An Excellent Economic Idea Becomes Law

Sometimes the government does something that warms an economists’ heart (yes, economists have hearts).  The House Financial Services Committee approved legislation to pool disaster risks across states. The legislation sets up a system in which U.S. states can choose to participate in a disaster insurance pool.  States would pay premia into a fund, the money would accumulate (god willing), and then be used to pay for disaster relief when and where it occurred, for participating states. It would cover disasters like earthquakes, hurricanes, wildfires, tornadoes, etc. We still have to hope that the actuaries price the insurance reasonably fairly. And that the state politicians pay their premia instead of saving the funds and keeping their fingers crossed and hoping for Federal Bailouts. But the structure encourages planning for disasters and setting aside resources to deal with them, and so reduces the likelihood of Federal bailouts.