The Biggest Story of the Year

Getting to this a little late, but I think the fertilizer plant explosion in Texas is probably the biggest story likely to happen this year. It points at a number of deep, structural problems in the United States and, more generally, in our conception of capitalism. The basic problem is that our institutions allow individuals to privatize potential gains regardless of the total social cost. There is no way that the amount of gain from this plant even approached the amount of losses that it has now inflicted. That it only has $1 million in liability insurance only adds marginally to the damage, though the lack of outrage has added greatly to the insult.

The tragedy, and what a proper news media would be exploring in depth, is how rampant this is. How small was the marginal benefit of increased home construction due to lax lending problems relative to the damage? How many millions of dollars of output are lost when people die of an e-coli outbreak for how tiny a marginal benefit to a marginal food producer (I'm intentionally ignoring the human cost so as to not mix economic and moral systems, the cost is clearly grossly disproportionate even if we think of a little girl as nothing but an economic agent)? Drugs that do little for patients but that increase risks result in huge damages. Pollution results in massively disproportionate losses, look at the evidence of the lead-crime link, and at the tail end may threaten human life on Earth.*

But since a business never accumulates assets sufficient to cover the damage no private can possibly way the incentives properly, their individual benefit is high but their liability is far less than the real losses. Add in to this the reality of economic power and the ability of agents to use assets collected now to protect themselves from future liability and we have a system that can never reach a productive equilibrium.

Further, it exposes the parasitical form of capitalism and policy that is coming to characterize the red states in the US. Texas can attract business with the low cost of doing business, but it does this by slashing protections resulting in the losses of hundreds of millions of dollars in this one case alone. Add to this the loss of life and health from these injuries and those costs are doubtlessly higher. Yet, as long as this model is permitted to exist, how could a business wishing to be responsible by increasing liability coverage and imposing greater safety protections pass these costs on to potential customers that are not impacted by the potential losses covered by these higher costs? The low cost Texas supplier would always have a cost of goods and a potential customer would have no way of seeing the differences between the responsible and the reckless business.

Luckily we can appeal to government, but as our regulatory agents get gutted this protection becomes ever slimmer. And as this occurs the ability of agents to advocate for further cuts to the agencies that impose precautionary expenses, like mandatory liability or tax enforcement, is further eroded. This is the story of the year, yet we are hearing far more about the Boston bombings and other relatively trivial stories. Since this is one of the few stories that we really do have the power to do something about, where public action and pressure really could create change, the failure of the media, and the public, to pick up on this and expose these problems is a really damning indictment on our generation. It was workplace issues, and public hazards, that touched off the Progressive era and all the great things that generation achieved. If we fail to use this as a rallying cry we prove ourselves less than our ancestors.

[Had little time to write this and will probably try to clean it up later]

*I regard this on the far tail end, not an imminent danger, but it's madness to fully privatize the gains from this while doing so little to protect ourselves from a downside that could reduce all sums to 0.