# Economics and policy after natural disasters

**URL:** <https://boards.straightdope.com/t/economics-and-policy-after-natural-disasters/795864>\
**Category:** Great Debates\
**Created:** [September 9, 2017, 2:51am UTC](https://boards.straightdope.com/t/economics-and-policy-after-natural-disasters/795864 "2017-09-09T02:51:35Z")\
**Posts on this page:** 2\
**Page:** 2

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**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\
**Post date:** [September 21, 2017, 3:04pm UTC](https://boards.straightdope.com/t/economics-and-policy-after-natural-disasters/795864/21 "2017-09-21T15:04:41Z")

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> [@Damuri\_Ajashi](#):
>
> I would have thought those three economic principles would lead to the conclusion that any form of subsidized insurance is a bad idea. When the people engaging in the risk are not bearing the full cost of the risk (through subsidized insurance), they will engage in it more than they should. When others don’t even bother to get insurance secure in the knowledge that they will get bailed out because the country won’t sit by and let a city just collapse under the weight of a disaster, they do not plan appropriately. When insurance premiums are capped so that a large pool of people who are not subject to catastrophic risk are paying to subsidize that catastrophic risk, then we have perverse incentives once again.

If you had made this sort of observation in the first place, i might not have made my somewhat snarky comment, although, as **LSLGuy** notes, if you want to eliminate perverse incentives in the economic system, you’re going to have to look well beyond catastrophic flood insurance.

My more general point was that simply stating the names of economic principles does not really contribute to the discussion in a very meaningful way, especially when those very principles had already formed the basis of a considerable number of arguments made in prior posts.

Furthermore, simply rattling off economic principles and then drawing simplistic conclusions from them ignores the fact that economists and policy makers need to take into account not just the positive but the normative when deciding issues like this. There are any number of places in the economy where the positive (in the scientific sense) economic data might lead us to conclude that something is unadvisable, but where normative ideas about fairness or equity or plain old human decency dictate that we ignore or work around the perverse economic incentives. If your preference is to worship the god of economic efficiency above all other things, then that’s your right, but i prefer the notion that economic policy should serve people and society, rather than the other way round.

That doesn’t mean that we should ignore perverse incentives, and we should also be willing to consider that there may be ways to reach our normative goals while also respecting and addressing problems like free riding and moral hazard and externalities, but it is incredibly simplistic to assume that any policy exhibiting those characteristics is, by definition, undesirable policy.

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**Author:** ![LSLGuy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lslguy/32/5813_2.png) [@LSLGuy](https://boards.straightdope.com/u/LSLGuy)\
**Post date:** [September 21, 2017, 5:14pm UTC](https://boards.straightdope.com/t/economics-and-policy-after-natural-disasters/795864/22 "2017-09-21T17:14:54Z")

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Bravo **mhendo**. Spot on.

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