August 22, 2005

Hazardous government

Matthew E. Kahn writes:
When people anticipate that government intervention will protect them against future price spikes, they have little incentive to take precautionary steps today that in aggregate would green our economy.
He is talking about oil and the role of the US government in, for example, lobbying the OPEC to increase supply or subsidizing oil prospecting. This reminds me of how the industries most closely dependent on natural resources are especially likely to experience the same kind of moral hazard. Because they expect government to come to their rescue when things go wrong (during droughts, floods, fires or oil spills) people have less incentive to leave agriculture, forestry or fisheries for other activities. Activities less related to natural resources tend to be inherently less risky and less environmentally destructive. This is another instance of government harming the environment.

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