Saturday, 29 December 2012

Unnatural disasters

Imagine you were a property developer or builder and got the green light to build a housing estate in a flood plain. If you found enough mugs to buy flood-prone houses at a price that made you a profit, you'd have walked away, laughing all the way to the bank.

It would be easy to foresee downsides for other people, though. The ones living on the floodplain estates would be at high risk of getting flooded out, putting lives and property at risk, and they'd get hit in the pocket with higher insurance premiums. People living in formerly safe properties nearby might start to find themselves flooded out, too, because you'd built on ground that used to absorb floodwater. The taxpayer might get it in the shorts, because the Environment Agency had to spend more on flood defences. And so on.

A flood is the sort of thing we used to call an Act of God. An event that's often unpredictable, a disaster for which nobody's really to blame. On the other hand, building houses in an area that's at risk of flooding (there's a subtle clue in the word "floodplain"), is a matter of human judgement.

These musings were prompted by the conjunction of what they're starting to call the wettest year on record and Cathy O’Neil's thoughts on the ideology of the financial crisis at Mathbabe.

The details of why we're in the economic mess we're in are complex and best left to those with a sounder understanding of economics and complex financial transactions than I'll ever have. But there's an important point that even ignoramuses like me can grasp.

Listen to many news reports and most politicians and you might come away with the impression that the financial crisis was some sort of natural catastrophe, like a flood.The economy is presented as a complex system, like the weather, beyond human control and only to be imperfectly understood by experts. We can't control the weather, we just have to put up with it and hope for the best.

But you don't have to understand weather or climate in any detail to understand that some low-lying areas tend to flood. And you don't have to be well-read in economic theory to understand that the individuals who profit from selling houses in a floodplain might take a different view of risk from the families who end up getting flooded out.

If you made a conscious effort to ignore who has the contacts and the power to dictate what gets built and where, you might choose to blame the people who buy houses in floodplains and say that the developers and builders are only meeting their demands. But which ever way you slice it, human judgement is part of the process. They system is partly complex and unpredicable but it's also partly shaped by people with competing interests and unequal access to the levers of power. It's not just the climate, it's also how people choose to deal with it.

Likewise, people created the conditions that triggered the financial crisis through rational self-interest (and to hell with the consequences for everybody else). There's no law of nature that means things can't be done differently.  Economic reality is yesterday’s political choice.