What U.S. Forest Fire Policy Reveals About The Cause & Cure Of Our Once & Future Financial Crises
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If you enjoyed Malcolm Gladwell’s The Tipping Point, Nassim Nicholas Taleb’s The Black Swan, or Levitt and Dubner’s Freakonomics, prepare yourself for a major holiday treat. The Wall Street Journal’s chief economics commentator Greg Ip recently authored Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe.
Foolproof is cut from the same bolt of lightning. Foolproof may change the way you think about some of the most important political, economic, and social problems besetting us. It changed my thinking. (Full disclosure. Ip and I publicly have dueled over his criticism of the gold standard. He generously tweeted out my response. Neither of us seem to have changed the other’s mind on that particular topic.)
My own long, informal, study of the rise and fall of civilizations convinces me that empires (and, for that matter, republics) rarely fall due to their political elite’s moving too far left or too far right. Failure occurs, rather, from creeping myopia – failure to see the big picture — in the elite political classes.
Failure comes from asking the wrong questions. It comes from thinking about the presenting questions of the day sloppily. Ip's book offers an elegant antidote to our myopia.
Most of Foolproof lucidly addresses the world financial system. It provides a superior systemic overview of the causes, cures, and potential recurrence of major financial crisis. Invest accordingly.
Ip also, materially rather than metaphorically, analyzes how comparable political and social dynamics have caused, among other matters, America’s Western forests to become a catastrophic tinder box for million-acre forest fires; how these dynamics vastly have worsened the impact of superstorms; have put us on the brink of catastrophic antibiotic resistance; and have brought us to rely on more, rather than less, dangerous energy sources. Among other matters.
Ip, compellingly, divides the thought leaders of the policy world into “engineers” and “ecologists.”
Under this new paradigm it might dawn on those economic engineers, a/k/a “Neo-Keynesians,” that the economic ecologists, d/b/a “libertarians,” might be on to something, something profound and humane. And vice versa.
Thereby Ip opens a door to what one devoutly hopes will grow into a productive new national conversation. Ip powerfully describes the quandary in which our public officials routinely find themselves. He concludes not so much by offering neat solutions but by pointing a way out.
... If it were only bad behavior at work, the answer would be straightforward: pass more rules, and enforce them vigorously. But by seeing these events solely as a morality play, we’re going to miss something very important and make it harder to solve them. Oftentimes, it’s not the nefarious stuff that does us in; it’s the well intentioned.
Ip’s first chapter is titled Progressives, Engineers, and Ecologists. In it he describes how the financial Panic of 1907 led to strong federal measures — leading to the creation of the Federal Reserve System – to avert the next one. Some of these measures led, albeit gradually and indirectly, to the Great Depression. And, then, on to 2007….
He then describes the generally-forgotten forest fires in the American West of 1910, fires which burned 4,000 square miles of forest, killing at least 85 people. It was a fire beyond the scope of anything until then experienced. This led to a determination by the federal government to extinguish such fires.
This, of course, led to our current predicament: federal suppression of natural, self-limiting, forest fires has turned much of the American West into a tinderbox. As a direct result now, thank you Smokey Bear, we are confronting megafires threatening more lives, communities, and land than otherwise we would.
And there’s a ratchet effect. Ip:
So, given the human dynamics at work, are we doomed? Not necessarily. Ip calls for adopting a balance between the immediate-problem-solving-bigger-problem-creating-engineers … and the ecologists:
Engineers satisfy our desire for control, for eliminating the anxiety that comes with uncertainty and the unknown. They fulfill civilization’s need to act, to do something, to take the existing chaotic mess and make it better. Engineers have made car crashes more survivable, enabled people to live and prosper in treacherous places, and devised lifesaving medicine and technology. Economic engineers have figured out how to make recessions and financial crises less severe.
But we should not ask too much of them. We can make disaster and crisis less frequent and more survivable, but we won’t end either. Nor should we want to. Periodic crisis is the price we pay for an economic system that encourages, and rewards, risk. Periodic disasters are the price we pay for situating our cities in desirable, productive places.
... The Federal Reserve is, in its DNA, an organization of engineers tasked with ending panics, recession, and inflation. Yet in achieving precisely that, it often plants the seeds for the next crisis or recession. The Fed should not stop fighting recessions and crises, nor should it have to use its powers for every shock that comes along. Once the biggest banks can fail safely, then the entire financial system will be more resilient.
The engineers and the ecologists in their different ways embody the best of civilization. We do not have to side with either, but we can take the best of both. Our goal should be to eliminate big disasters, not small ones, to accept a bit more risk and instability today in return for more reward and stability in the long run.
Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe could produce a national, and deserves to be the next, Tipping Point. Take it to heart.
Ralph Benko is senior advisor, economics, to American Principles in Action’s Gold Standard 2012 Initiative, and a contributor to the ARRA News Service. Founder of The Prosperity Caucus, he was a member of the Jack Kemp supply-side team, served in an unrelated area as a deputy general counsel in the Reagan White House. The article which first appeared in Forbes.
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