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erate from a given risk or how much credit they will claim for
whatever risk reduction may take place, regardless of what the facts
may be.
Automobile safety is a classic example of third party safety deci-
sions by organizations and movements whose money and power
come from producing fear. Third-party safety crusades operate in
some ways the opposite from risk-reduction processes in which
those who are at risk choose alternatives for themselves and pay
the costs themselves. The central question of how much risk is to
be reduced at what costs is usually not raised at all by third-party
safety organizations or movements. Nor are alternative risks
weighed against one another. Instead, the theme is that something
is "unsafe" and therefore needs to be made safe. The argument is
essentially that existing risks show that current safeguards are in-
adequate and/or the people in control of them are insufficiently
conscientious, or both. Therefore power and money need to be
vested in new people and new institutions, in order to protect the
public”according to this argument.
This kind of argument can be applied to almost anything, since
nothing is literally 100 percent safe. It has been used against med-
ications, pesticides, nuclear power, automobiles, and many other
targets. Where the issue is the safety of nuclear power plants, for
example, the answer to the question whether nuclear power is safe
is obviously No! If nuclear power were safe, it would be the only
Risky Business 141

safe thing on the face of the earth. This page that you are reading
isn't safe. It can catch fire, which can spread and burn down your
home, with you in it. The only meaningful question, to those who
are spending their own money to deal with their own risks, is
whether it is worth what it would cost to fireproof every page in
every book, magazine, or newspaper.
In the case of nuclear power, the question of safety, in addition
to cost, is Compared to 'what? Compared to generating electricity
with hydroelectric dams or the burning of fossil fuels or compared
to reducing our use of electricity with dimmer lights or foregoing
the use of many things that are run by electricity and taking our
chances on alternative power sources? Once the discussion
changes to a discussion of incremental trade-offs, then nuclear
power becomes one of the safest options. But neither it nor any-
thing else is categorically safe.
These kinds of questions, which are central to safety decisions
made by those who pay the costs, are conspicuous by their absence
in third-party safety crusades. The rise of third-party safety advo-
cates in the latter part of the twentieth century has brought with it
categorical rhetoric in place of incremental analysis, and incentives
to maximize fears rather than to minimize net injuries and deaths.
A landmark in these trends was the 1965 book Unsafe at Any Speed
by Ralph Nader, attacking the safety of American automobiles in
general and a car called the Corvair in particular. This book was
not only historically important, as the beginning of a major politi-
cal trend, but was also important in setting a pattern in methods
of persuasion that have been followed by many other publications,
politicians, and organizations in dealing with issues of risk and
safety. This pattern is therefore worth scrutinizing, even many
decades later.
The thesis of Unsafe at Any Speed was that American cars were
unsafe because safety was neglected by automobile manufacturers,
142 APPLIED ECONOMICS


in order to save on manufacturing costs and not interfere with
styling, as some safety devices might. Consumers were depicted as
helpless to do anything about safety and therefore as needing gov-
ernment intervention for their protection.
According to Nader, "users of vehicles" are "in no position to
dictate safer automobile design." Put differently: "The American
automobile is produced exclusively to the standards which the
manufacturer decides to establish." More generally, one of the
"great problems of contemporary life is how to control the power
of economic interests which ignore the harmful effects of their ap-
plied science and technology."
Unsafe at Any Speed was a masterpiece in the art of persuasion,
successfully establishing several crucial beliefs about the automo-
bile industry in general, and about the Corvair in particular,
without hard evidence being either offered or asked for. The first
of these beliefs is that American automobiles are dangerous and
becoming more so. As Nader put it, in the first sentence of his
preface:

For over half a century the automobile has brought death, injury,
and the most inestimable sorrow and deprivation to millions of peo-
ple. With Medea-like intensity, this mass trauma began rising
sharply four years ago reflecting new and unexpected ravages by the
motor vehicle.


Anecdotes and selective quotations abounded to insinuate the
conclusions reached, but nowhere did Nader present automobile
accident fatality rates in America over time, for the United States
versus other countries, for the Corvair versus other automobiles, or
for countries where automobiles are produced under capitalist in-
centives versus countries where the industry is under socialist man-
agement. Such data would have supported none of the conclusions
Risky Business 143


reached. The masterpiece was in making such empirical support
unnecessary through various rhetorical devices. For example, he
quoted a critic who characterized the Corvair as "probably the
worst riding, worst all-around handling car available to the Amer-
ican public." and Nader attributed this to "engineering and man-
agement operations within General Motors which led to such an
unsafe vehicle." Experts who assessed the Corvair and its handling
more favorably”some enthusiastically”were of course not
quoted.
Despite Nader's sweeping assertions about what had been hap-
pening over a period of "half a century," he offered no statistical
data covering that span and the data that were available showed
long-term trends that were the direct opposite of what Unsafe at
Any Speed implied. While it was true, as Nader claimed, that auto-
mobile accidents were rising, it was also true that the population
of the country was rising, the numbers of cars on the road were
rising, and the miles they were traveling were rising. In proportion
to population, automobile fatality rates when Unsafe at Any Speed
was published in 1965 were less than half of what they had been
back in the 1920s. In proportion to millions of vehicle-miles dri-
ven, the fatality rate was less than one-third of what it had been in
the 1920s.
There are fluctuations in these rates, as with most statistics over
long periods of time, and in the years immediately before publica-
tion of Unsafe at Any Speed there had been a slight upward trend.
But during all the previous decades of presumably helpless con-
sumers, corporate greed, and inadequate government regulation,
the safety of American automobiles had been improving dramati-
cally, as shown by fatality rates a fraction of what they had once
been, despite more crowded roadways and higher speeds. Yet the
continuation of this decades-long trend toward reduced automo-
bile fatality rates was later credited by safety advocates and much
144 APPLIED ECONOMICS


of the media to the creation of a federal agency to regulate auto-
mobile safety, in response to Ralph Nader's book. This conclusion
was reached by the simple expedient of ignoring the previous his-
tory and counting the "lives saved" as the long trend of declining
fatality rates continued.
What of the Corvair? Here Nader scored his greatest success.
The bad publicity he unleashed was reflected in falling sales that
forced General Motors to discontinue production of the car. Years
later, extensive tests by the U. S. Department of Transportation
showed that the Corvair's safety was comparable to that of similar
cars of its era, and concluded that the performance of the Corvair
"is at least as good as the performance of some contemporary vehi-
cles both foreign and domestic." By then, of course, this informa-
tion was much too late to matter. The car was extinct”killed off
by a safety crusade that set the pattern for later such crusades in-
spired by Nader's example.
Because of its rear-engine design, the Corvair was indeed more
prone to some particular kinds of accidents”and less prone to
other kinds of accidents. No matter where an engine is placed, its
location affects the physics of the automobile, and therefore the
kinds of accidents to which the car is more susceptible and those to
which it is less susceptible. Simply by emphasizing the first kinds
of accidents”complete with gory examples”and ignoring the
second kind, the Corvair could be portrayed as an unsafe car. By
similar tactics, almost anything can be made to seem unsafe be-
cause ultimately everything is unsafe, if you ignore questions of de-
gree and alternatives.
There are trade-offs not only as regards the placement of an en-
gine, but also as regards the willingness of consumers to pay for all
the safety devices that third parties can think of putting on an au-
tomobile. However, a trade-off perspective would undermine
many, if not most, safety crusades”and not just those about auto-
mobiles. Nader dismissed talk of trade-offs as "automobile indus-
Risky Business 145

try cant"”a rhetorical response making a factual or logical re-
sponse unnecessary.
Much the same approach has been taken by safety crusaders
when it comes to the safety of vaccines and medications, which
both save lives and cost lives. No matter how many lives they save,
there will still be the inevitable tragedies because some few individ-
uals die as a reaction to being either vaccinated or medicated. (Even
a substance as common and generally harmless as peanut butter is
literally fatal to some people.) If a particular vaccine is administered
to a million children, on most of these children it may have no ef-
fect at all”that is, they were not going to catch the disease anyway
and they suffer no side effects from the vaccination. But of course
no one has any way of knowing in advance which children will be
the ones for whom the vaccine will make a difference, one way or
another. If 10,000 of those children would have been fatally
stricken by the disease from which the vaccine protects them, per-
haps 20 will catch that disease from the vaccine itself and die.
Nothing is easier than having a television camera capture the
anguish of a mother of one of the 20 dead children, crying and
inconsolable in her grief, perhaps blaming herself and wondering
aloud whether her child would still be alive if she had not had
that child vaccinated. There is no way to know who are the
10,000 other mothers who were spared this anguish because they
did have their children vaccinated. Nothing is easier for a safety
crusader than denouncing the company that produced an "un-
safe" vaccine or medicine, without telling the television viewers
that there are no other kinds of vaccines or medications”or
anything else.


Insurance and Re-insurance
Insurance companies do not simply pay their policy-holders who
have suffered various misfortunes. Like families, they seek to re-
146 APPLIED ECONOMICS


duce the risks that lead to these misfortunes in the first place. While
families have more ability to caution and monitor their members
than insurance companies have to restrain the risks taken by their
policy-holders, insurance companies try to protect themselves finan-
cially in other ways. One way is by making the reduction of risk a
precondition for issuing an insurance policy or varying the amount
charged according to the level of risk. Smokers may be charged
higher life insurance premiums than non-smokers. Insurance poli-
cies often require the policy-holder to share the costs of risky behav-
ior by paying a fixed amount of the damages incurred”the
"deductible"”before the insurance company pays the remainder.
Like a family, an insurance company also reduces its risks by
providing individuals with information about those risks. Thus in-
surance companies often publish booklets on healthy living, safe
driving, and ways of avoiding fires and other hazards. Trade associ-
ations in the insurance industry test various makes and models of
automobiles in crashes and publicize the results, thus informing
the public and putting pressure on automobile manufacturers to
produce safer cars, in addition to supplying the insurance compa-
nies with information on which to base the premiums charged for
insuring the different kinds of automobiles. Data on declining au-
tomobile fatality rates over time suggest that automobile manufac-
turers have in fact responded to consumer desires for safety, despite
Ralph Nader's rhetoric to the contrary.
Insurance not only reduces risks but transfers those risks to
where they can be borne at a lower cost. No one knows when his
home might catch fire or his automobile might have an accident
but, when an insurance company insures millions of homes and
automobiles, its ability to predict in the aggregate is much greater
than an individual's ability to predict what will happen individu-
ally. Another way of saying the same thing is that the cost of set-
ting aside resources to cover the losses is less for an insurance
Risky Business 147

company than the total of all the resources needed to be set aside
by each of the insured individuals to produce the same probability
of being able to cover the same costs.
These are not just financial arrangements that benefit particular
insurance companies or their policy-holders. From the standpoint
of society as a whole, fewer resources are held idle in the economy
as a whole when insurance reduces risks and the costs of those
risks. Just as owners of homes and businesses transfer their risks of
fire, flood, and other damage to insurance companies by paying
premiums, so the insurance companies themselves can transfer
part of their risks to re-insurance companies, at a price. In both
cases, risks are not simply transferred but reduced.
If a given insurance company located in the American midwest
has a concentration of homeowners' policies in the Ohio valley, a
flood in that valley could be financially devastating to that insur-
ance company. However, if it transfers a major part of its liabilities
to a re-insurer like the Swiss Reinsurance Company (better
known as "Swiss Re"), then this international re-insurer's risk of
simultaneous floods in the Ohio valley, the Rhine valley, the Nile
valley, the Danube valley, etc., is far less than the local insurance
company's risk of a flood in its region.
Since there are well over a hundred re-insurance companies
around the world, no single re-insurer may have taken on all the
liability for the Ohio Valley, and each re-insurer will have a
geographically more widespread set of risks than a local primary
insurance company has. In short, the whole insurance and re-
insurance industry will have lower risks than any given primary
insurance company would have, especially if the primary insurance
company has customers concentrated in a particular geographic
area. Therefore it is relatively cheaper to insure homes and indus-
tries along the banks of various rivers around the world than to
insure those along the banks of any one of those rivers.
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