Friday, October 21, 2016

Health and Safety Class vs. Standard Economics of Risk

For work I'm required to take a health and safety class for eight hours every week. What I take away from the class is how to cover my ass as an employer, but the instructor wants me to take it a step further. He wants me to believe in the regulation, when I simply don't.

One tactic he tried to use to get me to become a believer is storytelling. He told us about a friend who had an accident at work (of course it was all the employer's fault). As a result of the accident, her elbows were permanently damaged. Here's the crux of his argument; she could no longer pick up her child because of the accident. "You can't put a price on that," he said. The whole room nodded, except for me.

Suppose we could go back in time and shut down the entire multi-million dollar firm she worked for. Without the firm, she never hurts herself and she can pick up her child again. Should we shut down the firm? As soon as you say no, you've just put a price on her ability to pick up her child. If you say yes, you should really shut down pretty much every industry ever because accidents will always be possible. And with so many potential people for an accident to happen to, it will happen to one of them no matter how low the risk.

These people see the purpose of legislation as reducing risk to as close to 0 as possible. A more sensible task is to move risk to the level that a fully informed, sensible person would have if all the costs and benefits belonged to him.

If I as a reasonable person stand on a counter in my kitchen to get a bag of chips,
The chips are mine if I succeed
The damage is mine if I fall
I know the risk of me falling is very small (less than 1%)
I know the risk if I fall of me doing serious damage is pretty small (less than 10%)
I still stand on the counter in my kitchen to get a bag of chips,
Then that is a reasonable risk, and a risk that I should be able to take at work

look, there are lots of economists who think the health and safety regulation is good. That's not what I'm disputing. Of course there are times when an employer receives the benefits and an employee receives the risk and there's a market failure there. The real question then is what would the risk level be if the employee received the all benefits or if the employer were taking all the risk. That's the risk level to shoot for. That's the target. The risk level currently being shot for is 0, and you can see that in the pages and pages of legislation we go over that tries to prevent any possible harm.

If tragic stories keep substituting for statistical competency and the standard economic logic of risk, the world will never be as good as it could be.