The flip side of flood aid
Show-Me Institute intern Matt Simpson won’t win any popularity contests in Cedar Rapids, Iowa. He’s written an article pointing out that while helping flood victims is the humanitarian thing to do, it also sets people up for bigger losses in the future. People respond to incentives, and if you’ve been bailed out after a past disaster you probably expect to be bailed out after future ones, too. With such a safety net in place, folks are more likely to continue living, or operating businesses, in harm’s way. Says Simpson:
As a result, these areas contain not only more potential victims, but also a much greater potential for damage. So, while government assistance for flood reconstruction can certainly help people who have been hurt by flooding, it also encourages some people to set themselves up for disaster. When the next flood comes, the damage will likely be much worse than if there had been no flood relief at all — in terms of both dollars and human suffering.
He’s by no means the first person to point out the perverse incentives provided by U.S. disaster relief. Douglas Elliott, for example, noted after Hurricane Katrina that FEMA assistance was a strong deterrent to buying flood insurance.
If policymakers have their eyes on the long-term effects, we’ll see more buyouts (a la Valmeyer) and fewer massive floodplain construction projects (as in the Chesterfield Valley). Don’t expect an end to assistance, however — the humanitarian instinct after such events is a strong one, as it should be.
(2 votes, average: 4.5 out of 5)
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
I agree make a fair buy out offer and if they refuse the next flood they are on their own.
I couldn’t agree more with the idea of eliminating the floodplain const. projects. Chesterfield Valley is a prime example, all that did was make Chesterfield City coffers more lucrative and siphoned business from other areas in STL and STC counties.
The FEMA program of requiring flood management plans to be in place at the local level, and then providing subsidized flood insurance to people who live there and meet the local requirements, is about as good a compromise as I can think of, even though it causes the general taxpayers to still bear part of the cost of flood damages to private properties. While buyouts of the areas subject to the most frequent and severe flooding make sense, there are a lot of areas subject to rare flooding where the cost of complete buyout would be prohibitively expensive. In other words, we taxpayers are going to continue for some time to pay the costs of previous decisions to develop flood plains.
In the case of New Orleans, the costs of protecting most parts of it from future flooding are excessive, given the inexorable rise of the Mississippi River there, the subsidence of the land there, and the liklihood of rising sea levels and more severe hurricanes. Any rebuilding should be limited to areas that are densely developed and surrounded by land that has been bought by public agencies and converted to parks or public uses such as golf courses that can stand periodic flooding.
In the case of Chesterfield, it is my understanding that the cost of the flood protection was paid by local property owners through a “levee district,” but built according to federal standards that supposedly will protect the area from a “500 year” flood. I suspect, though, that they still can purchase federally subsidized flood insurance, and that the general taxpayers will still lose out when that 500 year flood eventually occurs.