Tuesday, 12 October 2010

More on That Fire

By now everyone's probably familiar with the Obion County fire incident (if not see here). It has led to a debate about Libertarianism and how, supposedly, awful it is that the fire was not put out. Many have defended the position by pointing out how the insurance system works.

Yesterday I blogged on this point and a commenter called fraser pointed me in the direction of this post on Mises.org. That post argues that this was not the free market in operation because in the free market they would have put out the fire and sent the bill afterwards:
In a real market, there is no way that a free-enterprise fire service would have refused to provide the homeowner service. They would be in business to provide that service. The fire would have been put out and he would have been charged for the service. It is as simple as that. It is the same as lawn-mowing services or plumbing services or any other type of service.
Now, it is certainly true that I am not anywhere near as intelligent or learned as those guys but I think they're wrong here. There is a big difference between the services mentioned in their post and fire services, the difference being the cost. For some services it is entirely reasonable to pay after the fact but not for the fire service. It's just too expensive for most people.

The London Fire Brigade, for example, had an operating cost of £422.3 million in 2008/09. In that year they dealt with 138,385 incidents. Of those 29,215 were fires, 64,374 were false alarms and 44,352 were other non-fire related services. I assume that the cost of putting out a fire is much larger than the cost of dealing with a false alarm or freeing someone from a lift. So some quick calculations - if all services were charged the same the cost per incident would be about £3,000. But in reality putting out a fire would be much more, say at least £10,000.

How many people could afford to pay that after their house is damaged by a fire? Not many I suspect. So in reality, I think, a private fire service may well refuse to put out some fires on the basis that they cannot make any money doing so. Certainly there will be some fires that will not be put out.

What's more, this is a matter of historical fact. In the years when London did not have a State fire service but rather a series of privately provided ones, they did not always put out fires in those properties owned by people who did not have insurance with them.

We can believe that the market is better at providing services and defend it when that means that people who do not pay do not receive. We do not need to insist, though, that it is perfect and will never lead to results that leave some people worse off.


  1. But I think my insurance company would be glad to pay £10,000 rather than the rebuild cost of my house, so faced with a burning building a private company would take the punt that it was probably insured and they would get paid.
    Also private companies are rather sensitive to bad publicity and maybe less rule ridden.
    All the stories of people drowning etc as safety professionals look on involve public servants rather than private indivduals

  2. You may be right. But the point is that you may be wrong. It's a fallacy to assume that nothing stupid can happen in a free market. It's a fallacy to suppose that nothing bad can happen in a free market. To that end we must surely accept the possibility that in a free market sometimes people's houses would be left to burn down. And if we cannot stand the notion of that then we cannot accept the notion of leaving things to the free market.

  3. Interesting. I love the idea that I can mention some idly constructed thought and you go off and do all the research of the figures.

    Do we know if his house was insured? I assume most house insurance is sold in the understanding that a fire service exists, so if your contract with them lapses, it's possible it would void your insurance. If the premium does not take the existence of a fire service into account, perhaps it's because the cost of rebuilding a burnt and water sodden house is not significantly different from the cost of rebuilding one that just burnt down.

    It's even possible (depending on their response time and effectiveness) that a fire service is (on average) of no benefit to saving of the structure, but useful to rescue people and stop fires spreading to adjoining houses.

  4. It's a fallacy to suppose that nothing bad can happen in a free market.

    It depends by what you mean by "bad"

    This is a problem of freeloaders. The idea of allowing the house to burn down is to discourage freeloaders.

    Which is worse: A freeloader demanding and receiving a service which they are not prepared to pay for or the freeloader's house burning down.

    If we follow the categorical imperative then the householder was performing an immoral act. If everyone acted as he did then the end result would be everyone's house would burn down.

    So which is worse?

  5. And to change the theme slightly. It is a common strategy of those on the left to compare a utopian outcome with the current reality. Yet too often the results of intervention produce worse outcomes. As Voltaire said the good is the enemy of the perfect

    No one on the right imagines that Capitalism or the free market is perfect. Merely that it is less bad than all the alternatives. If someone wants a service then the free market (unregulated) will provide it. We don't believe that it will be equitable or fulfil some 3rd party notion of fairness, merely that the buyer and the seller in each transaction think it fair.

    The big idea is that the state regards the private provision of fire services as a bad, not because of the actual work it does but because some people decline to voluntarily fund it and consequently don't get covered. So they eliminate the choice and force everyone to pay for it.

    We see the same thing time and time again. People buy houses on flood plains and inevitably they get flooded. Their insurance doesn't cover this so the state steps in to correct this bad and they get aid. In effect the state pays the insurance premiums of people who fail to look after themselves. Meanwhile the people can't afford to pay realistic insurance premiums because they live on a flood plain. The insurer can't insure to the same standard as any other house so they up the rate to a realistic level or limit their liability. The builders can build on flood plains because it has become established that the state will pay out for floods. Thus the "good" drives "bad" behaviour.