Posts Tagged ‘Copenhagen Conference’
December 20th, 2009 at 12:47 am
The Fire Insurance Fallacy
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On yesterday’s “Hardball”, Democratic strategist (and promiscuous presidential campaign kamikaze) Bob Shrum got into an almost unwatchable scrimmage over global warming and the Copenhagen Conference with Pat Buchanan.  In a tag-team effort with host Chris Matthews, Shrum tried to side-step the epistemological questions surrounding climate change by invoking the analogy of carrying fire insurance.

This meme, which has started showing up in Democratic talking points lately, tries to get around climate uncertainty by invoking the “precautionary principle”: that it’s prudent to take decisive action proportional to a catastrophic threat even if the potential of that threat being realized is miniscule. This irrational doctrine has been part of the environmental left’s catechism for decades, but its appearance in the political sphere shows that liberals are becoming sensitive to the fallout over Climategate and trying to reframe their position as a common sense hedge against catastrophe.  Wrong.

The Precautionary Principle sounds good in a vacuum (who caucuses for increased risk, after all?), but is (ironically) non-empirical in its application. All of life is a matter of weighing probable rewards versus probable risks. Jettisoning this cost-benefit principle on a serious policy issue is dangerous — and the insurance analogy shows why.

Think about how fire insurance actually works. You pay a miniscule fee to hedge against the minute possibility of a catastrophic outcome. But that’s not how carbon abatement schemes work. First of all, there’s no pool to socialize risk within. As an inherently global “crisis”, everyone is supposedly effected — so it’s impossible to cross-subsidize in the way that insurance plans do. But more importantly, you wouldn’t buy fire insurance that costs exponentially more than the likely damage from a fire — and that’s what the economic disaster represented by cap and trade and other such schemes would mean.

Liberals can’t get their head around the fact that there’s only so much value swimming around in an economy (regardless of the money supply).  If you use some of it in one place, you can’t use it in another. And when government mandates its use, it’s almost always less efficient than the private sector. This is called an opportunity cost. It’s usually covered in the first few days of an elementary economics course. This is what happens when we elect people who cut that class for a Sierra Club meeting.