On today's show: Four short stories about how we deal with the threat of danger, death, and crime.
Here's more on those stories:
1. Why Is The Government In The Flood Insurance Business? The quick answer to why the government sells flood insurance: a hugely damaging hurricane named Betsy.
2. Should Gun Owners Have To Buy Liability Insurance? Most states require car owners to have liability insurance to cover damages their vehicles cause to others; some economists think we should require the same for gun owners.
3. Lance Armstrong's Confession Could Cost Him Millions How one interview could mean he'll have to pay back all the money the U.S. Postal Service and others paid to sponsor his cycling career.
4. How Happy Is America? The government is considering adopting a national happiness index. But how do you measure happiness?
ZOE CHACE, HOST:
Hello. And welcome to PLANET MONEY. I'm Zoe Chace.
ROBERT SMITH, HOST:
And I'm Robert Smith. We are recording this as a huge snowstorm is bearing down on the East Coast. In fact, the NPR offices are officially closed. But Zoe and I snuck in to make sure you have something to listen to by the fire with the hot chocolate, the marshmallows...
CHACE: All right.
SMITH: ...Cat at your feet.
CHACE: (Laughter) Since our minds are on the storm, today we bring you a collection of new radio stories about danger, death and crime.
SMITH: Or to be more precise about the way we deal with the threat of danger, death and crime. The way we deal with it in economics - it's a word so boring that I don't even want to mention this at the top of the show.
CHACE: It is insurance. And insurance, actually we love it at PLANET MONEY. It's very interesting to us. Insurance is what you have when you want other people to share in your misery. So, today, a special 4-in-1 show, we'll talk about all the strange things that happen when you try to insure the unpredictable.
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SMITH: First up, the danger. Now, normally, if you are afraid of something - if you're afraid of fire, earthquake, car accident - there are plenty of private companies willing to ease your mind a little bit. They'll sell you insurance, basically promise to pay for all your damages if you simply send them a small or sometimes-not-so-small check every month.
CHACE: But there is a weird exception to this. If the thing you are afraid of is flooding, you usually don't go to a private company. You go to the U.S. government, the National Flood Insurance Program. This is a program that loses money, especially after all the flooding of Hurricane Sandy.
SMITH: And our very own David Kestenbaum started asking - why is the government in this horrible, money-losing business anyway?
DAVID KESTENBAUM, BYLINE: There is a quick one-word explanation for why the government started selling flood insurance. That word - Betsy.
WINDELL CUROLE: Hurricane Betsy hit in 1965, September 9.
KESTENBAUM: Windell Curole runs a local levee district in Louisiana. But he remembers that exact date for a different reason.
CUROLE: It hit on my 14th birthday...
CUROLE: ...The uninvited guest.
KESTENBAUM: Windell's family lived south of New Orleans, a place he describes as half land, half water. His family had lived there for generations. And on that day in 1965, something like 30 relatives came over to take refuge.
CUROLE: Uncles, aunts and first cousins. And they came up to, I say, the high country. They left land that was about 3 feet above sea level to come to our house, which was about 5 feet above sea level.
KESTENBAUM: He remembers the storm hitting with terrifying winds, then the eye of the storm, then the winds again from the opposite direction.
CUROLE: I remember the attic door getting blown down from the wind pressure. And they - actually I nailed it shut.
KESTENBAUM: The storm became known as Billion Dollar Betsy. Homes were ruined, water up to the roofs, people paddling around the streets in boats, all that stuff - massive damage. And this would be the time when you'd expect people to be pulling out their flood insurance policies, but they couldn't. Flood insurance was really hard to come by. You could get fire insurance, theft insurance, health insurance, car insurance, life insurance but not flood insurance.
Eric Smith works in the insurance industry. He's president and CEO of Swiss Re in the Americas.
ERIC SMITH: There was a lack of data. One of the principles, the bedrock principles of insurance, is it's got to be something that's somewhat measurable. You have to be able to calculate its frequency and its severity and, you know - how often is this going to occur? And how much damage will it do?
KESTENBAUM: A few years after Hurricane Betsy in 1968, the government decided it would take on the job of selling flood insurance. Some people hated this idea. If private insurance companies wouldn't sell policies to people who wanted to live in flood zones, why should the government? That argument did not win the day. The government created flood maps, gathered data and set up the National Flood Insurance Program.
MARK BROWN: I think it generally worked out OK overall, until Katrina.
KESTENBAUM: Mark Brown is a professor of risk management and insurance at the University of Wisconsin - Madison.
BROWN: Katrina came. And Katrina was a major loss for the National Flood Insurance Program, you know, blew through its money and went into deficit.
KESTENBAUM: This frankly is the other reason why flood insurance is a tricky business. You could have a quiet three decades, 30 years, and then - bam - a huge hurricane plows into a major city. Suddenly, you've got to pay out all this money. And on the heels of Katrina there was, you may remember, Rita and Wilma. The National Flood Insurance Program had to borrow money from the government, a lot of money - $17 billion.
BROWN: That's a lot of money to borrow. (Laughter) That's exactly right.
KESTENBAUM: The debt got worse after Sandy. So were the critics right? Is the government running a bad business? Mark Brown says maybe that's the wrong way to look at it. After a big national disaster, the government is on the hook anyway. It might as well collect some money by selling insurance. And all that money the program had to borrow, David Miller, who oversees the National Flood Insurance Program, says the plan is to pay it back.
DAVID MILLER: If I look at the rates now and where I am and what's expected and what I can project, we could pay back the debt. It would be over a long period of time.
KESTENBAUM: He says it could take 20 or 30 years.
David Kestenbaum, NPR News.
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SMITH: OK. So you probably get it. If you're worried about something, you figure out what the risk is for you and for others. You share the cost among a large group of people. And you let the market figure out the price when it sells insurance.
CHACE: And that brings us to our next story, which is about gun violence - so clearly a danger, clearly a worry, clearly something that can ruin your life, the lives of a lot of people. And economists are starting to ask - is there a way that insurance can help with this problem?
SMITH: You know, think about it. Most states require car owners to have liability insurance to cover damages if they get in an accident, if their vehicle kills someone else. And some economists think that maybe gun owners should have to do the same thing.
Here's our very own Caitlin Kenney.
CAITLIN KENNEY, BYLINE: When you want to purchase car insurance, you have to answer questions like this.
JACOB BAUM: Is the first time you're getting a car? How many years have you been driving? In the past five years, how many accidents or violations?
KENNEY: Jacob Baum sells auto insurance at Choice Insurance Agency in Brooklyn, N.Y. He asked these questions to help insurers figure out how likely it is your car will be involved in an accident; not just you as the driver - your car.
BAUM: Besides yourself, who else lives with you regardless of their age?
KENNEY: Now, imagine we ask gun owners these same questions.
JUSTIN WOLFERS: How old are you? What's your gender? What type of gun is this? Are there teenagers in the house?
KENNEY: Justin Wolfers is a professor of Economics and Public Policy at the University of Michigan. And this is what he wants. He wants people like Jacob Baum to be asking these same questions of gun owners, to be selling them liability insurance based on their answers.
WOLFERS: We know that cars kill people. And - so we have strong liability insurance requirements for cars. We also know guns kill in the United States literally tens of thousands of people a year. It seems like it's creating enormous social harm. And we're asking you to pay for it.
KENNEY: Wolfers says requiring insurance wouldn't just provide compensation for families of gun violence victims. It would help keep guns out of the hands of people we don't want to have them.
Insurance agents would be able to identify risky gun owners just like they identify risky drivers. And those people could be denied insurance or have to pay really high rates for it. Not only that, responsible gun owners would get a discount for taking extra precautions with their guns, just like drivers who have good driving records can get cheaper insurance rates.
WOLFERS: Insurance companies would look at someone who is a responsible hunter, who used a gun lock, kept their gun stored separately from where they had their ammunition, had it locked away. They'd probably charge them much, much lower premiums than they would, for instance, a young hothead who stored their gun near their bed.
KENNEY: In theory, Wolfer says a law like this could keep guns out of the hands of bad people while motivating good people to be extra safe.
RUSS ROBERTS: And that's true in theory but in practice doesn't work that way because people don't necessarily comply with the law.
KENNEY: Russ Roberts is an economist and a research fellow at Stanford University's Hoover Institute. He says the major flaw with this idea - criminals. If you're already a lawbreaker, why would you follow this law?
ROBERTS: They're not going to register it. They're not going to license it. And they're not going to buy that insurance. They're going to buy the gun on the black market. So the money won't be there to compensate the victims, as nice as that would be. But more importantly, there's no discouragement or deterrence for those folks from the existence of that policy.
KENNEY: Even with cars this is a problem. The insurance research council says 1 in 7 drivers is non-insured. And liability insurance for cars is pretty strictly enforced. It would be a lot harder to ensure that gun owners had insurance. You know if someone's driving a car. You don't know if they're carrying a gun. And sending law enforcement to people's homes to check for guns and gun insurance would almost certainly face legal challenges.
Caitlin Kenney, NPR News.
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SMITH: The amazing thing about insurance, when you start to look at it as a tool really, is that you can insure almost anything. You've probably heard of models insuring their legs. Zoe Chace - she has insurance on her voice just in case she goes hoarse.
CHACE: As do you.
SMITH: Of course. But we learned of a very interesting subset of insurance that perhaps you don't know about. It's called promotional insurance.
CHACE: Yeah. You know when there's some sort of competition, say, a free throw contest at halftime of an NBA game and they offer $10,000 if the ball goes in from half court? Well, the local team doesn't want to pay the $10,000, so they have insurance. They pay a small amount every month. And then if they have to payout for this promotional stunt, the insurance company takes that over.
SMITH: Now this weird business recently came to the news with a very high-profile case I'm sure you've heard of - Lance Armstrong. It turns out that some of the money that Lance Armstrong won by coming in first in the Tour de France came from a promotional Company that provides a sort of insurance. Lance Armstrong got these checks basically when he won. But last month, when he admitted to doping to win those races, this promotional company realized that basically, or so they claimed, they'd been cheated.
Now, Zoe, you had a story on - about all of the people who are now wanting their money back from Lance Armstrong.
CHACE: (Laughter) Not all of them. There are too many of them but some of them.
SMITH: Some of them do. So let's hear the story that aired back after the Oprah interview. And then we'll have an update afterwards.
CHACE: This was the moment.
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OPRAH WINFREY: Yes or no - did you ever take banned substances to enhance your cycling performance?
LANCE ARMSTRONG: Yes.
DANIEL COYLE: So there's a price tag to this confession. I think Armstrong's lawyers are keenly aware of exactly what that price tag is because you can - you could figure it out.
CHACE: Daniel Coyle says there are lots of different kinds of people who could stand to make money here. He's been writing about Lance Armstrong for years. One of those with the biggest claim he says is a company called SCA.
COYLE: You've got about $12 million going to the SCA, a company that underwrote a bunch of Lance's bonuses.
CHACE: This gets complicated. But there was a company who had to pay out what amounts to insurance every time Armstrong won the Tour de France.
JEFF DARROW: By the 2004 tour de France, we had already paid him - let's see - I want to say $4.5 million.
CHACE: Four-and-a-half million they wouldn't have had to pay if he hadn't won. That's SCA lawyer Jeff Darrow (ph). And now that he's been stripped of his titles, he hasn't won after all. And they want their money back. SCA had this lawsuit all prepared. And then they heard about Oprah.
DARROW: With news that he was going to do this interview kind of put things on hold.
CHACE: They watched, watching for specific phrases that would make their case even tighter. For example...
DARROW: I doped.
CHACE: Check. The SCA lawyer would also be looking for another phrase.
DARROW: I hid that fact.
CHACE: This could show fraudulent concealment.
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ARMSTRONG: There wasn't that much out-of-competition testing. So you're not going to get caught.
CHACE: So - check. But there was something else.
DARROW: I think we're also interested in who else he might implicate. You know, we feel like anybody who was involved in this conspiracy to defraud our company would be fair game.
CHACE: That one, no dice.
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ARMSTRONG: I'm not comfortable talking about other people. I'm not - listen, it's all out there.
CHACE: But SCA is filing suit very soon. Another group that was probably watching - lawyers for the government. The U.S. Postal Service, remember, spent around $30 million sponsoring Lance Armstrong's team. Rick Morgan is a lawyer who specializes in government fraud cases.
RICK MORGAN: The money that was paid was paid under - really under false pretenses and in violation of the contract. And so that times three would be recoverable under the law.
CHACE: Potentially $90 million at stake. The third group that's watching very carefully - people sued by Lance Armstrong.
Remember, during the years when the allegations were swirling, many people came forward to say, yes, he was doping. In many cases, Armstrong would sue or threaten legal action. In one case, he actually won damages from a newspaper for printing what he now admits is the truth.
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WINFREY: You're suing people. And you know that they're telling the truth. What is that?
ARMSTRONG: It's a major flaw.
CHACE: A character flaw in the legal blunder. So far at least one target of Armstrong's legal bullying is planning to sue him back - the Sunday Times of London. That could cost Armstrong $1.5 million. Others may follow. Forbes has estimated Armstrong's net worth at around $100 million. After Oprah, they have some recalculating to do.
SMITH: Now that piece by Zoe Chace was done immediately after the interview Lance Armstrong had with Oprah Winfrey. So what is it, a few weeks later? What's the update on the story?
CHACE: So SCA Promotions has filed suit as they said they would.
SMITH: For how much money? Do we know?
CHACE: They want $9.5 million refund of the bonus money and then of course the $2.5 million in legal costs.
SMITH: So is anyone else taking legal action against Lance Armstrong that we know of?
CHACE: Not yet.
SMITH: What about the sponsorship companies? We talked about this. Every time he wore someone's logo, he was paid for that. He was in all of these ads. Is there any way that Nike and all these other people can claw back money from Lance Armstrong?
CHACE: They could possibly, but they don't. Like, there's just no real precedent for that. What usually happens when an athlete does something that's sort of outside of the contract in some way, just acts really despicably and then the company no longer wants to keep up their side of the bargain in terms of the sponsorship contract, they just drop them because it's messy to keep having your brand associated with somebody like that. So...
SMITH: So Nike just pretends it never happened.
CHACE: Yeah. And Nike has a lot of those.
SMITH: (Laughter) They have a lot of those. Well, if you sponsor every athlete on Earth, eventually you're going to get some bad apples.
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SMITH: OK. It's been a little bit of a depressing show so far. We've got the snow storm coming. We've got the death and the danger and the guns and Lance Armstrong. So instead, what we're going to do is to end our show, our final 4-in-1 piece, there's going to be something a little happier. In fact, this story is about the concept of happiness itself.
CHACE: So when people ask how a country is doing, you often hear about a country's economy. You hear about the GDP. But some countries are looking at how happy is their population. Canada, France, Britain - they've recently added happiness to their official national statistics.
SMITH: And this year the United States is also considering adopting a happiness index.
Chana Joffe-Walt was curious. She wanted to understand what exactly that would look like.
CHANA JOFFE-WALT, BYLINE: When you think about it, everything a government does - provide security, services, bridges, schools - the underlying goal of all of it is to make citizens happy, at least you'd hope it is. And you hear politicians make this pitch all the time, that some new airport or bridge is what the people want. This park will make people happy. Justin Wolfers, an economist at the University of Michigan says - you want to know what those claims are based on?
WOLFERS: Intuition's the polite word and making it up is the impolite word.
JOFFE-WALT: The thing is economists and psychologists have been collecting happiness data for decades now, data that could be really useful to governments. They can quantify how unhappy noise pollution makes people who live near an airport. They know that people hate commuting ranks really high on the list of things we hate, That we get less anxious as we get older.
In fact, both Justin Wolfers and Angus Deaton, an economist at Princeton who also studies happiness, told me with just a few personal details they could tell me how happy I am. Deaton started with my age - 31 years old.
ANGUS DEATON: You're on the down slope. And things will get a bit better after you're about 40.
JOFFE-WALT: Justin Wolfers agreed with that assessment.
WOLFERS: Are you married?
WOLFERS: Married people are happier than non-married people.
Do have children?
JOFFE-WALT: I have one child and one on the way.
WOLFERS: I'll say both congratulations and from your happiness perspective, I'm sorry to hear that.
WOLFERS: Parents report on average being less happy than non-parents.
DEATON: But that's under dispute.
JOFFE-WALT: And here is where the happiness data gets complicated. There's a dispute about whether or not kids make us unhappy. And truthfully, there's dispute about a lot of happiness data because there is a problem with how we measure happiness.
WOLFERS: The standard is actually just to go out and ask people. You could be - how happy are you today?
TONY SEIZING: So I'm, OK. I'm not, like, overjoyed. But I'm, OK.
EUGENIE KLEACUS: Well, happiness is relative.
MICHAEL MARY: I'm in a relatively positive mood right now.
JOFFE-WALT: But if you change the question...
WOLFERS: So it turns out we get very different answers when we ask people about the here and now rather than about evaluating their life so far.
JOFFE-WALT: With that one you get more positive answers. So if you're a government, which question do you ask? Not to mention that Tony Seizing (ph), Eugenie Kleacus (ph) and Michael Mary (ph) are human, flawed human beings, easily biased by the wording of your question, the bad sandwich they just ate or the fact that they found a nickel on the ground right before you asked the question. That one's actually been studied, by the way. People who found nickel before the questioning did report being happier.
Happiness data is value-laden. It's subjective. It's a little bit squishy. But you know what else is? GDP, unemployment data. Wolfers says - what is happiness? What is unemployment?
WOLFERS: Do you know how we measure unemployment - we go out and ask people if they're unemployed. Do you know how we measure happiness - we go out and we ask people whether they're happy. Now, some people say, oh, but whether you're unemployed, that's objective. We can verify that. It's actually kind of a hard question. And it's very subjective.
JOFFE-WALT: In the U.S. we define being unemployed as looking for work. What is looking for work - checking Craigslist, sending out three resumes a week - five? But we report that number every month. Unemployment is 7.8 percent. And right now the panel in the U.S. is looking to come up with a similar number for happiness. So we could say something like happiness rose by 3.6 percent last quarter.
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SMITH: That's our show.
And here's a toast to your happiness. May you never need to use all the insurance that you've stocked up on. Let us know what you think of the program. In fact, we have an easy way to do that on our website - npr.org/money. We have a new survey out. And you can say what you like, say what you don't like. We'd love to hear from you.
CHACE: Or of course you can just email us. As always - firstname.lastname@example.org. You can find us on the blog, Facebook, Twitter and Tumblr.
I'm Zoe Chace.
SMITH: And I'm Robert Smith. Thanks for listening.
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UNIDENTIFIED SINGER: (Singing) Feel on a seashell. Transcript provided by NPR, Copyright NPR.