Time to play heartless bastard*, although I'd rather not:
Hurricane Irene will most likely prove to be one of the 10 costliest catastrophes in the nation’s history, and analysts said that much of the damage might not be covered by insurance because it was caused not by winds but by flooding, which is excluded from many standard policies.
Industry estimates put the cost of the storm at $7 billion to $10 billion, largely because the hurricane pummeled an unusually wide area of the East Coast. Beyond deadly flooding that caused havoc in upstate New York and Vermont, the hurricane flooded cotton and tobacco crops in North Carolina, temporarily halted shellfish harvesting in Chesapeake Bay, sapped power and kept commuters from their jobs in the New York metropolitan area and pushed tourists off Atlantic beaches in the peak of summer. ...
While insurers have typically covered about half of the total losses in past storms, they might end up covering less than 40 percent of the costs associated with Hurricane Irene...
The governors of New York, New Jersey and Connecticut sought expedited disaster declarations from the federal government on Tuesday, which would pave the way for more federal aid.
Of course, providing aid to those who live in harms way gives them incentives to continue living there. In other words, we have a fairly large moral hazard problem. A more efficient policy is to allow the insurance markets to operate freely and end the subsidies, including disaster aid (including the rebuilding NC 12). There, I said it.
Also, cutting the federal budget in other areas so that we can afford disaster aid makes little economic sense. In addition to Krugman's analysis, with that sort of balanced budget decision-making we are subsidizing relatively bad behavior and taxing relatively good behavior.
*About 20 years ago I was home for the Christmas holiday and spouting off some standard economics. My little sister walked up and banged on my chest and put her ear to it to listen to see if the thing inside there was still beating.
