Henry Ergas makes some good points in The Australian.
At the heart of the problem is the fact that each time disaster strikes, governments cover a large share of the losses borne by homeowners and businesses. This amounts to providing insurance at no charge, subsidising activity in high-risk areas at the expense of the areas where risks are lower.
The unsurprising side-effect has been to reduce the take-up of private insurance, with the result that developers, homeowners and businesses are not exposed to the premiums that could force them to recognise the risk locating in disaster-prone areas involves.
That reduction in demand for private disaster insurance is then compounded by other distortions. High taxes on insurance are the most perverse of these, as they both discourage insurance take-up by low-income consumers and shift what demand there is to policies with high deductibles.
As well as suppressing demand, state and local governments reduce the supply of private insurance, particularly against floods. They do this by not providing adequately detailed maps of flood proneness.
Moral hazard is a problem we all understand – after all the whole bank bashing exercise that we’ve recently experienced is all related to moral hazard. I suspect, however, that we’re not going to see an outbreak of Queensland home-owner bashing.
The other issue to recognise is that the Queensland floods, along with the Victorian bush fires are not just a natural disaster – they are policy disasters too.
… it is also apparent that governments have underinvested in collective goods that could reduce catastrophic risks. Simply put, in cost-benefit evaluations of projects such as extending dams and building new ones, and of burning-off in high bushfire risk areas, too low a value has been put on avoiding outcomes with a very small probability of occurring but that result in massive costs if they do eventuate.
Environmentalists rightly stress the importance of taking these low probability-high consequence risks into account in the context of climate change. But they ignore those risks when it comes to decisions they dislike. And state and federal governments have been far too willing to bend project evaluation processes to pander to the greenies’ demands. The result is to increase the likelihood of devastating loss.
The great irony is that greenies have been pushing AGW – the argument that we can avert disaster for our great-grandchildren – by appealing to ‘the science’ and the precautionary principle, yet they have advocated policies that place currently living people at risk.
Barry York – also at The Australian – explains the greenie aversion to dams.
During the recent long drought, the dam question arose again but the response from experts and governments was along the lines of: “Why build a dam if the climate has permanently changed in a way that means there will be less rain in future?
Opposition to dams has been a key success in the development of the green movement and the Greens party since the early 1980s. But the term opposition understates the situation: it is really demonisation of dams.
In the Green quasi-religion, dams are evil, akin to a Satanic force. Thus, there must never be any big new dams built. Not ever.
The Green policy is expressed at their website as a principle: “There should be no new large-scale dams on Australian rivers.”
Last word to Henry Ergas.
Now is a time to be generous. But as Queensland rebuilds, we owe the victims of this disaster a serious, considered reassessment of policies that have failed time after time, and that left as they are, will only fail again.