Wednesday, 12 February 2014

The economics of flooding - why governments create tragedies.

If you're doing A-level economics, this article reviews how government failure can be said to be behind the current flooding in the UK. The opinion covers one side of the argument and it's up to you as a student to work out the other side - which you normally get in the text books and classroom: 'government should do this, government should do that, it's the government who should save us.' Here's a different view.

The Economics of Flooding: England, 2014.

Despite our technological arrogance, natural disasters do occur. Nature, as the Romanticists reminded us, is awesome and we are mere specks in both history and space.

We humans are not immune to the great powers of nature of spewing volcanoes, tempestuous hurricanes, torrential floods, and destructive movements of the earth's plates. When a disaster unfolds, we face the fear that humanity has always known - that we are vulnerable and always will be.

But a disaster becomes a tragedy when it could have been ameliorated or prevented by people: and this typically means government.

When we take a look at the current storms that have battered the southern coasts of Wales and England and the vast flooding in many areas of the south of England, several key issues arise that show how governments fail magnificently to provide for protection or the avoidance of harm.

A violent sea storm is not something people can do much about when it hits, except batten the hatches as they say and evacuate those homes more vulnerable. But preparation is the key to reducing the damage that can be done. When an event is incredibly rare, there is no incentive for people to prepare beyond the basics required by insurance and common sense. But when storms are more frequent, it certainly makes more sense to design and protect houses appropriately. Since it is in the interests of the house owner and stakeholders (bank, insurance company, neighbours) to ensure that the house is physically viable and able to withstand storms, the owners have a great incentive to protect their home from damage. However, local authority planning may reject designs to improve houses' ability to withstand storms or to install double-glazing (which happens in the UK because of 'grade-listing' - a regulation designed to maintain a random character of a house). Planners may reject alternative designs because they do not fit the current architectural styles of the town. One by one, such renovations or building that could have occurred are rejected according to political or whimsical fiats - and when the storms hit, the damage is greater than it need ever be.

The job of government is to protect people from aggression and it's excusable to encourage government to protect sea walls through collective funding (taxes) and other defences. But there the government's job should end. It should have no role in telling home owners and developers what their buildings should look like - any disagreements with neighbours can be worked out, if necessary, through civil courts. (There is a good argument that government should not be shoring up our sea defences either - let communities raise their own funds should they feel the need: the coastline will change and often the building of massive bulwarks and groynes only redistributes the power to other communities who are then hit).

It would not be surprising to find out that coastal towns are subject to the vagaries of the planning departments, whose remit should be to focus on communal defences rather than private construction and renovation. Planners do not like innovation.

Then we turn inland; the month of January, 2014, has seen an enormous rainfall across England causing dire flooding in many places. Again, government action and inaction can be seen to play a role here.

Historically, people have found villages and hamlets on dry land across the United Kingdom. The wisdom of the ages going back into pre-Roman times was not lost on where our ancestors sought to settle and build. It's instructive to see the aerial photographs of the ancient towns and villages, which stand like islands in the sea. As the population of the country increased, it's not surprising that more and more people moved beyond the safety of high ground to more marginal and hence risky ground.

People are free to take risks - some prefer to live far from the beautiful flowing rivers of this emerald isle, while others prefer to have the freedom to walk down to the water near their house. Naturally, those who live nearer to water would, in a truly free market system that has not been distorted by legal impediments and subsidies, pay less for the houses and more for the insurance and have a greater incentive to protect their homes.

Central planning however, has encouraged the building of estates and towns on ancient flood plains and they have suffered greatly. (Planners are finally rejecting developments on flood plains - for now). And governments have leaned on insurance companies to provide coverage where no coverage would otherwise be had or such that would be at a high premium.

But planners rarely plan properly. They can't. They are no part of the market process which assesses each action according to its costs and benefits as measured by prices. Planners disregard prices, which means in turn that they are subject to diverting fashions such as 'don't dredge the rivers' or permitting the building of 'new homes for the new century' so a government can look good either to environmentalists or to people struggling to get onto the housing ladder. Most of the folk who work for the Environment Agency no doubt are sincere in their belief and intention that they seek to minimise harm to people's lives and livelihoods - but they are often subject to being ignored by planners who are closer to political pressures.

Accordingly, economics elucidates that those would choose to live elsewhere than pay a higher insurance premium are subtly encouraged by false (distorted) price signals to live in areas of higher risk. When we look at Happisburgh on the north Norfolk coast, its houses are falling into the sea - they are the extreme illustration of risky living.

The price for such houses would be very cheap - cash buyers, no insurance coverage. But imagine if the government encouraged people to remain living there, despite the obvious erosion taking place?

The flooding of many parts of England reflects the less extreme: houses built where houses should not have been planned (government, not private parties plan house construction in the UK), and insurances distorted by government fiat rather than market assessment.

Nature has an indelible memory when it comes to old water ways - water will flow the quickest route to the seas or underground reservoirs and, like a badger on an old track, nothing will stop its flow. The flows can be diverted of course - but then someone else gets the water.

The flow of water across Britain is not subject to the natural flows that our ancient ancestors knew. They knew that the Somerset plains flooded - we recall stories of King Alfred in the marshes around the Glastobury region, and they did not build there except on the islands. Famed Mulcheney in Somerset means the increasing great isle - ie., the floods were receding during the Anglo-Saxon period of English history. Then there's Ely - called The Isle of Ely. The flows are now diverted and twisted - farming, a hugely subsidised industry, has diverted much of the flow and often into smaller streams or rivers. But the farmers do not own the rivers...the government does. And governments have shown no incentive to dredge the rivers properly in recent decades, an omission which has angered local people affected by the floods who have expected the government to keep up its end of the bargain.

The failure to dredge the rivers is now palpable to those suffering. Villagers in Somerset have demanded that the government dredge the rivers for many years, but each year a Minister enters the fray and talks about exceptional weather and how isolated such events are. Except they seem awfully frequent these days. Whether that's due to 'climate change' (which is always changing), government seeding the air (chemtrails in the US and UK: watch the video to blow your mind), or just freaky weather patterns, the lack of preparation and the costs of the unfolding disaster can be put fairly upon government shoulders.

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