How Washington Deals With Risk


I agree with most points in this Michael Kinsley piece on reacting to risk, from the opening observation that David Leonhardt is awesome to the closing observation that strong safety nets are a reasonable insurance in a nation fraught with risks. But this is an especially interesting point:

It seems to me that in America, at least, we are much more prone to ... overestimating small risks of large disasters--and underestimating, by comparison, the smaller, everyday risks of life. Leonhardt himself provides the clearest example: people who, after 9/11, decided to drive rather than fly on long trips. In the next year there was no new terrorist attack on airplanes, but deaths in traffic accidents went up because more people were driving. That was like buying insurance against asteroids. Or, to take a more tendentious example, it's like nuclear power. For a generation we've gone without it to protect ourselves from a catastrophic risk, only to find that perhaps this was a mistake because, without enough reflection, we were increasing the risk of a somewhat smaller catastrophe like the one in the Gulf.

One way to recast this paragraph is to point out that we sometimes respond to high-risk, low-probability disasters by nudging the scales to make lower-risk, higher-probability incidents more likely (which is the risk-conscious way of saying, policies have consequences). The 2002 traffic accidents scourge is one such example. Think about financial reform. Advocates of strong regulations are unmoved by the suggestion that their regulations might result in tighter credit because they're more worried about protecting against the higher-risk/lower-probability event that the system collapses again. That doesn't mean they're wrong. It just means they're building policy that gives preference to the high-risk/low-prob disaster.

Another way to spin Kinsley's paragraph forward is with this nugget from Richard Posner: "It seems that no one has much incentive to adopt or even call for safeguards against low-probability, but potentially catastrophic, disasters." You can read that sentence as a tsk-tsk for disasters that have already happened, such as the financial crisis and the BP spill. Or you can read it as a warning for future disasters, like fiscal reform, or climate change.

We know that climate change is real. We know that the only safeguard against climate change is an international effort to reduce emissions. We know that there can be no international effort without American leadership. We know that American leadership would begin with a national carbon price. We know we have bills in the Senate and House that would do that. And yet, Washington is alive with the sound of foot-dragging. Even a cluster of low-probability, high-risk disasters from Wall Street to the Gulf has not changed the risk calculus for many politicians in Washington. And so, one can say with great deal of certainty that it is both highly risky and highly probable that DC will regress to its historical mean and do nothing.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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