Saturday

June 24th, 2017

Insight

A tradition of risky thinking

Charles Lane

By Charles Lane

Published Dec. 10, 2015

Our country is always at risk for sloppy thinking about, well, risk.

Fortunately, there's an antidote: Wall Street Journal columnist Greg Ip's new book, a short, sharp history of the United States' never-ending search for safety --- against every kind of threat, from terrorism to forest fires to financial crises.

Aptly titled "Foolproof," Ip's volume is an extended meditation on a paradox: The more we succeed in controlling or eliminating the risks we know and understand, the more we render ourselves vulnerable to the ones we don't.

(Buy it at a 30% discount by clicking here or order in KINDLE edition at a 46% discount by clicking here)

The problem isn't that effective risk control breeds a false sense of security; the problem is that it breeds a well-founded sense of security.

As confidence builds, reinforced by benign experience, so does risk-taking, until someone - or millions of someones - takes on too much risk, or the wrong kind of it, and disaster, compounded by panic, occurs.

Ip's first example is the global financial panic that began in 2007, which, he argues, grew out of the preceding quarter-century's Great Moderation. Having lived through prolonged financial stability, investors concluded, not unreasonably, that an enlightened Federal Reserve had eliminated major crises, rendering all financial assets - including securities manufactured from subprime mortgages - safe. This is a familiar point; as Ip acknowledges, it was the late economist Hyman Minsky who first theorized that financial stability itself could be destabilizing.

Ip's contribution is to apply Minsky's insight well beyond the boundaries of economics. Football helmets came into use to prevent hair and ear pulling; but protecting the head made it safe, or seemingly so, to use it as a battering ram, which led to more, and more damaging, concussions.

The federal government's earnest efforts to suppress forest fires in the West protected not only glorious trees but also leaves and brush on the forest floor - fuel for bigger and more destructive blazes later on.

As Ip correctly, but controversially, points out, the damage done by powerful storms such as Hurricane Sandy is not due to climate change per se. It is due to humanity's increasing, and otherwise life-enhancing, capacity for building big and, most of the time, safe, cities on the seacoast, where storms tend to hit.

Human nature being what it is, we are probably fated to oscillate between overreaction to risk and underreaction.

Those who place their faith in regulation - "engineers," as Ip calls them - are bound to be undone by unanticipated risks. Equally unrealistic, though, are the "ecologists," who would essentially leave natural and social systems to their own devices, on the incorrect assumption that their powers of recuperation could offset any damage from a crisis.

How to manage the paradox? Ip argues persuasively that individuals and institutions must consciously keep alive memories of past crises, and with them, enough fear to motivate safe behavior.

He makes the subtle point that "space saves us" - whether it is airspace that flight controllers maintain between planes, or the financial buffer, known as capital, that protects banks from excessive losses.

Putting his faith in economics, Ip favors dealing with risk through cost- benefit analysis, so as to "displace emotion with rational calculation." It's hard to disagree with him; no crisis was ever improved by panicking about it, as Trump's repugnant proposal shows.

However, Ip acknowledges, "when it comes to saving lives or preventing the occasional catastrophe, this gets tricky" - which is putting it mildly. No one has yet come up with a universally accepted method for trading off risks to life and health against the costs of mitigating them, and no one ever will.

Yes, we implicitly make such judgments all the time, through wrongful-death jury awards, life insurance purchases and the like, as Ip notes. To make such calculations explicitly, through politics, however, triggers the public's most sensitive moral intuitions.

This is the point President Obama missed when, before San Bernardino, he called on the media to compare the number of Americans "killed through terrorist attacks over the last decade and the number of Americans who've been killed by gun violence."

Terrorism presents a special kind of risk, because it is not only malicious and destructive, like other kinds of crime, but also, by design, politically and socially destabilizing. The whole purpose is to exploit freedom to destroy freedom.

No, we can't respond with pure emotion; that would be a victory for the terrorists, as the cliche goes. But leaders can't omit emotion entirely, if only because people need validation of their legitimate fear and anger before they will listen to arguments for measured action. Our current president struggles to establish the right balance, and so, probably, will the next.

Comment by clicking here.

Columnists

Toons

Lifestyles