The High Price of Low Risk

Not everyone grasps some of the general rules of economics, so it’s good when an illustrative story, like this one, comes along. The short version of the story is that a small factory is facing long delays due to problems with regulatory requirements. The requirements, taken one at a time, are probably reasonable. They address issues of safety, the environment, and handicap access – all good things, to be sure. But taken all together, they create a formidable obstacle to building this factory. The obvious costs fall on the business, and we might say that safety, the environment, and access are more important than business profits. But the costs run deeper. There are a hundred unemployed workers waiting for the  jobs this factory will bring – a hundred families denied income for months and months. We can’t know the hardship that the delays have caused.

My point isn’t that the regulations are bad. My point is that the regulations aren’t free. The cost of regulation doesn’t fall onlyon the regulated – it falls on a lot of innocent bystanders. It falls on the broader society.

This general problem shows up in a lot of ways. A nice 1985 starter home couldn’t be built most places today – too dangerous. Building codes have been greatly tightened to make houses much safer. But there is a cost: the lack of affordable housing.

The important costs in economics are the social costs and the hardships we impose when making the world safer, cleaner, and greener. There can be a high price for low risk.

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