[ExI] The history of a moral hazard?

[spike]

From: extropy-chat [mailto:extropy-chat-bounces at lists.extropy.org] On Behalf Of Dan TheBookMan
Sent: Sunday, September 10, 2017 7:29 AM
To: ExI chat list <extropy-chat at lists.extropy.org>
Subject: [ExI] The history of a moral hazard?

 

https://mises.org/blog/how-feds-blocked-effective-flood-insurance

 

The short of it: federal interventions destroyed a private flood insurance market and created perverse incentives for development in flood plains.

Regards,





Dan

 

 

 

 

Incentives ja, perverse no.  We see it all the time, even now.  In 2008 we learned the phrase “Too big to fail.”  This is a version of that.

 

In 1945, the US Navy needed a test lab, so they built China Lake California which is only a lake once in a long while.  The rest of the time it is a dry lake bed.  They built the lab right there because it was easy to build: didn’t need to clear trees, most of the ground was hard enough you didn’t even need a foundation: a building could be plopped right on the rock-hard ground (not exaggerating a bit (it is easy to find even homes there built with no foundation (they just hammered together some form-boards, poured on cement, slammed together a house on top of it.)))

 

Problem: the entire town of Ridgecrest CA is built in a flood plane, as we found out on 15 August 1984.  It doesn’t rain much, but about once or twice a century it comes down hard and if so, all that water has to end up in China Lake.

 

Good old Google maps Sat-view makes it pretty easy to see the flood plane:

 

https://www.google.com/maps/@35.5317451,-117.7743442,134641m/data=!3m1!1e3

 

It is cheaper to rebuild houses a couple times a century than it is to build them right to start with.

 

Parting note, a funny one: after the 1984 event, they studied ways to protect the labs from flooding, see if there was a way to divert water, pump it away, etc.  The bottom floor had filled up with muddy, silty, rattlesnakey water which stayed there for weeks, causing all manner of difficulty.  

 

After extensive study, they decided on the best way to protect the lab and implemented it: set up huge storage tanks with fresh water, then when it is clear the lab flooding cannot be prevented, they open it up, fill the bottom floor with clean water.  Flood subsides, pump out the clean water, small mess instead of a huge one.

 

Sounds a little crazy, but that turned out to be the best engineering solution in that case.

 

spike

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