As you watch those pictures of houses under assault from Hurricane Isabel, doesn't it make you wonder: Why do people build their homes so close to the water? They must have known a hurricane might do this. Why would they take such a foolish risk?
Well, people take the risk, because our government encourages us to take it. I know all about this, because I did it myself.
In 1980, I bought some beachfront property on Long Island, N.Y., and built a house there. It was a big investment for me. The down payment took just about all of my savings, and I knew what can happen to people who build on the edges of oceans. But I took the risk because the government made me a promise.
An Offer Too Good to Refuse
The promise was national flood insurance. It made my house and my neighbors' homes possible. After all, no bank will give you a mortgage unless you have insurance.
Private insurance companies were reluctant to sell insurance to those of us who build on the edges of oceans, and were they to offer it, they'd charge an arm and a leg to cover the risk. But this wasn't a problem for me, because you offered to insure my house. I know you didn't do it personally, but you, as a taxpayer, are the guarantee behind federal flood insurance. Should a big storm wipe out half the coast, you'll cover our losses — up to a quarter-million dollars. Thanks — we appreciate it — but what a dumb policy.
The subsidized insurance goes to affluent homeowners on both coasts — from Malibu Beach, where movie stars live, to Kennebunkport where the Bush family has a vacation home, to Hyannisport, where the Kennedy family has a summer home, to the Hamptons, where I bought my house.
The insurance premiums were a bargain. The most I ever paid was a few hundred dollars. Federal actuaries say if the insurance were realistically priced, it would cost thousands of dollars. Why should the government guarantee water's-edge insurance? Why should the government be in this business at all?
A decade ago I spoke with James Lee Witt, who ran FEMA, the Federal Emergency Management Agency, for President Clinton. FEMA's current director is busy with this week's hurricane, but his agency's policy hasn't changed much, so let's look again at the discussion I had with Witt.
Witt told me he thinks the flood insurance saves federal tax dollars. "If this insurance wasn't there, OK, then people would be building in those areas anyway, OK? Then it would cost the American taxpayers more dollars if a disaster hit that community and destroyed it," he said.
He said it's cheaper than offering additional disaster relief.
Should We Subsidize Insurance for Drunk Drivers?
That's government logic for you. Since we always spent huge amounts of taxpayer money bailing out people with disaster relief, politicians 35 years ago said, why don't we try to recover some of that money by selling flood insurance?
As so often happens, the program had unintended consequences. The cheap insurance encouraged more people to build on the beach, so the insurance risk is now huge. Today, $645 billion in property is guaranteed by Uncle Sam.
Geologist Orrin Pilkey at Duke University says this policy is simply "stupid." Pilkey has been one of the most persistent critics of the government's policies. He says both disaster relief and federal flood insurance just encourage people to stay in harm's way.