Tuesday, March 30, 2010

Congress' failure to extend flood insurance program is inexcusable

New Orleans Times-Picayune editorial "Congress' failure to extend flood insurance program is inexcusable" (March 30th, 2010) suggests that the decision of Congress to let the National Flood Insurance Program lapse is poor decision-making. Corrections questions the program itself, suggesting that it has caused, and is causing, moral hazard.

Members of Congress acted irresponsibly when they let the National Flood Insurance Program lapse for a couple of days early this month. Now they have let the program lapse again and for a much longer period. That's inexcusable.

Corrections would suggest that government programs that ensure bailouts for flood-prone regions are the more inexcusable phenomenon. The National Flood Insurance Program was enacted in 1968 to force individuals in flood-prone regions to purchase (often subsidized) insurance because government was bailing them out in the event of a flood anyway. Areas that were given government insurance often had to comply with flood standards; because NFIP was a government program, it was relatively rare for standards to be met--according to the August 1990 GAO Report "Flood Insurance: Information on the Mandatory Purchase Requirement", at the time, about 22 percent of Maine and 79 percent of Texas that was covered under insurance rules did not comply with federal standards. Such government incompetence amounts to subsidized insurance for individuals who live in flood plains.

Corrections, therefore, does not see why NFIP is necessary--it seems inefficient to pay people to live in areas that get flooded, and to build houses that don't have proper protection from flooding due to the moral hazard posed by NFIP.

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