"There is always a philosophy for lack of courage."—Albert Camus

Friday, February 24, 2006

The Case for Dissolving FEMA

In response to my post titled "Federalizing Everything," a commenter asked, "You are saying you don't mind federal involvement [in disaster management] but you don't want them to be the ones coordinating it?"

That is not quite correct, so I'll explain further. First, I believe that the federal government should take the lead role in protecting the nation against attacks by foreign forces and any homegrown forces that venture across state borders. That is a given. It is when we get into the area of natural disasters that the problems arise.

I definitely don't want the federal government implementing responses to natural disasters. There is absolutely no need for it. Coordination is the farthest I should like them to go, and even that much involvement is in fact unnecessary. There is nothing on earth stopping states from cooperating in relief efforts and in preparing for disasters before they happen. Numerous states sent help to the Gulf Coast in the wake of Katrina, and countless private relief efforts contributed as well. States can work out agreements with each other to handle cross-border environmental problems and disaster-relief scenarios. Certainly there will be disagreements at times among states regarding which should take responsibilty for what (meaning whose taxpayers will pay how much for it), but federal "coordination" only moves the argument further up the line and results in greater stasis and failure of coordination and implementation.

In fact, the very existence of a federal agency devoted to disaster management (FEMA), and the existence (and meddling) of other agencies such as the Army Corps of Engineers, has helped take the pressure off of state and local governments to make the investments necessary to ensure that they can handle natural disasters. Any failures will ultimately be blamed on the federal government, which is exactly what happened after Katrina.

That is an excellent example of the concept economists call moral hazard.

If the state of Louisiana and city of New Orleans, in particular, have elected governments so inept and negligent that they failed to prepare for a catastrophe that everyone has known for countless years would eventually arrive, that is a matter for the voters of Louisiana and New Orleans to deal with. It is not a matter that requires a huge stratum of federal mandates to be laid on people in Seattle, Iowa City, and Charlotte.

The state of Louisiana could have prepared for this. The city of New Orleans could have been ready to deal with the problem. But they weren't. So now, because of the stupidity and cupidity of two state and local goverments, we will all have to climb under an even greater yoke of federal-government management of our lives. That is not sound policy; it is idiocy.

States would undoubtedly prepare for potential problems more effectively without federal "guidance," and especially without a huge new federal bureaucracy and a crushing new layer of laws, regulations, commissions, and greatly increased taxes to finance it all.

All of this is entirely unnecessary, including any federal role in planning and coordination. The creation of a large federal bureaucracy to coordinate and implement disaster management is an unnecessary and counterproductive boondoggle.

The best course at this time would be to dissolve FEMA and other such agencies and send the authority and responsibility back to the states, where it belongs.

35 comments:

Hunter Baker said...

Amen, baby. The genius of federalism continues to go essentially ignored. Gulf states should invest and prepare for hurricanes. It makes no sense whatsoever for the rest of the country to subsidize them in that respect. If it then becomes economically unfeasible to build or develop certain coastal areas because they cannot be adequately insured against loss or architecturally protected, then let the circumstances dictate the correct actions to take.

S. T. Karnick said...

Exactly, Hunter. Your last sentence encapsulates the moral hazard of these bailouts.

The Classic Liberal Anonymous said...

While I agree in principle, I think the real issue was hit on in Hunter's post.

The Federal government has some responsibility (I said *some*) if and when they are responsible for irresponsible development (ie, subsidizing housing built below sea level, on a cliff, etc...).

Before fed intervention can be dissolved, the fed needs to stop encouraging (subsidizing) development that would not occur without their "help."

On another note...

To distill what Team Bush wants: if the disaster is really bad we'll send the army.

This ought to be the extent of fed involvement (ideally), because if it ain't bad enough to have to send in the troops, the local governments ought to be able to handle it.

S. T. Karnick said...

CLA, re your point one, the feds should stop both simultaneously. Anybody who built in anticipation of being bailed out by the federal government if a disaster hit deserves whatever comes.

Re your point two, yes, and very well put! If that's what the Bush admin really wants, I'm for it--as long as they dissolve all the other stuff. Which of course is not going to happen.

Karnick said...

I agree with you entirely Sammy. federal governments are to inefficient to be able to handle all of these things. How can we expect the federal government to be able to micromanage every possible disaster for every possible area of the country? The answer: raise taxes and expand the bureaucracy. What will this accomplish? It will make the federal government even more inefficient and incapable of dealing with disaster. It needs to come down to states, counties and individuals to protect their interests, not the federal government, they've got bigger fish to fry.

James Elliott said...

Thank you for this clear and concise argument. You make your case quite forcefully. The only flaw I can find is only a flaw (to me) because it approaches the matter from a basic premise that is rooted, at heart, in governmental ideology: You presuppose that federal-level action is, by default, ponderous and inefficient. I did find your post largely persuasive once I reminded myself of some interesting political science research: The most effective democracies are those that disburse resources at a regional level.

Tlaloc said...

"Amen, baby. The genius of federalism continues to go essentially ignored."

Hunter this argument is precisely anti-federalism.

Federalism says that for purely internal matters the individual state has control but when it comes to matters between states or that are more than an individual state can reasonably handle the feds step in.

That's the opposite of what Karnick is saying. He wants states to coordinate but without the very mechanism we created to let them coordinate: the federal government.

Tlaloc said...

"It makes no sense whatsoever for the rest of the country to subsidize them in that respect. If it then becomes economically unfeasible to build or develop certain coastal areas because they cannot be adequately insured against loss or architecturally protected, then let the circumstances dictate the correct actions to take."

Hunter you and I both know that economic and population pressures are going to lead to the development of areas that are prone to natural disasters if for no other reason than because there is no where in the states that is not prone to some type.

So if we know that there are going to be people in harms way what do you do? Are you going to say "sucks to be them?" Or are we going to see some of that vaunted charity your faith calls for?

Your economic argument is complety unfounded in reality. Like I explained earlier my area is set for a big quake. It'll be bad, really bad. It might not be as bad if developers made the buildings here more earthquake proof. But they have no incentive to since it costs more. The only way you could possibly get it to happen would be with, you guessed it, strict governmental regulation of the construction industry.

According to your argument nobody should be building here because it's economically unfeasible. But the economic hit hasn't come yet and capitalism is the most blind system for risk avoidance.

The Classic Liberal Anonymous said...

Or are we going to see some of that vaunted charity your faith calls for?

C'mon Tlaloc...how do you expect to have a reasonable discussion when you write stuff like that? Or this...

capitalism is the most blind system for risk avoidance.

Matt Huisman said...

It might not be as bad if developers made the buildings here more earthquake proof. But they have no incentive to since it costs more. The only way you could possibly get it to happen would be with, you guessed it, strict governmental regulation of the construction industry.

Or if insurance companies charged accordingly.

You want to build what kind of building? OK, fine. You gotta pay the premium premium.

Which brings us back to the original topic of FEMA. Since the whole thing is basically one giant insurance policy, I suggest we put Warren Buffet in charge of the whole thing.

If he screws it up, we all get free Dairy Queen Blizzards for a year.

Tlaloc said...

"C'mon Tlaloc...how do you expect to have a reasonable discussion when you write stuff like that? Or this..."

I'm trying to be nice about it, but really look at what Hunter is saying.

As for my second statement it is simply factual but if unclear I can elucidate it. Capitalism absolutely is the worst system for avoiding risks. No doubt.

Tlaloc said...

"You want to build what kind of building? OK, fine. You gotta pay the premium premium."

Never happen. The insurance company that did that would simply be undercut by their competitors who would offer the same indurance for less.

There's always a short sighted fool willing to play the odds.

Tlaloc said...

To make it more clear the short term investment pays off in capitalism because the guy who bets on the long term gets put out of business by those who look to the short term.

There is simply no system consistently worse for avoiding risks than capitalism.

Matt Huisman said...

Never happen. The insurance company that did that would simply be undercut by their competitors who would offer the same indurance for less.

It happens all the time. Insurance companies are exiting all kinds of markets now that they have to make earnings from underwriting (as opposed to investments).

You're assuming that every insurance company is one giant bankruptcy waiting to happen. But that's not really the case. The two things that everyone in business is freaking out about right now are both insurance related (health & property/casualty).

Where do you think Warren gets the money to buy all those Dilly Bars?

Matt Huisman said...

There is simply no system consistently worse for avoiding risks than capitalism.

If that's true, it's only because there is no other system that comes close to providing the rewards/incentives that are available in capitalism.

[Growth is the key to risk management. You're either growing or you're dying - and systems that don't provide for growth are far less secure (and generally worse off) in the long run than ours.]

Tlaloc said...

"You're assuming that every insurance company is one giant bankruptcy waiting to happen."

It doesn't have to go all the way to bankruptcy just lose that market share.

Tlaloc said...

"[Growth is the key to risk management. You're either growing or you're dying - and systems that don't provide for growth are far less secure (and generally worse off) in the long run than ours.]"

You don't serious believe that do you? Growth is in no way the key to risk management since growth itself often creates or exacerbates risks.

The capacity for growth is of course important but actual continuous growth is a recipe for disaster because it cannot be sustained.

Perhaps the demonstratin of boom and bust animal populations would be useful again. Species that breed quickly and have substantial predation of course have the capacity for growth and they need it to counteract their loses. But if the predation is reduced their continuous population growth becomes their worst problem. They exceed the carrying capacity of their environement and have a substantial die off. This die off can be a far worse risk of total extinction than the normal level of predation was.


Rather than growth, avoiding risk depends upon the ability to predict accurately and to make the choices, even painful choices, that then result in the best case scenario. Capitalism can do fine at the former but never the latter. Because the entire principle is cut throat competition making the painful choice is nothing more than suicidal.

connie deady said...

I agree in principle as well.

One thing that has changed in my political ideology as I grow older is that I have become less enamoured of federal government and a much bigger supporter of federalism. Anyone who deals with a federal bureaucracy can't help but feel that way.

I have to disagree with Hunter, though in terms of costs. Many states have some form of natural disasters. Back in 1972 my area got completely flooded by a hurricane that came northward.

Floods can occur on any river, the gulf has hurricanes, California has earthquakes, the Pacific Northwest forest fires, Alaska has oil spills, the midwest tornados.

To me it makes more sense to federallly fund disaster relief (it really does even out and remember other states are impacted by oil refineries in the South). We do have interdependence here as well as a national responsibility to protect all 50 states.

But the actual implementation, coordination, etc. should occur at the state levels and local levels. Though in New Orleans case, with the whole city wiped out, it's hard to command and control.

Plus this old liberal has a hard time with the social darwinism hunter's post advocates.

connie deady said...

Oh, I forgot to add that this is a great way to get Bush off the hook for appointing crony hacks to manage FEMA. It's just the way federal bureaucracy is, it's not Bush's fault that the federal government was paralyzed for 3 days while people sat in inhumane conditions.

tbmbuzz said...

To make it more clear the short term investment pays off in capitalism because the guy who bets on the long term gets put out of business by those who look to the short term.

There is simply no system consistently worse for avoiding risks than capitalism.



Then what are the futures and options markets about, if not to manage risk (including encouraging capital investment)? Why, for that matter, is "avoiding risk" somehow a good thing in your universe? As far as MANAGING risk is concerned, capitalism is the most efficient system; in fact, it is the only system that works.

Tlaloc said...

"Then what are the futures and options markets about, if not to manage risk (including encouraging capital investment)? "

They are shams. Futures markets are inaccurate as a way to predict the future. What they do very well is fleece the unaware.



"Why, for that matter, is "avoiding risk" somehow a good thing in your universe?"

Personally I rather like stability as opposed to say famine, war, economic meltdown, environmental collapse...

YMMV.



"As far as MANAGING risk is concerned, capitalism is the most efficient system; in fact, it is the only system that works."

I'm sorry but no it isn't. Capitalism fundamentally penalizes those who seek to prevent rather than treat and prevention is always less risky.

Take the concrete example of insurers in an area expecting an earthwuake. How do you content that capitalism will address the issue? I've already explained why it will fail, how do you answer?

tbmbuzz said...

They are shams. Futures markets are inaccurate as a way to predict the future. What they do very well is fleece the unaware.

The futures markets are NOT about predicting the future. Their primary puropose is to provide a hedging vehicle to producers and investors. For instance, a cattle rancher can buy or sell cattle futures as a hedge against price disruptions for his herd of cattle that he will be selling in the future. Stock options have much the same purpose. Speculators incur the risk in hopes of large returns. The "unaware" can be fleeced in any market, not only the futures and options markets. Capitalism has this nasty habit of punishing the stupid, which of course is one of the problems you have with it. I strongly suggest you pick up texts on portfolio theory, asset management, and the investment markets and read them.

Tlaloc said...

"The futures markets are NOT about predicting the future. Their primary puropose is to provide a hedging vehicle to producers and investors. For instance, a cattle rancher can buy or sell cattle futures as a hedge against price disruptions for his herd of cattle that he will be selling in the future."

Sigh.

And how does one hedge against a future if they don't know what it will be? You are trying to pretend that these markets are divorced from any predictions because I suspect you know their record of prediction is abyssmal. But if you were right they'd make no sense. No one could possible set a price for their contracts without some guess as to what was going to happen, nor could one decide to buy or sell without such a belief.



"The "unaware" can be fleeced in any market, not only the futures and options markets."

Certainly true.



"Capitalism has this nasty habit of punishing the stupid, which of course is one of the problems you have with it."

Nice. Look you are clearly getting beligerent. You also clearly don't have a clue. In the interest of the attempt to be more courteous here I'm suggesting you walk away from this debate.

tbmbuzz said...

By the way, Tlaloc, this statement of mine: "Capitalism has this nasty habit of punishing the stupid, which of course is one of the problems you have with it." was not meant on a personal (ad hominem) level and I apologize if it sounded that way. Rather, it's aimed at your general philosophy taken to an extreme (IMO) that society (govt) is responsible for sheltering people from the vagaries that characterize existence itself.

tbmbuzz said...

Sigh.

And how does one hedge against a future if they don't know what it will be? You are trying to pretend that these markets are divorced from any predictions because I suspect you know their record of prediction is abyssmal. But if you were right they'd make no sense. No one could possible set a price for their contracts without some guess as to what was going to happen, nor could one decide to buy or sell without such a belief.


Yeah, right. Sigh. Please learn the basics of the futures and options markets before demonstrating your cluelessness. It's quite neat how they work, once you understand them. Really.


Nice. Look you are clearly getting beligerent. You also clearly don't have a clue. In the interest of the attempt to be more courteous here I'm suggesting you walk away from this debate.

And I explained myself at the same time our comments crossed. But I agree, let's walk away from this debate until you learn some market and investment basics. Frankly, now that I see your not very informed comments on the workings of the futures markets, I am not surprised at your comments on capitalism.

Tlaloc said...

"Yeah, right. Sigh. Please learn the basics of the futures and options markets before demonstrating your cluelessness. It's quite neat how they work, once you understand them. Really."

Well let me go refresh my memory.

Nope looks like I was right.

Take Tradesports.com for example. You can buy and sell contracts on sports results, election results, just about anything really.

Here's and example:

http://www.tradesports.com/aav2/trading/tradingHTML.jsp?evID=36620&eventSelect=36620&updateList=true

it's contracts on whether cases of Avian Flu will show up in the US by march. The contract is currently at 12.7

So what do they say on the site?

"Think it's more likely than 12.7%? Buy
Think it is less likely than 12.7%? Sell."

That's how Futures Markets work. It is ENTIRELY about predicting the future. As I said before without some idea of what was going to happen in the future you could never make a decision to buy or sell because those decisions are always based on what you believe will happen. Nobody buys a Futures contract for it's inherent value. They buy it for the exchange value. SO as opposed to buying say Gold, where you might simply like gold or have some use for it in manufacturing, you only buy a futures contract based on your believe that you can predict what is going to happen (and buy/sell accordingly).




"Frankly, now that I see your not very informed comments on the workings of the futures markets, I am not surprised at your comments on capitalism."

Sorry but I've been providing all the concrete examples here. Try to actually articulate your position (beyond merely claiming I'm wrong).

tbmbuzz said...

Tlaloc, all you are doing here is providing examples of SPECULATION. The options and futures markets are about a heck of a lot more than this, that's all I'm saying. Your point about predicting the future is simply off base and you're being thrown by the term "futures". Futures are simply another financial vehicle with a time component (they expire at a certain time in the future). Every transaction between buyer and seller takes place because of what both parties think will occur in the future, including your gold example.

Tlaloc said...

"Tlaloc, all you are doing here is providing examples of SPECULATION. The options and futures markets are about a heck of a lot more than this, that's all I'm saying."

No what you said is that the futures market had nothing to do with trying to predict the future. Obviously the fact that you understand the term "speculation" means you know that isn't so. Speculation is simply a word for basing decisions on an admittedly incomplete ability to predict the future.



"Your point about predicting the future is simply off base and you're being thrown by the term "futures". "

The name has nothing to do with it. I've given you a concrete example of how they work.



"Every transaction between buyer and seller takes place because of what both parties think will occur in the future, including your gold example."

No in the gold example I explicitly made it clear that the buyer could be buying for asthetic or practical reasons rather than betting on future events.

tbmbuzz said...

No what you said is that the futures market had nothing to do with trying to predict the future.

You are still not understanding my meaning. Futures are simply another financial instrument and are as much about predicting the future as stocks, bonds, options, the gold market, etc. They are called futures because they are contracts to be settled at a time in the future. You seem to be ascribing some mysterious gypsy fortune teller properties to them. Speculation is not limited to futures markets, nor is it defined by them. Speculation occurs in ALL markets.

Furthermore, I did provide a hedging example, which was the primary reason futures were developed in the first place. A wheat farmer will sell a future based on his crop to be harvested in the FUTURE and will be guaranteed that price for his crop, thereby sheltering him from a price collapse.

Risk, which you seem to be so averse to, is inherent in every investment and market. Futures (among other instruments) are a vehicle for managing risk and allocating capital - and information - most efficiently. They are a characteristic of an advanced capitalistic economic system.

The mathematics of market analysis is quite developed and complex, involving differential calculus to determine the best mix of financial instruments. What do you think banks and Wall Street firms do all day with their high priced analysts? As I've mentioned earlier, pick up a text on market theory and portfolio management and you will learn that there is a heck of a lot more to the markets than the simple concepts you are writing about here.

KeithM, Indy said...
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KeithM, Indy said...
This comment has been removed by a blog administrator.
KeithM, Indy said...

Since much of the mainstream media is doing a poor job of relating the facts about Hurricane Katrina and the response...

Anyone interested in a fact based assessment ought to read through this...

http://www.popularmechanics.com/katrina


connie - pay close attention to this graph... Which details repetative loss claims under the National Flood Insurance Program.

http://www.popularmechanics.com/science/earth/2315076.html?page=8&c=y

The National Flood Insurance Program (NFIP), administered by FEMA, was started in 1968 for homeowners who live in flood-prone areas considered too great a risk by private insurers. And for more than 30 years, the program was self-supporting. But studies by Conrad's NWF team revealed a disturbing fact: Just 1 to 2 percent of claims were from "repetitive-loss properties"--those suffering damage at least twice in a 10-year period. Yet, those 112,000 properties generated a remarkable 40 percent of the losses--$5.6 billion. One homeowner in Houston filed 16 claims in 18 years, receiving payments totaling $806,000 for a building valued at $114,000.

Just as significantly, the five Gulf Coast states accounted for half the total of repetitive-loss costs nationwide. Taxpayers across the country are paying for a minute number of people to rebuild time and time again in the path of hurricanes.

That is proving to be an expensive habit. Following Katrina, Rita and Wilma in 2005, claims could exceed $22 billion--more than the total amount paid in premiums in the program's 38-year history. In mid-November, the NFIP ran out of money; to pay claims, Congress will have to authorize FEMA to borrow more money.


*****

So, we (the nation) are subsidizing peoples poor choices. And not just once, but their continued poor choices.

Tlaloc said...

"Futures are simply another financial instrument and are as much about predicting the future as stocks, bonds, options, the gold market, etc. They are called futures because they are contracts to be settled at a time in the future."

I don't disagree with any of that.



"You seem to be ascribing some mysterious gypsy fortune teller properties to them."

I'm doing nothing of the kind. I am pointing out that playing a market requires you to implicitly believe you know what is going to happen. I'll illustrate this below.



"Speculation is not limited to futures markets, nor is it defined by them. Speculation occurs in ALL markets."

Again, no disagreement. Remember that you are the one who raised futures market, not me.



"Furthermore, I did provide a hedging example, which was the primary reason futures were developed in the first place. A wheat farmer will sell a future based on his crop to be harvested in the FUTURE and will be guaranteed that price for his crop, thereby sheltering him from a price collapse."

Precisely because he is betting on a price drop and not a rise. He locks in a price. If the fluctuating value goes down he gets a positive return. If it instead went up he'd get a negative return.
Obviously the Farmer is betting on what will happen to wheat prices when he establishes the locked in price for his furture harvest.




"Risk, which you seem to be so averse to, is inherent in every investment and market."

Again, no disagreement. And in order to play a market (i.e. attempt to get a better than random return) one has to try and predict risks. Which brings us back to the original argument.



"Futures (among other instruments) are a vehicle for managing risk and allocating capital - and information - most efficiently."

They are a method of doing so, but as previously discussed they are a LOUSY method. The market is a terrible predictor of events. I'd love to see Tradesports put up data on how accurate their market ends up being but conveniently they pull the data of any contracts off the site shortly after they finish, making it impossible to do any statistical analysis.

connie deady said...

So, we (the nation) are subsidizing peoples poor choices. And not just once, but their continued poor choices.

I used to live on a river. It flooded every so often, the worst back in 72 after Hurricane Agnes (before I lived there). In 1997(?) or thereabouts when I was living in my house in the river it flooded again. House was built back in 1857.

Are you suggesting that everyone who lives on rivers or in hurricane areas should move? California has earthquakes. Malibu has mudslides. Topanga canyon has forest fires.

I agree some places are riskier than others, but you're talking some major displacement to move people out of risky places that will have costs. People leaving New Orleans are having costs on Houston, etc.

KeithM, Indy said...

No, not everyone should move, just those that can't afford to live there.

We should stop funding places that get hit, time and time again, and keep getting covered.

If a place is so dangerous and risky to live, then only those who can afford to live there should.

If you can't afford to rebuild your house, or afford the real insurance premiums, then you shouldn't live in a particular place.

Nobody should be guaranteed a right to live on the beach.

All the government needs to do is stop subsidizing these poor choices through federally backed insurance, and let the market take care of the rest.