by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Regular readers in this forum might remember an April 2013 entry in which libertarian TV host John Stossel discussed the moral hazard associated with beachfront property.
What do I mean by “moral hazard”? I once built a beach house on the edge of the ocean — a very risky place to build — but I did so because federal flood insurance guaranteed my investment. Eventually, a storm swept away my house, but I didn’t lose a penny. Government “insurance” covered my loss. Thanks, taxpayers!
Now that I’m wiser — and more libertarian — I’m ashamed that I took your money and understand that the whole program is a mistake. The same government that worries about global warming causing flooding spends billions to compensate risk-takers who live next to oceans. That’s moral hazard.
But beachfront property owners have political connections. They make desperate calls to legislators. Politicians respond to whoever screams loudest.
One suspects that Stossel was prepared completely for the following news recounted in the latest issue of Money magazine.
Own a home in a flood-prone neighborhood? You’ve just caught a break. Bowing to protests from homeowners and real estate agents, Congress in March scaled back big flood insurance premium increases passed in 2012 to shore up the federal program’s finances. The biggest winners: people in areas remapped as higher-risk flood zones over the years, who under the 2012 law faced dramatic rate spikes — 10-fold hikes in some coastal areas.