Marian Borges of The Age recently wrote seeking comment on an article on fire prevention which was subsequently written up by her and Peter Martin here. I didn’t have time to really check out the article but sent her a response in which I expressed a kind of generalised scepticism of economists habitual tendency to imagine that in their own cost/benefit framework they have discovered some general key which unlocks the mysteries of the world. Of course it’s a good point to make that the benefits of one’s actions should exceed the costs, but then it’s also obvious and so pretty trivial. It’s true that practitioners of various practical disciplines sometimes forget that basic idea, so it’s good to point it out. But often economists give the impression that they’re the ones with the secret keys. I think a little more modesty is in order and said as much in my reply to Marion, which I reproduce below FWIW.
I’ve had a bit of a look at this and I’m not very impressed by the paper. The abstract is quite hard to understand. Further, as I understand it, one of the central assumptions in the paper is that imposing costs on an economy costs lives directly because wealthier people have lower mortality than poorer ones. Viz:
Keeney (1990) attempted to quantify this opportunity cost further in terms of statistical or regulatory fatalities. He did this by drawing upon the evidence given above that poorer people have poorer health outcomes, and combining this with the notion that government intervention reduces people’s purchasing power and a statistical relationship between mortality and income. In this way, Keeney found that the cost of direct intervention — regulation — in the economy may induce more fatalities than had been previously recognised.
I think this is a pretty suspect assumption – which – at least on my very quick reading (which may be wrong) seems to discount the possibility that it’s the differences in income that are asssociated with different mortality, not absolute levels of income. If so I think the article is definitely overreaching.
A few more points – it would take quite some effort to really satisfy oneself as to the methodology employed – there’s a fair bit to it, and given that the article is poorly expressed, that adds to the burden of getting to the bottom of the methodology.
I have a further concern which is that the article is quite narrow in its conception of the issues. It is of course entirely appropriate to ask the question about the cost effectiveness of fire safety measures. And of course to do so one needs to value human life – which is a controversial thing, but whether we acknowledge it or not, we are making choices on the value of life all the time – by default or design. So far so good.
However there is much more to it than that. Safety is a practice. Safety practitioners, including policy practitioners should have some eye to cost/benefits, but there is also a sense in which safety practitioners are practicing a value based craft which takes as its object not just the minimisation of harm, but its elimination. It’s like the Hippocratic Oath of doctors to “do no harm”.
Of course we can say that logically speaking this is impossible – clever us! But if you ask the safety practitioners of most large private sector companies what their objectives are, it is that any deaths is unacceptable – their target and their intended result is none at all. And if there are any deaths, they go to the board with full reports. This is not ‘cost/benefit’ management. It is a ‘do no harm’ philosophy – and it seems like the most competitive companies have that philosophy. So we should be careful thinking that our (relatively trivial) cost/benefit idea is such a deep insight.
So while it can’t be appropriate to really imagine that we should have public policies to reduce fire deaths to zero, I’m not so quick to imagine that, as an economist, I know how we should manage fire safety or even that we have got it wrong (though if there were some more concrete examples, perhaps I could understand the texture of this over-regulation and over-protection a little more.
Ultimately the observation that we should have a cost/benefit perspective is a pretty trivial one when all’s said and done. It should be part of the consideration of the issues (and perhaps it’s a fault of the fire safety practitioners and regulators that they don’t give sufficient consideration to it) but beyond that, I’m not sure that economists have a lot to add.