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Source link: http://archive.mises.org/16396/freakonomics-minus-economics/

Freakonomics Minus Economics

April 7, 2011 by

I listened to this “Freakonomics” podcast on fire safety, and not only does it have nothing to do with economics, it would seem that the people behind it are entirely unfamiliar with the economic way of thinking.

The podcast starts by telling us that fire deaths decreased by about 90% over the course of the twentieth century. These days, there are only about 3,000 deaths from fire in the U.S. each year. Great.

Then they put on a government fire-safety expert who tells us that’s not nearly good enough — he wants that number down to zero. Toward that end, he thinks we should all be required to have sprinkler systems installed in our homes, as California now requires for new houses.

This had me really ready for a dose of sound economics. I thought they would then put on an economist to explain why the optimal number of fire deaths is not zero because that would require a ridiculous expenditure of resources, if it’s even possible. I thought the show would explain that at some point, the marginal dollar spent on fire safety isn’t worth it.

But no. On the contrary, host Stephen Dubner simply took the bureaucrat’s word for it that tougher building codes have made us safer, that all we need to do to save more lives is enact even tougher codes, and that therefore we should do so. And that was the whole point of the podcast, apparently.

There was no suggestion that market innovation and increasing wealth may also have helped reduce the number of fire deaths (or, as I suspect, may have been the primary causes of the reduction).

More egregiously for a show supposedly about economics, there was no consideration of trade-offs. For example, no one considered that more expensive housing as a result of overprotective fire codes might actually make people with low incomes worse off. No one considered that sprinkler systems could cause flooding and costly water damage. And, of course, no one considered that I just might not want to have a sprinkler system in my house, and that it should be up to me because it’s my house.

One way to make sure no one dies in a fire — perhaps the only way — would be to force us all to live in steel cages and not allow us to have anything flammable. If the experts in government and at NPR follow their thinking to its logical conclusion, we may get down to zero yet.

{ 31 comments }

Joshua H April 7, 2011 at 1:28 am

Reminds me of M. Friedman vs the student from Cornell (I believe). See here: http://www.youtube.com/watch?v=cD0dmRJ0oWg

Jake W. April 8, 2011 at 12:51 am

Thanks a lot Joshua! I just spend 1.5 hours watching youtube clips about economics thanks to your link and it stalled my homework completion. Jerk :P

mushindo April 7, 2011 at 2:22 am

‘One way to make sure no one dies in a fire — perhaps the only way — would be to force us all to live in steel cages and not allow us to have anything flammable.’.

Haha. This reductio ad absurdum is not even necessary to make the point. still, here is an even bigger one….

Mandatory safety requirements of any strength still point up the central absurdity of democracy. Such regulation, however ‘mild’ , is based on the assumption that people are too stupid to make their own decisions. If this axiom is accepted, it must follow that people are also too stupid to vote. Hence any government imposing mandatory safety requirements ‘for your own good’ must logically accept that its very mandate to govern is nullified by its own logic.

Seattle April 7, 2011 at 4:26 am

As if bureaucrats pay attention to the laws of logic in formulating their plans!

J. Murray April 7, 2011 at 5:29 am

Take it a step further. If people are too stupid to handle themselves in life, then they’er too stupid to vote, therefore, any government that makes the decisions is going to be too stupid to regulate our lives because that very government was selected by the same people who don’t know how to run their own.

However, if a person is smart enough to run their own life, then government is unnecessary.

Government itself is a paradox. It’s a bad idea in a society of imbeciles because it will only make bad choices. It’s a bad idea in a society of competence because no one needs it to make decisions.

Joshua April 7, 2011 at 8:23 am

I can one up that… mass murder. Less people = less fire deaths.

Anti-IP Libertarian April 7, 2011 at 1:21 pm

I am sorry but it doesn’t work that way for many collectivists: They think that the whole is greater than the sum of its parts and therefore that democracy makes society more intelligent.

Sad but true.

mobile application developers April 7, 2011 at 7:53 am

people are meant for government

Ryan S April 7, 2011 at 8:03 am

I guess if you put it that way, mass theft and violence really is the way to go. Good argument.

Peter April 7, 2011 at 9:33 am

Thanks to the spammer for these thoughts.

Tim April 7, 2011 at 1:31 pm

Even rogue Chinese scripts that infest various message boards can have flashes of insight, Peter.

Nielsio April 7, 2011 at 8:42 am

Consumer Product Regulation (by Timothy D. Terrell)
http://www.youtube.com/watch?v=xZN43ly9FL4

(Mises University 2010)

Tim B April 7, 2011 at 8:46 am

It is necessarily true that market innovations lead code requirements. The sprinkler system was not invented by a building code author, it was proven in the market long before becoming a code requirement. In fact, it often takes some time and arm twisting for new products to even be allowed by code officials.

I don’t necessarily fault code authors for making stricter requirements, their job is to define a standard. In fact, I think building codes are a unique example of how competing, non-governmental sets of rules can be developed and adopted. The current problem is that states are the ones doing the adopting. In Libertopia, stricter codes would be discounted by insurers, advertised by builders and landlords, and demanded by consumers. People would hang a plaque on the wall proudly declaring their code certification.

By the way, the residential sprinkler requirement for new construction is already written into the most recent versions of the two main codes (NFPA and ICC). A lot of states are struggling with whether to adopt these newer codes because of this requirement. Some states may choose to adopt them but exempt this requirement, at least for a few years.

Mark April 7, 2011 at 4:28 pm

I’d like to hear some history of the origin of the fire sprinkler mandates. Tim B says “not invented by a building code author” which is fair enough. Lets presume they were invented by someone in a warehouse of flammable storage. Or for skyscrapers where higher floors are inaccessible to conventional fire truck ladders.

But how did sprinklers come to be mandated for two-story single-family residences? Was it simpy a well-meaning but economically cost-unconscious planning commission wrote it into the code simply “because it seemed like a good idea at the time?”

Or was there a lobby from the plumbers union that initiated the requirement? Or a lobbyist from the insurance companies? I bet the money trail leads to something like this.

P.S. have you seen the “original” Freakonomics documentary video? I was appalled at both the lack of economic rigor, as well as the socialist slant.

Tim B April 7, 2011 at 9:19 pm

Mark,
I’m not up on my sprinkler system history, but you are right in suggesting that manufacturers and unions lobby to have their products and labor mandated in codes. But this would happen in a free market for codes as well (yes, building codes would still exist in a free market). The current problem is with states mandating codes, not the codes themselves.

Sprinklers are incredibly effective in reducing loss of life in fires. One and two family dwellings are where a majority of fires occur because they’re made of wood and people sleep, cook, and do their own electrical work in them. The cost of a residential system in a new house ranges from $5000-$15000 (depending on the water source), which is not astronomical. These costs will come down as they become more common. I don’t think it is necessarily a bad requirement to write into a building code whose purpose is to save lives from fire.

What is bad is that everyone is forced by their government to accept only one building code. A market for building codes would likely provide a broader array of options for builders, insurers, and homebuyers with varying risks and costs.

Grant April 7, 2011 at 11:22 am

Cooking is the leading cause of house fires. Ban cooking in homes!

Smoking is the leading cause of fire deaths. Ban smoking in homes!

Heating-related fires are the second most common cause of house fires after cooking fires and the second most common cause of fire deaths after smoking-related fires. Ban the use of heating systems in homes!

Government can save us!

Horst Muhlmann April 7, 2011 at 12:56 pm

Ban the use of heating systems in homes!

“We can’t … keep our homes on 72 degrees at all times … and then just expect that other countries are going to say OK.”—Barack Hoover Obama, May 16, 2008.

J. Murray April 7, 2011 at 1:17 pm

I believe part of the Cap and Trade bill included provisions for government officials to enter your private home and audit your thermostat to make sure you weren’t engaging in “excessive” heating or cooling. It also included provisions to engage in load auditing so that they could fine you if the electrical load in your home presented the pattern of a compressor or heater going off too long.

Walt D. April 7, 2011 at 2:48 pm

J.:
It’s worse than that – with smart thermostats, they can turn you heating down remotely. Easy workaround – a plastic bowl with ice cubes placed over the thermostat does the trick! (Heating pad works for air-conditioning!)

jl April 7, 2011 at 11:45 am

Our local fire dept. loves to tell people how smart it is to have a sprinkler system, and they are so happy it is mandated for new construction. But I haven’t heard of anyone running out to retrofit their existing homes. Apparently, people are not losing sleep over not having sprinklers. I have to wonder, even if my hazard insurance were reduced to zero if I got sprinklers, would the savings even cover the cost over 20 years to retrofit? Would it increase the market value of my home by much?

augusto April 7, 2011 at 12:07 pm

National Fire Protection Association’s report on fire sprinkler cost assessment:

http://www.nfpa.org/assets/files/PDF/Research/FireSprinklerCostAssessment.pdf

Should answer your questions ;-)

jl April 7, 2011 at 12:35 pm

That is useful, augusto. Based on the info, the average insurance discount is 7%. That translates to about $70/year for me. The average installation in a nearby suburb was $8-10 thousand, but the typical house in the study had considerably more living space, so let’s say $6000 for me. At zero interest may payoff time is 86 years. So the safety issue would have to be the primary driver, as far as I can tell.

Another interesting statistic would be number of deaths by house fire in my city for say the last 40 years, with and without working smoke detectors. I hardly ever hear of any, but I’m sure it happens.

J. Murray April 7, 2011 at 12:47 pm

At a 5% opportunity cost, it would take 1,737 years to break even on that deal.

If you wanted to break even in 25 years, the savings would have to be $425.71 per year.

Anti-IP Libertarian April 7, 2011 at 1:24 pm

Pah! Who calculates with opportunity costs, interests and that? I say: Ban these!

;)

Scarcity April 7, 2011 at 2:32 pm

All costs are opportunity costs. And interest is the opportunity cost of capital.

Anthony April 7, 2011 at 5:44 pm

So ban that too!!!

Anti-IP Libertarian April 7, 2011 at 9:30 pm

Pah!

Then lets ban money! In future world-wide demo-communism nobody will need money! Nobody will be allowed to use that root of all evil!

Scarcity April 7, 2011 at 2:37 pm

Lots of people starve because they can’t afford government “protection”. At least 100 (200?) million died in the 20th century because of government “protection”.

Walt D. April 7, 2011 at 2:52 pm

If you actually want to do something to protect yourself, a CO detector is a good investment. According to our local fire prevention officer, most people who die in home fires die from CO poisoning, rather than from burns or suffocation.

Per Bylund April 7, 2011 at 5:35 pm

While it may or may not be the case in this particular podcast, I always thought Freakonomics was in pretty much complete lack of economic reasoning. It was data mining, plain and simple — not economics.

Nielsio April 7, 2011 at 8:09 pm

Yeah, but correlation is sort of like causation.

Science!

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