Thursday, June 21, 2012

A Krugman-Fan Gets Concerned about Houses Burning Down in a Free Market Society

Joe Cotter emails:
I've been reading your site for a while now and love the new podcasts. I'm looking forward to this Sunday. You may also recall a few months back I sent you an article about MF Global which I was happy to see caught your attention.

I was introduced to Austrian Economics and Libertarianism a few years ago and unfortunately I don't believe I know enough to reply to some questions such as the one I got from a co-worker detailed below.

My co-worker is a Keynesian who loves Krugman, but he has an open mind and I'm certain given the right refutations of his theories, he would quickly realize the Austrians have it right. We were talking about the evils of government and how the Fed and the GSEs contributed to the housing bubble when I said we should get rid of them and allow the free market to do what it does best. I mentioned no banker in his right mind would make the kind of sub-prime loans that were made in the early part of the 2000's. That turned into talk about privatizing roads and ultimately led to his question.

"What about fire departments? If my house is burning and we had private fire departments are you saying I would have to pay them $X.XX to put out the fire? What if I didn't have the money, would my house burn down?"

I came up with a couple solutions such as paying premiums to the fire department for coverage, charities popping up to help people who couldn't afford to pay, and neighbors helping out for fear of the fire spreading to their homes, but I was wondering if you had any thoughts on this.
Just to be clear, those who advocate the current public fire departments shouldn't be considered specifically Keynesians, but statists, that is, it is those who want government to interfere and prevent a free market fire system. Most Keynesians would likely fall into this camp, but Keynesians would only be a nearly complete subset that overlaps a much larger group of statists who advocate public fire departments.

As for how a private sector fire system would evolve, the beauty of the free market is that there is no one central plan that would be forced on us all. You may have one view of how a system might develop. I may have another and still others may have even other ideas. Over time the best ideas are likely to emerge through out an economy via entrepreneurs. But in a free market, anyone who wants can try an idea and attempt a solution---versus just a bureaucratic central planning coercive solution

You might want to ask your Keynesian, Krugman-loving, friend why he doesn't see people leaving piles of their own money out on their lawns. Or even laying around openly in their houses. Or why most people lock their doors when they leave their cars. The point being that people take steps to protect things of value.

It's thus possible, that most would likely do so with regard to fire protection service for their house. They would likely by some kind of monthly on-demand service. Banks writing mortgages would most likely demand that fire protection service be obtained before a mortgage is issued. Another option might come about because of fire insurance. Before public fire departments, insurance companies provided fire protection service, which resulted in their having to pay out less in insurance. Bottom line: We don't know exactly how a fire protection service would develop, but a house is a very valuable good, so ways to protect such a good from being destroyed by fire would certainly develop.

In the final analysis, though, if someone is irresponsible and does not sign up for fire protection service, is your friend suggesting that the government should force us all to pitch in for such a person? If so, then ask him if someone is reckless and leaves his car doors open with the keys in the ignition, if the government should be able to force us to pay for a new car for him.

Individual responsibility for houses, cars etc. are best left up to the individual. Otherwise, moral hazard develops where people aren't concerned about their property because the government backs them up with coerced money taken from the rest of us. Government involvement results in  paradise for the lazy and irresponsible, with the rest of us having to pick up the tab.

But, in the end, it comes down to individual liberty. Government shouldn't have the right to take money from anyone for anything. That a sector where government gets involved always is less efficient is the secondary argument.

26 comments:

  1. The funny and sad thing is, the outrageous situation the statist comes up with in order to defend statism already happens in reality, thanks to STATE-RUN fire departments!

    http://usnews.msnbc.msn.com/_news/2011/12/07/9272989-firefighters-let-home-burn-over-75-fee-again?lite

    SOUTH FULTON, Tenn. -- Firefighters stood by and watched a Tennessee house burn to the ground earlier this week because the homeowners didn't pay the annual subscription fee for fire service.

    "You could look out my mom's trailer and see the trucks sitting at a distance," Vicky Bell, the homeowner, said.

    For Bell, that sight was almost as disturbing as the fire itself.

    "We just wished we could've gotten more out," she said.

    It's the second time in two years firefighters in the area have watched a house burn because of unpaid fees. Last year, Gene Cranick of Obion County and his family lost all of their possessions in a house fire, along with three dogs and a cat, because the fire fee wasn't paid.

    People in the city of South Fulton have fire protection, but those in the surrounding county do not unless they pay a $75 annual fee.

    The city makes no exceptions.

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    1. Indeed. What about shortages? There was a story recently about someone calling in a hoax to either the Coast Guard or the local emergency services to which they promply - and with a typically excessive and wasteful outlay of resources - replied. Later on that day, a legitimate call came in that unfortunately went unresponded to because personnel were out on the false call.

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    2. I came in here to post that story. It hardly raised an eyebrow amongst the statists I know. Yet, if it were a private (for profit) fire fighting service that just stood and watched the house burn down they would have been screaming bloody murder and demanding they be jailed.

      Silly statists.

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    3. The lefties even managed to blame it on Ayn Rand. Seriously.

      http://www.alternet.org/story/148407/ayn_rand_conservatism_at_work_--_firefighters_let_family's_house_burn_down_because_owner_didn't_pay_$75_fee

      http://www.examiner.com/article/ayn-rand-at-work-firefighters-let-house-burn-down-owner-forgot-75-fee

      etc. Yeah, I'm sure Ayn Rand would have been in favor of publicly-funded fire monopolies.

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  2. http://en.wikipedia.org/wiki/Fire_insurance_mark

    For most of the 18th century, each insurance company maintained its own fire brigade, which extinguished fires in those buildings insured by the company and, in return for a fee to be paid later, in buildings insured by other companies. By 1825, fire marks served more as advertisements than as useful identifying marks; some insurance companies no longer issued fire marks, and those that did sometimes left them up after a policy had expired. Successive combinations of fire brigades led to virtually the entire city of London being put under the protection of the London Fire Engine Establishment, which fought not only the fires of policy holders but those of nonsubscribers, the reason being that fires in uninsured buildings could rapidly spread to insured buildings.

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  3. "Subscribers paid fire fighting companies in advance for fire protection and in exchange would receive a fire mark to attach to their building. The payments for the fire marks supported the fire fighting companies. Volunteer fire departments were also common in the United States, and some fire insurers contributed money to these departments and awarded bonuses to the first fire engine arriving at the scene of a fire."

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  4. Because nobody's house ever burns down, now.

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  5. Private Fire Departments? I suggest you spend the 2.5 hrs of time and watch the movie "Gangs of New York". Actually, don't even watch the whole movie, as I think the portion where they show the Fire Department looting the burning house (because it was showing the Purchased Emblem that the FD could service it) as payment for showing up occurs in the first hour. This is what happens when you open up Public Service to 'Free Markets'. He who pays gets assistance, those who cannot afford to pay are robbed and burned. How about we just start following the rules that have been established? How about we just start having Law Makers follow and enforce the rules for ALL, rather than avoiding the rules when it comes to their 'Friends' on the Street? How about we realize that Fraud has been committed, due to greed and ignorance, and we start holding those who have broken the trust of the public (and the laws that the public MUST follow for fear of a jackboot or pepper spray to the face) accountable for the fraud and theft they have committed, and continue to keep committing? Oh wait, that would mean the rich would be in jails, and the poor would become the wealthy. It would mean breaking the established power system, and putting in place one that holds no one above the law. And that won't work in a 'Free' market system....at least not the one that you would imagine.

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    1. So, let me get this straight; you're basing your response on the depictions of a film work of fiction? No scholarly references, no legitimate historical accounts, nothing.

      Really?!?

      Try again.

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    2. The ridiculousness of citing a movie as a historical reference for your argument aside, you do realize that people who advocate free markets are not advocating theft, right? It's much the opposite.

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    3. Not only that, JFF, he also lists a bunch of things that the government allows to happen and then complains that these things would happen in a free market. Since the government steals our money to bail out their friends and allows these guys to get away with fraud, we should denounce free markets?

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    4. I just figured he wasn't reading to begin with, so might as well suggest a movie that illustrates int plainly. But, apparently that confused even the ones who replied. Exactly, you are right, I was advocating theft rather than trying to illustrate why public service is for the overall public good.

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    5. Yeah, and just watch Die Hard to show that the number one cause of skyscraper related fires has to do with international terrorists being stopped cold by an off duty NY cop with a Beretta 92 who blows up half of the building in the process.

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    6. Anonymous @ 4:08 PM,
      That was a good start to some real thinkin'
      It was mangled and flat-wrong headed, but it's a start.
      Pretty soon you'll understand a bit more.
      That is - if - you keep on that thinking path.
      Most don't. ... or won't.

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    7. Saw that movie Ryan and yes quite disturbing but I highly doubt if it'll happen in real life. Usually people's initial instinct is to save lives and yes, help others who are in need.

      --------------
      fire safety perth

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  6. Quite frankly I am sick of these people and their fucking "concerns". I wish they'd be concerned instead with how vacuous their own ideologies are.

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    1. You're being too harsh on the guy. My cousin is the one who sent the email and we used to have the same kind of arguments in the past. His friend isn't blowing him off and ignoring what he has to say. The guy has just not been exposed to these kind of ideas before. I understand getting upset with close minded people but try to separate them from open minded people who just haven't heard the other side before. I used to be a very liberal democrat before I became an ancap, and my cousin was too. Very few people start from our ideology. It usually takes a lot of conversations of this type to convince them of the merits of Austrian economics and libertarianism.

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  7. You generally cannot sue the government fire or police departments for their usual incompetence due to "sovereign immunity". Owners of condominium neighborhoods, insurance companies and mortgage-holding banks would all see to the provision of private fire protection in a Rothbardian world and all could be sued for breach of contract without the obstacle of "sovereign immunity".

    I have a boat on Lake St. Clair in Michigan and my marina is at 9 Mile on the lake. The lake is 25 miles across and ¾ of it is in Canada. If I were crazy, I could drive the boat all the way to Buffalo, NY or to Chicago.

    People talk about coast guard rescues and how people should have to reimburse the government (ice fishermen are always getting caught on ice flows on the lake). I have private boat towing insurance that costs $57 a year. They will tow me back to 9 Mile for free no matter where I am conked out on the Great Lakes even if I’m 500 miles from Detroit. In 2010, I was 9 miles out on the Canadian side and the “tow truck” boat came on got me within 45 minutes. The only downside was that they couldn’t go over 7 MPH during the tow. Sounds like a deal to me.

    I’m sure fire protection could be similarly arranged with little muss or fuss.

    BTW, they charge $1200 for a tow if you haven’t bought the insurance.

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  8. Private fire departments have existed. For the "burning house of non-customer" question, one that I know of would put out the fire and send you a bill for something like 25 times their regular monthly fee. But RW is exactly right, in the free market, with profit incentive and price competition, the "best" solution will magically arise.

    As a mental exercise, pick any customer-serving entity, pretend that it doesn't exist yet, and try to describe how it would work. Like Disneyland or Wal-Mart. Should Disneyland sell little books of tickets, where it costs you an "E" ticket to ride Space Mountain? Or should there be a single fee to get in, and all rides are free? The customers prefer the latter, I know because that's what Disneyland does. Magic!

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  9. Yes, if I have a fireproof house, I shouldn't have to pay for "community" fire protection.

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    1. Yes, a free market in firefighting/fire insurance would also encourage efficient allocation of resources between fire prevention and response. Fire-retardant materials, sprinklers, etc. would be likely be incentivised with lower insurance rates.

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  10. I think these kinds of posts--questions and answers about how to replace government--are particularly important given current events. People have become so accustomed to government hand-outs that they sometimes lack the trust, imagination, and optimism for free-market solutions. As governments across the country and the world continue to become bankrupt, we need to be ready to provide reassurance to our families and peers. Now is the time to educate ourselves.

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  11. Whenever I speak about privatization in mixed company, people invariably throw out the fire protection argument. I typically ask them if the government makes shoes and when they say no, I ask them how they got shoes. They usually get kind of upset with the analogy. They're too stuck in the statist mindset.

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  12. Whilst Krugmanite theorists fiddle, another house goes up in smoke.


    http://www.smh.com.au/nsw/house-burns-as-nsw-firefighters--strike-over-workcover-20120621-20pjd.html

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  13. The difference between voluntary association and coercion is often lost on statists - they don't even see a valid distinction between the two.

    Rothbard called the great non sequitur committed by defenders of the state the logical leap from the necessity of society to the necessity of the state. We see a conflation, they see them as one and the same.

    As a technologist, I see the greatest parallel between the evolution of markets with that of the systems theory concept of emergent behavior: complex systems arise from a multiplicity of relatively simple interactions.

    Matthew, I like your response about shoes. I like to use a similar example: Prior to the black slaves gaining their (relative) freedom, one didn't have to know how the cotton would be picked to know that slavery was wrong.

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  14. With the market process prohibited, how will we ever know what the right allocation of firefighting services is in the first place? But not to worry, friends, to the dear statists it matters not if we're getting under-supplied or ripped-off... After all, some other sucker is paying, right?

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