The Volokh Conspiracy - Disaster Relief:

The comments on yesterday's post included a digression into the issue of Katrina relief, which one poster opposed for multiple good reasons. I want to add another.

You might think that disaster relief transfers wealth to disaster victims. That's not at all clear. Here's why:

There has long been an expectation that in Katrina-like circumstances, the government will step in to help. That makes disaster-prone cities like New Orleans (and, among others, San Francisco) more desirable and pushes up land prices in those cities.

So if you own a house on a flood plain, chances are the purchase price included a premium for the disaster insurance that the government insists on providing. That's a boon not to you, but to the former owner, who might live in Montana by now. The wealth transfer goes not to those who are currently in danger, but to those who owned endangered property when the policy went into effect.

By pushing up land prices, federal disaster relief denies people the opportunity to live cheaply in exchange for living dangerously. That opportunity is particularly valuable to the poor.

To put this another way, federal disaster relief essentially forces people — most of them poor people --- to buy insurance they'd rather not have. The premiums are hidden in their housing prices, but they are none the less real.

If the government forced us all to buy lottery tickets against our will, and if the news media carried big feature stories on the lottery winners, a naive viewer might think the government had done us all a favor. Currently, the government forces us all to buy (implicit) disaster insurance against our will, and the news media carry big feature stories on the people who collect that insurance. A naive viewer might think the government had done us all a favor. But surely no reader of the Volokh Conspiracy could be so naive.

Poor people, more than most, value cheap housing. A policy of disaster relief makes cheap housing hard to find. Therefore a policy of disaster relief is likely to impose a particular burden on the poor. If you want to help poor people, eliminating federal disaster relief is a good place to start.

For more in this vein (on exactly this topic) see pages 195ff. in my new book More Sex is Safer Sex: The Unconventional Wisdom of Economics.

	[Steven Landsburg, guest-blogging, April 25, 2007 at 7:01am] Trackbacks Disaster Relief: The comments on yesterday's post included a digression into the issue of Katrina relief, which one poster opposed for multiple good reasons. I want to add another. You might think that disaster relief transfers wealth to disaster victims. That's not at all clear. Here's why: There has long been an expectation that in Katrina-like circumstances, the government will step in to help. That makes disaster-prone cities like New Orleans (and, among others, San Francisco) more desirable and pushes up land prices in those cities. So if you own a house on a flood plain, chances are the purchase price included a premium for the disaster insurance that the government insists on providing. That's a boon not to you, but to the former owner, who might live in Montana by now. The wealth transfer goes not to those who are currently in danger, but to those who owned endangered property when the policy went into effect. By pushing up land prices, federal disaster relief denies people the opportunity to live cheaply in exchange for living dangerously. That opportunity is particularly valuable to the poor. To put this another way, federal disaster relief essentially forces people — most of them poor people --- to buy insurance they'd rather not have. The premiums are hidden in their housing prices, but they are none the less real. If the government forced us all to buy lottery tickets against our will, and if the news media carried big feature stories on the lottery winners, a naive viewer might think the government had done us all a favor. Currently, the government forces us all to buy (implicit) disaster insurance against our will, and the news media carry big feature stories on the people who collect that insurance. A naive viewer might think the government had done us all a favor. But surely no reader of the Volokh Conspiracy could be so naive. Poor people, more than most, value cheap housing. A policy of disaster relief makes cheap housing hard to find. Therefore a policy of disaster relief is likely to impose a particular burden on the poor. If you want to help poor people, eliminating federal disaster relief is a good place to start. For more in this vein (on exactly this topic) see pages 195ff. in my new book More Sex is Safer Sex: The Unconventional Wisdom of Economics.