Welcome to the Econ Blog!Here is the Unit One schedule. So now that were using this new-fangled internet thingy, lets do this: Here's an article for you. By Wednesday I'd like you to read it and post a comment! Enjoy!
I thought that this article provided a good example of something the government should not do; unlike private insurance companies, which try their best not to provide more than they are compensated for, the government has a strong incentive to do what will please voters rather than what is a good idea economically. I wouldn't argue against the idea of government intervening to help people whose homes have been destroyed by flooding, but this is evidently not the best way to do it. Reading the outline of the original proposal, I thought federal flood insurance wasn't such a bad idea to begin with; it was just a failure to predict that politicians would revise the legislation to provide aid to those who were not qualified to receive it under the original rules that caused it to become such a wreck. I don't think it's futile to try to get rid of the NFIP or move it to the private sector, but it would help to have fewer people living in flood-prone areas. It might be worthwhile to instate a tax on people living in places highly susceptible to flooding (especially considering global warming). It wouldn't have to be a large tax at first, but it could be raised every year to encourage people to move out of these areas and discourage others from moving in. Such a tax would probably not create much revenue, but neither would it run up as large a debt as the NFIP is doing.
While specifically this article is about flood insurance, holistically it seems to be about how much power the government should have--and according to the argument, the government should exhibit minimal control over the private sectors. The government's idea of helping seems to be introducing control where control is unnecessary. To be fair, a demand for flood insurance did exist--the government saw this and tried to fix it. However, it begs the question: why did there exist this market failure for so long before the government "saved the day?" The condensed answer in the article is "the combination of the nature of the flood risk, the insurance business, the limitations of technology, and the regulatory climate made it impossible to provide flood insurance..." Flood insurance would be provided to those who live near bodies sure to flood. Insurance companies, therefore, didn't have incentive to ante in on this front because they're not playing the risk; it's as good as certain that they'll end up paying. The government thereby took matters into its own hands. The difference is that the insurance companies would go out of business, whereas the government would not. A plan was created by the government that "shockingly" created an impressive amount of debt; if the plan would not succeed in the private sector, it would not succeed put into action by the government. In the wake of their mistake, "eliminating the program would cost more than keeping it operating" and only reforms can begin to clean up the mess. What I gather is that government control--which has been an issue, it seems, since the inception of this nation--should be minimized, and that more time should have been devoted to figuring out this business of flood insurance before the NFIP was developed.
I thought that this article provided a good example of something the government should not do; unlike private insurance companies, which try their best not to provide more than they are compensated for, the government has a strong incentive to do what will please voters rather than what is a good idea economically. I wouldn't argue against the idea of government intervening to help people whose homes have been destroyed by flooding, but this is evidently not the best way to do it. Reading the outline of the original proposal, I thought federal flood insurance wasn't such a bad idea to begin with; it was just a failure to predict that politicians would revise the legislation to provide aid to those who were not qualified to receive it under the original rules that caused it to become such a wreck. I don't think it's futile to try to get rid of the NFIP or move it to the private sector, but it would help to have fewer people living in flood-prone areas. It might be worthwhile to instate a tax on people living in places highly susceptible to flooding (especially considering global warming). It wouldn't have to be a large tax at first, but it could be raised every year to encourage people to move out of these areas and discourage others from moving in. Such a tax would probably not create much revenue, but neither would it run up as large a debt as the NFIP is doing.
ReplyDeleteWhile specifically this article is about flood insurance, holistically it seems to be about how much power the government should have--and according to the argument, the government should exhibit minimal control over the private sectors. The government's idea of helping seems to be introducing control where control is unnecessary. To be fair, a demand for flood insurance did exist--the government saw this and tried to fix it. However, it begs the question: why did there exist this market failure for so long before the government "saved the day?" The condensed answer in the article is "the combination of the nature of the flood risk, the insurance business, the limitations of technology, and the regulatory climate made it impossible to provide flood insurance..." Flood insurance would be provided to those who live near bodies sure to flood. Insurance companies, therefore, didn't have incentive to ante in on this front because they're not playing the risk; it's as good as certain that they'll end up paying. The government thereby took matters into its own hands. The difference is that the insurance companies would go out of business, whereas the government would not. A plan was created by the government that "shockingly" created an impressive amount of debt; if the plan would not succeed in the private sector, it would not succeed put into action by the government. In the wake of their mistake, "eliminating the program would cost more than keeping it operating" and only reforms can begin to clean up the mess. What I gather is that government control--which has been an issue, it seems, since the inception of this nation--should be minimized, and that more time should have been devoted to figuring out this business of flood insurance before the NFIP was developed.
ReplyDelete