Romney is right. To save lives during a disaster scrap FEMA

 

Free Markets and disaster relief

 

Romney isn’t completely right of course (I imagine, like on most issues its notoriously hard to pin him down) as I doubt he, the big Government corporatist that he is, would want a purely free market approach.

FEMA is the problem, not the solution to disasters. This is not a popular line, but judging by historical evidence it is right. While there has been praise for FEMA so far in its response to Hurricane Sandy it is too early to give a final assessment, far better to look at previous disasters:

Michael Tanner points out in the Wall Street Journal (please excuse the long quote)

‘FEMA spent $878 million on prefabricated homes after Hurricane Katrina in 2005, then allowed thousands of them to rot in storage lots because the agency’s own regulations prohibited them from being used in flood plains such as Louisiana’s. The agency also spent as much as $416,000 per family to house some families temporarily in the wake of Katrina.

In 2010, an independent audit for the Department of Homeland Security’s Inspector General ran to more than 40 pages of waste, fraud and abuse, including some contracts—such as one to a hotel chain to temporarily house victims of Iowa flooding—that had cost overruns in excess of 1,000%.

Nor has federal disaster aid been immune from politics. History shows that the more politically important a state is, especially to a presidential re-election effort, the more likely it is to receive a federal disaster declaration. (See studies such as “The Political Economy of FEMA Disaster Payments,” published in the journal Economic Enquiry in 2003, or the 2006 Cato report, “Flirting with Disaster: The Inherent Problems With FEMA.”)’

Sticking with Katrina Christopher Westley notes that

‘FEMA prevented the Coast Guard from delivering fuel and the Red Cross from delivering food, barred morticians from entering New Orleans, blocked a 500 boat flotilla from delivering aid, and ignored a Navy ship equipped with a 600-bed hospital — all while thousands died.

Westley in the above article notes Wal-Mart offered $20 million in cash donations, 1,500 truckloads of free merchandise, food for 100,000 meals and the promise of a job for every one of its displaced workers., echoing the Sheriffs comment in this articles picture Westley quotes Aaron F. Broussard, president of Jefferson Parish in the New Orleans suburbs, who claimed that if “the American government would have responded like Wal-Mart has responded, we wouldn’t be in this crisis.”

FEMA officials turned away three Wal-Mart trailer trucks loaded with water, prevented the Coast Guard from delivering 1,000 gallons of diesel fuel, and on Saturday they cut the Jefferson Parish emergency communications line, leading the sheriff to restore it and post armed guards to protect it from FEMA.

More than 50 civilian aircraft responding to separate requests for evacuations from hospitals and other agencies swarmed to the area a day after Katrina hit, but FEMA blocked their efforts. Aircraft operators complained that FEMA waved off a number of evacuation attempts, saying the rescuers were not authorized.

91,000 tons of ice ordered by FEMA at a cost of over $100 million and intended for hospitals and food storage for relief efforts never made it to the disaster area. Federally contracted truck drivers instead received orders from FEMA to deliver the ice to government rented storage facilities around the country, as far north as Maine

But this article is not just about the failures of FEMA, of which excessive bureaucracy, high costs, inefficiencies and waste are typical of Big Government programs where the further those in charge are from the local areas the slower responses  are and the more channels everything has to go through. This is also about how the private sector would do things more efficiently.

Matthew Khan points out  that there are many unintended consequences to Big Government responses to disasters. Firstly he points out for those that believe in global warming it lowers local incentives to counter it. He goes on to argue that

Without FEMA and ‘if 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. When coastal states saw that their own resources would be used to repair flood damage, for instance, than political leaders would have stronger incentives to discourage housing development in flood-prone areas and to encourage greater investments in precautions like tree trimming to reduce storm damage. The net effect of such a shift in the rules of the game could be a significant reduction the cost of natural disasters. Without FEMA, states and municipalities would have better incentives to make direct investments in protecting their territory.’

He goes on to point out the redistributive effects of FEMA, ‘without FEMA would Wall Street, the industry, stay on Wall Street? There’s no good reason it has to be located in lower Manhattan, and without the assurance that FEMA would help it get on its feet, the industry and its associated would have more incentive to move to higher ground. Or New York City, which benefits inordinately from having Wall Street within its borders, would have to offer more and better protection.’

As pointed out earlier in the article the private sector offers many millions if not billions in assistance. As has been seen historically private individuals donate considerable amounts of money to disasters. 96 charities raised 1.3 billion for Haiti.  $5.3 billion was raised for Hurricane Katrina. With the knowledge that there was no federal agency (especially if there were significant tax cuts so that people had more of their own money) people who be hugely incentivised (and able) to donate more.

Private businesses have a huge incentive to donate to disaster zones, especially if you believe, as many on the left do, that free markets are based on selfish greed and self interest. Reputation is a key factor in markets that people often overlook, when a disaster strikes a company can gain thousands if not millions of new customers purely by being seen as helping the needy. Now those companies would argue their motives are pure, they want to help people, the point is that this doesn’t matter, even if you are hard left and see companies as evil, they are still doing the right thing. The huge positive public reaction to a private business donating food, equipment, time, workers, money etc means that ‘evil’ companies will spend millions helping out those in need. Simply put, doing the right thing for the wrong reason is still the right thing, the motive is irrelevant, the outcome is great. Without Government and FEMA businesses will be able to play an even bigger role – the Government won’t be stopping them helping as we have seen they do, and furthermore companies will get even more recognition for their help. If you believe companies are good or evil the actions and outcome will be the same.

Furthermore without a federal agency bailing people out there would be a much larger incentive to get proper insurance for individuals, business owners, local and state authorities. Like with bank bailouts, disaster bailouts means risk is improperly priced. If I know the Government will financially reimburse me for damage to my property why should I properly insure it against disasters. When risk is properly accounted for more disaster prone areas are, rightfully, more expensive. Thus there is a bigger dis-incentive to locate your house or business in safer areas, minimising the number of people choosing to live in at risk areas due to the prohibitive cost.

FEMA may have been built with the best of intentions, but like all bulky big government programmes it has proven to harm, not help. In practice and in theory FEMA’s intervention has slowed down recovery, incentivised people to live and work in at risk area, and ultimately cost more lives than needed. If we really want to save peoples lives when disasters strike, really we need to scrap FEMA.

 

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