandy caused over $20 billion in damages. As a result, there is over $3.6 billion in Federal Aid being offered to victims and responders. That is before the $60 billion Sandy Relief bill, laden with pork spending such as $10 million for FBI salaries and $2 billion for road projects across the country. The bill illustrates the Federal government’s less than sterling record when it comes to natural disaster relief. So why are we putting the Feds in this position in the first place?
When a disaster strikes an individual, such as a house burning down, he turns to his community and family for help. The logic goes, when a disaster strikes a community, it turns to what is around it: the state or nation. The problem with this model is that, unlike members of a community, communities in a nation have extremely different exposures to disasters, especially natural disasters. When the government serves as a backstop for property damage, it creates a moral hazard and incentive to live in high risk areas. Instead of having to bear the burden of your own risk, those living in low risk areas are forced to subsidize it.
Additionally, government must walk a fine line so as not to discourage nonprofit and charitable contributions, such as those from the Red Cross. If the community knows the government will pick up the tab, there will be neither an incentive for these organizations to exist, nor a demand for their services. Essentially, the government takes over the role creating a sort of mandatory charity funded by the taxpayer.
Podcast - Natural Disasters - The Adam Goldfein Show - Hour 1
Additional Resources
FEMA F.Y. 2013 Budget: http://www.fema.gov/pdf/about/budget/fema_fy2013_bib.pdf
Berkley, Roles of Government in Compensating Disaster Victims: http://www.law.berkeley.edu/faculty/sugarmans/Disaster%20losses%20ils%20final.pdf
FEMA National Flood Insurance Fund: http://www.fema.gov/pdf/about/budget/11h_fema_nfi_fund_dhs_fy13_cj.pdf
Insurance Journal, Pros and Cons of a U.S. Federal Natural Catastrophe Backstop: http://www.insurancejournal.com/news/national/2008/06/18/91104.htm
ICMA, Disaster Recovery: A Local Government Responsibility: http://webapps.icma.org/pm/9102/public/cover.cfm?author=christine%20becker&title=disaster%20recovery%3A%20%20a%20local%20government%20responsibility
Independent Evaluation Group, Facts & Figures on Natural Disasters: http://www.worldbank.org/ieg/naturaldisasters/docs/natural_disasters_fact_sheet.pdf
William & Mary Environmental Law and Policy Review, Restoring Responsibility and Accountability in Disaster Relief: http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=1078&context=wmelpr
Duke, Insurance Against Catastrophe: http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1242&context=delpf
Prevention Web, Disaster Statistics: http://www.preventionweb.net/english/countries/statistics/?cid=185
Disaster Survival Resources, U.S. Disaster Statistics: http://www.disaster-survival-resources.com/us-disaster-statistics.html
The Atlantic Cities, 14 Stunning Sandy Statistics: http://www.theatlanticcities.com/jobs-and-economy/2012/10/14-stunning-sandy-statistics-numbers/3746/
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