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A Missed Opportunity


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The U.S. government is a lousy insurance company. Consider the rogues’ gallery: Social Security, which is in part an insurance program, has unfunded liabilities amounting to more than $23 trillion, or one and one-third times the national debt. Medicare, a federal health-insurance program, has unfunded liabilities amounting to $87 trillion, more than the annual economic output of all the people living in all the countries in the world combined. Next to that, the $24 billion the National Flood Insurance Program (NFIP) owes to U.S. taxpayers is picayune, but we are of the opinion that every little two dozen billion counts, and therefore oppose the measure just passed by the House, with Republican support, to gut an earlier bipartisan measure to reform the program.

In 2012, during one of its rare and inexplicable paroxysm of fiscal rectitude, Congress passed a bill that reforms NFIP in important ways — for example, by gradually bringing the cost of flood-insurance premiums within actuarial spitting distance of the value of the insurance, by updating flood maps in order to make them more accurate reflections of places in which there are likely to be floods, and by eliminating some subsidies when homes are sold, so that the new owners pay something closer to real market rates for their insurance. Naturally, these reforms have been opposed by many elected officials in such coastal areas as Florida, home to about 40 percent of the flood-insured homes, and by such self-interested parties as the National Association of Realtors, whose members clasp their heads in despair when potential buyers of waterfront homes walk away after seeing the sometimes sobering premiums they will be expected to pay for buying flood insurance covering homes located in places where there are lots of floods to insure against.

Let us have a moment of silence for the plight of afflicted would-be vacation-home owners in Palm Beach.

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Other than the diminished commissions of Florida real-estate brokers, there is no plausible reason at all to subsidize the cost of flood insurance for people who are new buyers of flood-prone properties in 2014. They know what they are getting into. Those premiums can be expensive, but people who cannot afford flood insurance without federal assistance cannot afford waterfront properties in much the same way that people who cannot afford expensive car insurance cannot afford Porsches; we are confident that the market can connect property owners with buyers and developers in such a way as to render those costs acceptable. There is something of a case for making the transition from subsidized prices to market prices gradual for previously subsidized homeowners, which is precisely what the 2012 Biggert-Waters (it had to be Waters) reform does, capping annual increases at 20 percent until market rates are reached.

The Senate voted to delay the implementation of reforms for four years — funny how four years is Washington’s preferred block of time — which is tantamount to strapping them to an anvil and dumping them into Biscayne Bay. This not waiving but drowning reform. The House instead prefers to gut those reforms like a perch, an approach that was regrettably supported by Eric Cantor in a bid to bail out a few Republican representatives hailing from flood-prone districts, yet another example of the congressional GOP’s repenting its virtues rather than its vices. Among the worst features of the bill the House passed is the reinstatement of a grandfathering provision requiring that subsidized houses be evaluated on the flood maps that were in use when the houses were built, rather than use more accurate modern maps — as though wishful thinking could be made into reality through the exercise of legislative faculties.

Jeb Hensarling of Texas was the Republican point man on defending such modest NFIP reforms as conservatives had been able to secure against Republicans who would do them in, but he has been defeated with the assistance of his own party. It may be the case that too much is made of the divide between congressional conservatives and less committed Republicans, and those who would apply a falsus in uno falsus in omnibus standard may be unrealistic, but in this case the conservative holdouts were plainly in the right. Republicans can be the party of free markets, or they can be the party of incumbent business interests, but they cannot be both.

 



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