Do FEMA-Lovers Want the Feds to Make Local Rebuilding Decisions?

AP reports that NJ residents have to make some tough choices about parts of their historic shoreline. This story caught my eye because I’d been hearing radio reports ad nauseum about how Mitt Romney was planning on doing away with FEMA, reports that were all false.  The story of rebuilding NJ directly addresses the issue of whether or not FEMA is an unambiguously good idea:

 “In its tear of destruction, the megastorm Sandy left parts of New Jersey’s beloved shore in tatters, sweeping away beaches, homes, boardwalks and amusement parks. The devastation left the state a blank canvas to redevelop its prized vacation towns. But environmentalists and shoreline planners urged the state to think about how — and if — to redevelop the shoreline as it faces an even greater threat of extreme weather.”

 The story is marred by an acceptance of global climate change caused by planetary warming bringing about rising sea levels. But pushing that superstition aside, there are multi-generational weather shifts both in temperature and in the frequency of storms in various locations. It may well be that we will see more hurricanes at the Eastern seaboard.

So how do residents and local governments and local development companies decide what to create on the “blank canvas to redevelop its prized vacation towns”?

This is where FEMA is a mixed blessing. Obviously, FEMA can pose like a super kind of insurance. Taxpayers pay in and then, when accidents happen, the victim gets funds to use to rebuild. Except that if you build in a flood plain, you normally won’t get insurance. And the money you pay into the system is pegged to how likely it is that you will need it.

Do we want FEMA telling states and local areas where they can and cannot build? But there are only two alternatives: one must either prohibit people from building in certain areas or else encourage them to do so by paying for the damages they suffer from forces that were foreseeable.

You can only really insure things that are truly random. This is why it took the government to invent FDIC insurance. In the unconstrained world of market and freedom, insurance would mean that the careful and cautious banks subsidized the more risky and speculative banks. Everyone would pay a premium but those who were most likely to need the insurance to bail them out would usually be the ones that looked for higher yields in areas where they could also fail more easily.

To put it another way, there are two means by which you can deal with disasters: take time to avoid them, or figure out a plan to provide for recovering from them. Pushing resources to the recovery means, reduces the incentive to use the other means: avoidance. In other words: it encourages recklessness. The only way to then deter the reckless behavior is to manage all their decisions.

There are actually many other problems with FEMA as it currently exists, but this is the fundamental economic problem. If people know they have access to other peoples’ money when a disaster strikes, they have less reason to avoid disaster. They will have less reason to worry about the risks and more reason to rebuild in unwise or unsafe locations.