That is the topic of my latest Bloomberg column, here is one excerpt from the final section:
Greater federal aid to the victims is a likely option. Still, it will not be obvious to many Americans why those who lost homes might end up receiving higher government benefits than people elsewhere who never had homes in the first place, and who may have inferior income prospects, especially if they live in rural areas. Many Texas congressional representatives voted against federal aid when Hurricane Sandy hit New York and New Jersey in 2012. That sounds cruel, but we also have to guard against the tendency for aid decisions to be driven by media cycles rather than the nation’s most serious structural problems.
One commonly discussed “economist’s solution” is to limit federal bailouts, and get the federal government out of providing flood insurance, in the hope that homes will not be built on risky floodplains. It doesn’t make sense to have $663,000 in payouts sent to one Mississippi home, which has flooded out 34 times in 32 years.
That all makes sense in theory, but it also illustrates the limitations of economics. The homes are already built in precarious places, and in the Houston area the damage has already been incurred. Are we prepared to forgo giving federal aid, just to set a precedent for the future? If anything, acting tough could lead to a backlash against the politicians who do so, and make it all the more clear that future bailouts will be forthcoming. Maybe the best we can do is to price flood insurance more appropriately, in recognition that climate risks are higher now. Over the longer run, as housing stocks turn over, that will help limit homeowner and also fiscal exposure to extreme events.
In other words, doing better in response to storms won’t be that easy. At least so far, it seems the human logistical preparation and response has gone fairly well — relative to expectations — this time around.