by NY Times editorialist Paul Krugman won a Nobel Price in Economics in 2008 but the swipe he took at Republican Bobby Jindal leaves a lot to be desired from the economy perspective. Writing about the role of government, Krugman defended the inclusion of volcano monitoring in the Democrats’ stimulus plan thusly:
… knowing when a volcano is likely to erupt can save many lives; but there’s no private incentive to spend money on monitoring, since even people who didn’t contribute to maintaining the monitoring system can still benefit from the warning. So that’s the sort of activity that should be undertaken by government.
Is it really? The admittedly amateur economist in me doesn’t think so.
For example, if I still lived near Mount Hood in Oregon and valued monitoring of the mountain’s potential volcanic activity, my reaction – in the absence of Big Government, of course – would be to find like-minded people and pool our resources. If enough of my neighbors believed they would be significantly impacted by an eruption we could hire a seismologist to keep an eye on things and warn us of impending danger.
Contrarily, if relatively few people were concerned about the ratio of danger to the probability of an eruption or simply preferred to use their resources for other purposes, then there is no economic justification for monitoring the mountain.
Why should the government step in to offer a service that the people who would be negatively affected by the now-dormant volcano’s eruption do not value enough to provide for themselves?
One answer is, of course, that local residents lack the resources to pay for the needed services. However, in itself that is no reason for the government to take action. People living in Oklahoma would all be safer if every one of them had a government-provided tornado-proof home. They do not, of course, because the state is not responsible for mitigating the risks its citizens take by living in tornado alley.
Another answer is that individuals lack the ability to mobilize and organize local interest to solve problems such as the one posed in my Mount Hood scenario. Certainly the process of organizing the citizenry is not frictionless. However, communication with those around us who have similar interests has never been easier than it is now. If residents of Sandy, Oregon decided to form a grass-roots committee with the purpose of performing private seismic monitoring on Mount Hood, lack of ability to get the word out would not be their primary obstacle. Lack of interest and government interference would do much more to stymie the project.
Krugman uses the disaster of Hurricane Katrina to demonstrate the need for government intervention. But as tragic as the situation was for residents of New Orleans, it was also only a question of time before disaster struck. Everyone knew it. Everyone. The only question was how bad it was going to be. Moreover, the government made a bad situation worse by rewarding bad behavior – i.e., continuing to live in New Orleans – when it attempted to fortify the city against just such a natural disaster. As a result, people underestimated the danger they were in and could not place the proper value on their lives and property because they didn’t understand the risk. In fact, without massive government aid in the form of dykes and levees, New Orleans would not have existed in its pre-Katrina form and the hurricane’s impact would have been much smaller.
There are countless other examples of how government “aid” simply encourages people to take unwisely risky positions and then to demand more help from the state to bail them out when their situation goes south. For example, Californians persist in building near dangerous wildfire zones at great cost to the state when it has to defend their property against the inevitable fires that threaten homes every single year.
Is it really the purpose of government to subsidize its citizens’ bad decisions? Paul Krugman seems to think so, despite what economics tells us about the effects of government interference.
