Senator Lott Floods the Zone

WSJ Opinion Journal ^ | February 23, 2007 | Kimberley A.. Strassel

[gridlock]

Federal Flood Insurance dramatically improves the economy by allowing full exploitation of coastal and floodplain resources and their intrinsic value.

The value of this land at this point is not the intrinsic value. The fact that the land floods and will suffer massive property losses is one of the intrinsic properties of the land. The value of the land at this point is the intrinsic value plus the subsidy.

If the subsidy was not available, then the value would be the value of living near the lovely ocean less the potential loss. Given that people are willing to pay such a high price for beachfront land, this would still leave much of the development plans economically viable. As you say, people want to live by the beach, and are willing to pay a premium for it. But they should be paying that premium to an insurance company, of a self-insurance fund, instead of to the person who happened to have the land before them.

People are always very happy to have government subsidies, and are always willing to explain at great length how the government taking money out of my pocket benefits me. The difference between this and a public asset, such as a road, is that a road is a public asset. These insurance subsidies are in effect direct payments to individuals, who would probably do whatever they were going to do anyway, but can now do it at a much greater profit.

No doubt some marginal projects would never get built without the subsidy, and some of the grander houses might be scaled back to limit the potential losses. But if this is what it takes to make the operation economically viable, then this is the best economic result.

This is basic economic theory. You either buy it or you don't. Some folks think the government should intervene heavily in order to make things better all over. Those folks are Democrats. Other folks think the government should leave us alone to pursue our own interests, and the cumulative effect of all of us pursuing our own interests leads to the optimal economic result. Those folks used to be Republicans, but Republicans are Democrats now, so I guess those folks are now Conservatives.

People are quite eloquent in justifying their own subsidies. Farmers can go on for hours about how farm payments stabilize prices and guarantee the survival of the family (Mega) farm. The artsy fartsies can talk to you until you want to commit suicide about the value of government subsidized art in elevating the masses. And you are just in love with this program that lets you and folks like you build mansions on the beach, and sticks somebody else with the bill.

[gridlock]

All of which goes to show that construction tradesmen built sturdier houses back in the 19th century than they build today!

And that the best building sites were built on early. Now all that is left is the marginal building sites.

I am looking at a house right now that used to be the main house of an 1100 acre plantation. It is situated beautifully, near (but uphill) from the creek, close to (but not too close to) the road, and on top of a natural spring which cools a store-room in the basement. It's just the perfect spot.

The rest of the former plantation is being sold off for 20+ acre development plots, and people are dropping massive houses on the hillsides where there is no water, no road, and wells that yeild poor water 5 gallons per hour. And the houses on the hillsides are going for $1,000,000+, and the former plantation house is going for a song.

Go figure. People are stupid.

[Hawthorn]

> And that the best building sites were built on early. Now all that is left is the marginal building sites <

Usually, but not necessarily:

Your theory doesn't apply to the specific case I cited, the retirement home of Jefferson Davis, a.k.a. Beauvoir, at Biloxi MS. There was nothing particularly "best" about the building site in question. This house was built right along the same beachfront, with approximately the same offset, as were its neighbors. And almost every other wooden structure along that stretch of beachfront was 100% obliterated by Camille in 1969. Yet Beauvoir suffered only minor damage. And when Katrina similarly obliterated almost all of the neighboring structures in 2005, Beauvoir was left standing (albeit severely damaged). My conclusion: Carpenters back in the mid-1800's knew how to build much sturdier houses than we ususally see today.

(One wonders why the insurance companies don't incorporate such information into their rate structures. Maybe it's a matter of perverse regulations. Could make a good Ph.D. dissertation topic for a free-market-oriented graduate student in economics or finance!)