The Disaster Aid System: How FEMA Rewards Risk

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Cato Institute

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4.6 • 949 Ratings

🗓️ 20 November 2025

⏱️ 29 minutes

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Summary

FEMA was meant to help only when disasters exceeded state capacity. Yet today it functions primarily as a national subsidy machine, encouraging development in floodplains, bailing out wealthy coastal states, and shifting costs onto taxpayers far from the danger zones. The Cato Institute's Dominik Lett and Chris Edwards discuss how well-intentioned federal aid has created perverse incentives, bureaucratic delays, and a long tail of spending that continues decades after storms like Katrina.

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Transcript

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0:00.0	Hello and welcome back to the Cato podcast. My name is Dominic Lett. I'm a budget policy analyst for the entitlement and budget policy team. You can find my work on cato.org. Most recently I wrote about the rationale behind downsizing FEMA and some policy recommendations about how to achieve that. You can also find my work on Suback at the Debt Dispatch, which I encourage you all to go subscribe to.
0:26.0	And I'm joined today by Chris.
0:27.3	Thank you, Dom.
0:28.6	Chris Edwards, I'm the Kills Family Chair in Fiscal Studies at the Kato Institute, and I've been writing about FEMA and federal disaster response for many years. You can find my work on cato.org
0:40.8	and downsizing government.org. Today we want to talk about just that, FEMA, how it's changed over the years,
0:49.6	what changes maybe set forward in the future. I want to intro with a little context here.
0:55.7	Earlier in January, the Trump administration put together something called the FEMA Review Council,
1:01.0	which is set to release a report soon on recommendations about how to change the role of FEMA,
1:07.4	maybe downsize it, maybe get rid of it entirely.
1:10.1	And I wanted to have a conversation
1:11.7	about some of the principles that should guide such a report and the role for the federal government
1:17.8	in the disaster process. Chris, let's maybe walk through a little bit of the history of federal
1:25.0	disaster response. Can you maybe tell me some of the things that have changed
1:29.1	about the federal government's role in the disaster process over the years? Well, sure. I think a good
1:34.7	place to start would be to look at the two core principles of America's natural disaster response
1:43.5	system.
1:44.5	The first core principle is federalism.
1:48.2	We are supposed to take, and historically we have taken a bottom-up approach to natural disasters.
1:55.6	When hurricanes or wildfires strike an area, it is primarily the responsibility of the private sector and state and
2:04.6	local governments to respond to that disaster. The 1988 is. Federal Stafford Act says that the federal
2:13.0	government is only supposed to get involved with disasters when they're beyond the capability
2:18.6	of states. The second basic principle is mutual aid when a disaster strikes an area, again,
	...

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