Jules Crittenden:

We’re back around to the anniversary of Hurricane Katrina, so naturally there is a lot of press coverage provoking a lot of questions — indeed, questions other than “Will the Katrina retrospectives end with the Bush presidency?” In particular, the press is full of stories about the delays in rebuilding New Orleans, as if a city 250 years in the making ought to have been rebuilt in even two years. Still, much depends on who is doing the reconstructing. USA Today has a front-page story that is not the least bit surprising to anybody who would read this blog:

Two years after the devastating floods that followed Hurricane Katrina, the rebuilding of New Orleans, and much of the Gulf Coast, has largely taken two paths: communities that have rebuilt themselves using private funds, insurance money and sheer will — and publicly funded efforts that have moved much more slowly.

Now, economists have long observed that certain kinds of insurance schemes create a “moral hazard” if they cause the insured to take on risks that are inconsistent with the original intentions of the insurer. For example, if we insure deposits in banks, then depositors might shift their money to financial institutions with weaker balance sheets because they pay higher interest — the decision to take on more risk is “free” to the borrower because of the government deposit insurance, and therefore a “moral hazard.”

Similarly, if the availability of government flood insurance actually causes more people to build in places prone to flooding, then it has not only shifted the risk of people who unwittingly find themselves — because of coastal erosion or a change in the course of a river, for example — in that position but it has increased the total risk taken on.

There is another idea, originating in conservative public policy circles, that is a close relative of moral hazard: dependency. The idea is that people who rely on the government to take care of them lose the ability to take care of themselves.