Christchurch: Of Earthquakes and Free Markets.

Mark Hubbard's picture
Submitted by Mark Hubbard on Tue, 2012-01-17 01:23

The following is simply a posting I've made to about insurance issues arising from the Christchurch earthquakes that are stopping, or slowing, the rebuild of the city, including CBD. My post is in response to the first comment to the relevant thread demanding that the government must intervene in the insurance market by setting up a government insurer to cover those who can't get ongoing insurance if they are to rebuild.

A huge natural disaster, like the Chch earthquake, does raise to the fore, and clarify, many of the issues over a free market (hence, free lives) versus State planning (planned lives). It's easy to go to the 'gut feel' approach that government must intervene, but I don't believe it stands up to scrutiny.

What you're saying is, private insurers are seeing too much risk in a certain area, so government should insure that area as they have access to the huge pool of (forcibly extracted) taxation. That is, because the government can simply take the money, they don't need to consider risk (of losing that money). I have two initial responses to that:

1) I've just explained in the above paragraph why Europe and the US are seeing the destruction of their middle class under a growing national debt - to say nothing of how the individuals in those societies are daily losing their freedoms from a growing coercive State, especially via the police state powers given to the IRD's to extract taxation. Countries going broke by governments racking up losses through throwing money into malinvestments, such as the bank bailouts, such as the welfare state. And the likely outcome of that, including civil unrest, or even war, is far worse than losses of a localised earthquake.

2)A Government able to ignore the 'cost of risk', via a pool of tax money, providing ongoing insurance so people can live and work in areas that are deemed too dangerous by private insurers, can be argued to be endangering the lives of all those people by giving them a false sense of security to live in an area that is downright dangerous to live.

Perhaps those parts of Christchurch that private insurers see as too risky to insure, are too risky to be rebuilt. That's the market signal. An unintended consequence of government intervention overriding that signal may literally be the deaths of individuals, and certainly the pointless destruction of taxpayer money, plus with that, freedom.

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A very good Stephen Franks post on Chch Earthquakes:

Mark Hubbard's picture

The spontaneous order that arises from free markets cannot be beaten for solving complex problems:

The decentralised initiative that made countries rich, which protected property rights and individual freedoms (and responsibilities and liabilities) is never more valuable than in the face of overwhelmingly complex problems. At such a time central planners, terrified of hindsight criticism and armed with the excuse of the 'precautionary principle' can stifle everyone but the most determined or the most powerful. They can never know enough at once to liberate the energy waiting to burst out from ordinary people in reconstruction and fresh starts.

So everyone is made dependent waiting for permissions and certainty that rarely comes.

Every day's a school day

Richard Goode's picture


unusual; notable; outstanding (

Notably out of the ordinary; distinguished or conspicuous (Collins English Dictionary)


Mark Hubbard's picture

A post signaling what?


Richard Goode's picture

A signal post.

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