FEMA and Other People's Money

The Federal Emergency Management Agency’s announcement that in the future it will cut the emergency cash payments it makes to disaster victims from $2,000 to $500 may come as bittersweet news to taxpayers.

In the political as well as meteorological aftermaths of Hurricanes Katrina and Rita, President Bush announced that each affected household could receive $2,000 in emergency disaster relief made available in the form of checks, debit cards or electronic fund transfers.

Government auditors later discovered that up to $1.4 billion of this money was handed out to people who made fraudulent claims.

No wonder: FEMA did not require aid seekers to positively identify themselves before handing out $2,000 debit cards.

Fraudulent payments were easily obtained by people using invalid Social Security Numbers.

Not only were many grants given to recipients who did not deserve them, the funds were sometimes used for outrageous purchases. An analysis of debit card transactions provided to the Government Accountability Office by JP Morgan Chase found that one recipient spent $1,200 at a “Gentlemen’s Club.” Another purchased a diamond engagement ring for $1,100.

This was the welfare state at its worst: Politicians, including President Bush, got to pat themselves on the back for purportedly being compassionate to people in need by improvidently dispensing tax dollars, and people purportedly in need got to take the tax dollars and run—straight to a strip club or a jewelry retailer.

This may prove, again, that politicians and people on the dole face the same moral hazard: They are always using other people’s money—which makes it easier to spend freely, and on the wrong things.

Nonetheless, it remains especially disappointing that a Republican-majority government was so profligate in this case.