A Natural Diaster, or a Government Subsidized One?

When the author of this article compared a natural diaster to the "proverbial tree that falls in the forest", I couldn't help but agree. A natural occurrence is only deemed a diaster when it hits a population center. Would anyone have cared much about Katrina had it directly struck an unhabited island? I think not.

The article in USA Today notes that 54% of the American population lives within 50 miles of the coast line! This number was a little higher than I had expected, but when you consider Philadelphia, San Francisco, New York, Miami and others, you start to understand. Could it be that the Government has actually encouraged this population move to the coastal areas through subsidies?

"Started in 1968, federal flood insurance subsidizes development in coastal areas and other regions subject to flooding by offering insurance at bargain rates underwritten by the government."

All insurance prices are based on risk assessments so that the premium can compensate the company for the amount of risk it is taking to cover you or your business. This lets Adam Smith's 'invisible hand' play a pivotal role in governing the premium prices and number of policies offered. Let's examine this effect on the market for insurance policies. -- Using a simple graph measuring premium cost on the Y axis and number of policies issued on the X axis, a supply and demand reflecting the private sector and policy buyers can be illustrated. Now, with the Government subsidizing flood insurance in the coastal areas, this can be seen as a supply curve that is further to the right of the original, thus increasing the number of policies issued and lowering the premium.

If it's cheaper to insure because of the Government subsidies, a corporation would be remiss for not exploiting that opportunity. Take the next hurricane target for example. Galveston, TX is home to many oil refineries, fisheries, and most notably, the German company Bayer.

Do you think that the Government has played a part in aiding the migration of the population to the nation's shorelines?