There Is Ample Room to Find Offsets When Disaster Strikes
Asking where federal aid should stop is a serious question
May 23, 2013
The tragic events recently experienced in Moore, Oklahoma remind us all of the vulnerability of families and municipalities to natural disasters. We all feel empathy for those affected and want to extend assistance to those who were impacted by the tornado. These same feelings arise with every natural disaster, including the recent widespread damage brought about by Hurricane Sandy and the tragic losses associated with other major hurricanes in recent years.
The role of the federal government in providing such relief has been an issue of debate for many decades. Two issues are particularly relevant. First, the extent to which private markets and other public programs fail to offer proper risk management mechanisms is important. Second, in the current fiscal environment of budget deficits the size of which have not been seen since World War II, one must question every area of spending and consider whether priorities such as disaster relief should be offset by reductions in expenditures elsewhere.
On the first question, there are few that can argue that there is not a role for the federal government in bringing its immense resources and powers to bear in order to relieve the immediate suffering of those impacted by these disasters. The question is where the line should be drawn between private risk management and mitigation and government-funded actions. A restoration of basic services and infrastructure through direct aid to victims and aid to states and local communities would seem to be an essential role of government.
However, in an economy where voluntary private and public insurance programs are available, one must ask where this aid should stop. For example, should the taxpayer stand ready to provide transfers to individuals who made the rational choice to live in an area prone to flooding and at the same time rejected the highly subsidized federal flood insurance that may have been available to them? Does the provision of subsidized flood insurance and ad hoc disaster aid encourage individuals to take on more risk with the knowledge that taxpayer resources are available should a disaster occur? The U.S. Congress apparently believes in the provision of such aid, as the $60 billion supplemental appropriation bill for Superstorm Sandy relief demonstrates.
Finally, an inequity in aid often arises due to the fact that a small disaster may not trigger the aid that a large one does, even though the suffering of the individuals affected may be comparable. A family losing its home to a small flood suffers as much as those families impacted by a "superstorm," even though it may not be in a position to receive federal government resources.
On the second question, it seems prudent to allow governments to maintain short-run deficits to address unexpected events and maintain basic services. However, there is ample room to consider budget offsets any time the federal government deems it necessary to provide ad hoc outlays. Agricultural policy provides an excellent example. Ad hoc disaster relief almost always arises when a drought or widespread flood impacts farmers. However, the Farm Bill provides approximately $10 billion each year to subsidize crop insurance intended to address such disasters. If Treasury resources are to be directed toward disaster relief, offsets in spending on other programs should be made. he immense scope of subsidies and entitlements that continue to proliferate and expand provide fertile ground for budget cuts, and disaster relief offers a straightforward opportunity to make such cuts.