Comment on Katrina--the Compensation Question--BECKER

It is useful to discuss public policies both when one assumes no political constraints on the policies, and also when some political constraints are accepted, but policies are proposed to make these constraints less damaging. In his essay Posner mainly takes the former approach, and reaches conclusions about optimal government compensation to victims of disasters. I believe there is a more direct way to discuss what is the optimal way to compensate without political limitations on what is possible, such as the likelihood of large-scale emergency relief. My conclusions are generally similar to Posner's, but the approach is different, and some of the implications may also differ. I believe it is best in deciding who merits compensation from disaster to apply to victims the same criteria used to determine who is eligible for welfare, Medicaid, and other government transfer programs. For example, families that because of Katrina lost most of their assets, became unemployed, or became sick would qualify for one or more of these programs, regardless of their circumstances before Katrina hit. Using the usual criteria that determines eligibility for welfare, medical, and other assistance, these families would automatically be helped without the need to have any special relief program. To be sure, some of these families may have a severe short-term liquidity problem, and they might need immediate access to cash, as in the debit program that was started and then stopped. But that is often true too of recipients of welfare and other government aid. The advantage of using the usual criteria for government entitlement programs is that it avoids some of the issues Posner confronts: could victims have afforded insurance, was insurance available, and so forth. Since we do not ask these or similar questions of persons eligible for welfare or Medicaid (perhaps these questions should be asked), I do not see why they should be asked only of victims of major disasters like Katrina. Moreover, applying the usual criteria would meet the legitimate needs of persons greatly hurt by Katrina, and would automatically exclude individuals who remain sufficiently well off from federal assistance. Posner's approach and mine would often help the same people but not always. Consider, for example, a New Orleans couple with modest income whose only asset was a home that was not insured against flood damage, even though it could have been for modest premiums within their means. If Katrina destroys their home, under my criteria they might well qualify for several entitlement programs, including Medicaid, and possibly welfare, regardless of whether or not they had insurance, and the reasons why they did not. It seems that they would also qualify for entitlements under Posner's standard, but he also wants to get into the functioning of the insurance market. I do not believe that is wise since generally I believe insurance would be forthcoming if demand were sufficient, and if government controls not too burdensome. Moreover, why should the government only compensate persons for loss of assets due to disasters--perhaps the insurance market did not work so well in insuring against other risks as well that do not arise from disasters. Should all these persons be compensated? This seems contrary to Posner's efforts, which I agree with, to try to treat disaster victims like others who suffer losses. In my posting on the Good Samaritan paradox, I accepted that the government would continue to provide aid to persons and businesses affected by natural and man-made disasters, and discussed how the consequences of doing that could be made less harmful. I suggested compulsory insurance for persons and businesses in high-risk areas, and various restrictions on building materials and zoning. There may be better ways than these to anticipate governmental and private responses to disasters, and try to reduce their consequences. So while I believe it would be best to apply the usual entitlement standards to disaster victims, I also believe it is valuable to recognize that is not politically possible at this time. It is then valuable to try to find ways to implement policies that worsen the efficiency and equity effects of the inevitable large-scale government assistance to disaster victims.

Comments

[Palooka]

"Should all these persons be compensated? This seems contrary to Posner's efforts, which I agree with, to try to treat disaster victims like others who suffer losses."

I agree that Posner's analysis lacks consistency. See my post on his comment, if you're interested.

Certainly those devastated by the flood should be eligible for medicaid, welfare, and other forms of assistance.

There are some differences between personal and natural disasters. If one's home is destroyed, they can remain in their hometown, possibly stay with friends or family, have access to a network of local business contacts, and are generally better off than those now experiencing relocation because of Katrina. This distinction, then, seems to justify some additional assistance. Cutting some of the red tape on unemployment benefits seems like one reasonable step the government has taken. I can imagine many others.

But Posner suggests the federal government should compenstate uninsured property for those of modest means. That goes way beyond getting an individual back on his feet, which is the nature of the assistance you mention and I support. One can always restart without a home, however painful that may be. Going without insurance is a gamble many take everyday, and the federal government doesn't come to the rescue.

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