FEMA, Moral Hazard, and Devolution

The Harvard Business Review on The Problem with FEMA No One Is Talking About: moral hazard. (H/T Peter Klein)

“For a minute, imagine that there was no FEMA and each geographic location was on its own, forced to use private insurance and state-level funds to rebuild after disasters. Such constraints would likely encourage less risk taking before a disaster.”

This argument for devolution is lost on Gary Johnson, who recently said:

“I think (disaster relief) may come under the basic notion of the government protecting us. There are these natural catastrophies that without the federal government, states aren’t as well equipped.”

Bizarrely enough, Mitt Romney, of all people, has evinced more understanding of the devolution argument than the Libertarian Party candidate for the United States Presidency.  When asked about abolishing FEMA, Romney said:

“Every time you have an occasion to take something from the federal government and send it back to the states, that’s the right direction. And if you can go even further, and send it back to the private sector, that’s even better.”

Also see FEMA Should Be Shut Down by Christopher Westley.

Comments

  1. Theres the Greenspan put and then theres the FEMA put. In moments after the storm it’s all about saving lives. Lives are saved because the government steps in and I do care about saving lives. I understand that if there wasn’t the FEMA put and local, state government, and charity could probably save more lives, again I care about saving lives.

  2. I don’t see rescue ops and disaster relief as a moral hazard. I don’t think people sit in their homes during a storm thinking: Well if the house floods, we’ll get airlifted out. They just assume nothing bad will happen.

    I’m sure this won’t be a popular opinion, but disaster rescue IS something valuable from the government. I don’t see private enterprises risking lives and assets saving people in harms-way for no profit.

    • “I don’t see rescue ops and disaster relief as a moral hazard.”

      Your myopia is not the author’s problem.

      ” don’t think people sit in their homes during a storm thinking: Well if the house floods, we’ll get airlifted out. They just assume nothing bad will happen.”

      Insurers certainly do price the likelihood of such events happening. In turn, homeowners respond to price signals and where these are set to 0, they plan ahead accordingly. And who is to say they do not think the way you just casually assert they do not?

      “I’m sure this won’t be a popular opinion, ”

      It’s idiotic, so it won’t be.

      ” but disaster rescue IS something valuable from the government.”

      Purely subjective. if it were that valuable, why can the government not simply freely compete for offering it on the market, or if it wishes to run it as a charity, compete for funding?

      ” I don’t see private enterprises risking lives and assets saving people in harms-way for no profit.”

      Is there a reason they should?

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