Letter from Washington: Pro-Free Market Doesn’t Mean Pro-Business

by Eli Lehrer on February 1, 2011

photo by Paul-W/Flickr, used under a Creative Commons license

Every day, it looks more and more likely that we will get substantive flood insurance reform in 2011.  The troubled National Flood Insurance Program, of course, is up for reauthorization in September but that, alone, isn’t going to bring about reform. (Congress has now “kicked the can” at least a half dozen times.) Now, however, many three roadblocks to real reform—“backstopping,”  debt forgiveness, and partisan politics appear to be much less relevant than they were in the past.

To start with, backstopping—the idea that, in one way or another, the federal government should cover large scale claims from wind, earthquake, and other non-flood perils—appears dead.  Rep. Ron Klein and Rep. Gene Taylor, both of whom pushed backstop proposals last Congress, lost their reelection bids. Although a number of co-sponsors remain in Congress, none of them led on the issue. A backstop, in addition to being a terrible idea, was a deal killer for the Senate and its inclusion in a House-passed bill made conference nearly impossible when both the House and Senate passed flood bills in 2008.

Second, debt forgiveness for NFIP as a whole appears unlikely to make it in simply because of the nation’s severe overall budget crisis.  Since the NFIP has no way to pay back the more than $18 billion it owes Treasury even at an interest rate of .375 percent (yes, 37 and a half basis points.), it seems almost inevitable that Congress will eventually have to let NFIP ignore its debt. In a serious budget crisis, a move that would, basically, add $18 billion to the national debt or require $18 billion of budget cuts beyond the billions already planned simply isn’t likely to go anywhere.

Finally, last November’s elections results—although generally a move towards divided governance and gridlock—may actually increase Congress’ ability to find a largely acceptable flood bill. Here’s the logic: on flood issues region rather than ideology largely determines any given members’ stance; conservatives from flood- and earthquake-prone areas have favored big government solutions and inland liberals have opposed them. The widespread defeats of sunbelt liberals, however, moves the sunbelt “right” more towards a vital center that can work with inland Democrats to find a bill everyone can, at minimum, tolerate.


As I start work on a Heartland Institute Workers’ Comp project, I become more and more convinced that being a libertarian or a free-marketer is not the same thing as being pro-business.

Workers Comp markets, indeed, provide a perfect example of why business doesn’t always like the free market. As all business in all states must buy workers’ comp insurance or self-insure, nearly all want things that lower rates. Nearly every state chamber of commerce I’ve talked with claim that their state is the “worst in the country” for Workers’ Comp by one measure or another.

The facts are a little different, of course: the nations workers’ comp markets are very different from one another and, in many cases, the costs for workers’ comp are high when the risks of working in a certain type of setting are themselves, high. Businesses can spend more money on other things—wages for workers, dividends to owners, capital investments, parties for executives—if they spend less on workers’ comp. Since benefits are more-or-less mandated by law, providing “good” workers’ comp coverage, furthermore, isn’t going to help a firm attract or retain top talent in most cases.  Thus, businesses are very willing to support price controls, residual markets, and all other matter of anti-free market meddling when it, on balance, helps their bottom line.


Sometimes lies have a way of coming true. Sometimes, indeed, politicians do quit politics, in part, to spend more time with their families. A friend I just had lunch with tells me that, over the weekend, that she saw Sen. Chris Dodd in a greasy spoon diner on Capitol Hill lingering over a long breakfast with his family. Scandals, fatigue, and the fact that he might not have held onto his seat, of course, all impacted Dodd’s decision not to run again but, at least in some sense, he’s doing what he said he would.

Until next week,

Eli Lehrer, Vice President, Washington, D.C. Operations

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