How to reduce the deficit

I have a technique that I developed years ago to drive my wife crazy. It has been so successful I have decided to generalize it to the rest of society. Two examples illustrate.

Restaurant portions are so large that I can’t finish my meal. When the waitress offers to “box it up” for me I ask her to just bring the box and I will do it. A hundred years ago, when we were first married, my wife asked why I did that.

I told her that I wanted to make sure I took home my own food. I did not want my plate mixed up in the kitchen with a meal that had been partially eaten by someone at another table. My young wife challenged: “What are the chances of that?” to which I replied that was not the issue. The question was how to make the chance zero.

We belong to the YMCA, where we exercise regularly. The facility has a large indoor swimming pool. The enclosing structure is steel and concrete with a translucent Plexiglas roof.

As I backstroke down the lap lane, I notice four fire sprinkler lines neatly mounted on the interior of the steel roof. I asked one of the lifeguards to call me immediately if the pool or any of the surrounding glass, cement or steel catch fire and set off those sprinklers.

Now for a little theory. Probability in the simplest sense is a division problem. You count up all the things that can happen and divide that number into all the things that will happen, almost always a smaller number.

The result is a number between zero and one, which represents some percentage chance that an event will happen. Sensitivity to this simple calculation in our day-to-day lives can result in significant benefit individually and collectively.

The restaurant and swimming pools examples may be broadly applied. Both are risk-reduction methodologies. The restaurant case is an example of a benefit without a cost. The waitress takes the same amount of steps delivering the box whether it is empty in both directions or just one.

Conducting your life such that the numerator of the probability fraction approaches zero reduces risk and improves the result of various choices life presents. Often such behavior is costless. It also reduces your burden on society.

The swimming pool example describes the reverse, a cost without a benefit. The chance that the swimming pool or any part of its non-flammable enclosure will catch fire is exactly zero.

The installation of a fire sprinkler system is one of many examples one can find where a costly regulation is mindlessly applied, confounding common sense. Nonetheless, society spends scarce resources on such foolishness every day.

There is a respectable accounting literature comparing rules-based systems with principles-based systems. Upon that foundation one may build a way of thinking about the risk management problem on an individual, day-to-day basis. Such thinking can be extrapolated nationally and lead to cost savings.

As the name implies, a rules-based system attempts to counter every eventuality with a rule to be followed without exception. As facts combine in a complex world, conditions inevitably arise that are not covered by a rule. The reaction to an exception is to create another rule.

Thus we end up with thousands of unenforceable laws. As inevitable as exceptions are, equally inevitable are rules that contravene logic and common sense. Such rules put fire sprinklers over swimming pools.

I would be remiss if I did not acknowledge that the installation of fire sprinklers always benefits the contractor who is paid to install them. Trade associations advocate laws requiring ubiquitous installation of their constituents’ product. This is where a principles-based system can thrive. The overarching principle is that no law should be passed imposing a rule on all benefiting only a few.

The application of this principle to hundreds of laws and regulations at every level of government can reduce government spending as much as the elimination of fraud and waste.

At the same time, the regular application of simple, rational risk analysis in our individual daily lives in thousands of small ways moves responsibility for outcomes to each of us, where it belongs. Years of this sort of thinking have either lulled or numbed (depending on who you ask) my wife into a feeling of security in our retirement years.

We are, in part, a nation of stupid laws. We need not be a nation of stupid people.

Brown is an investor and freelance writer residing in Alpine.

User Response
0 UserComments