Risk

Risk is something which we all have to deal with to some extent. We do everything knowing deep down that each action has a risk associated with it. You put your foot wrong on the pavement or step on a patch of ice, you could fall. If you attack someone for no reason, you will likely face some form of justice (be it the long arm of the law, or something more traditional, like “rough justice”). Whatever you do has a risk, and there are many things you can do to mitigate them, or make other people responsible for them for a fee. Those risks might never affect you significantly, or then again they might impact you every single day.

Assessing Risks

Being able to assess risks effectively is something we slowly learn over time, most often from our mistakes. By making decisions and seeing how things go wrong, finding out what you didn’t consider before, or working out that your whole idea was flawed from the start, are all processes we must go through to be able to better assess risks personally. From a planning perspective, there are formulas that can be used to quantify known (and to some extent unknown) risks, so businesses can assess if an action will yield a positive or negative result to them, but many risks are not easy to measure.

Can I abide by these terms?
Can I pay this back?
What if my company goes under?
Can I afford to go without this insurance?
Do I really need this, or can I go without and save up for that other thing I really want & need?

These questions are all examples of risk assessments made during a range of decisions. It is these types of question that people should be asking with every purchase they make.

Here is a use case of what I'm describing: If you go over your weekly budget for instance, you will run out of cash. This means you’ll need to adjust your expenditure for next week or risk getting into debt. For some that will not be a problem, while others (like me) do what they can to prevent those added and technically unnecessary costs. Be it taking out a mortgage or a loan, to buying something frivolous this week, we all assess and evaluate risks in the terms of ourselves first, and others second. Some may choose to ignore risks that would impact themselves in favour of helping protect others, while some are only out for number one. Regardless, risk management, risk taking, and risk assessment are fundamental mechanisms to human social interaction and economics.

Why Risk Matters to All Market Economics

This mechanism is crucial to the proper functioning of a free market. Market problems begin to appear, however, when government does anything to mitigate those risks for everyone. The reason why government causes this risk mechanism to fail is the government's ability to quantify and quantise the value of those risks. By assigning a set punishment for damages done to individuals and the environment, or by saying “this action is okay to do under law”, governments allow companies to make a clear judgement call on the expected costs to behaving in an unethical manner. In a free market, those costs become unknown risks, and could be crippling to any company (depending on how big a risk was taken).

Types of Risk

Known, quantified risks are inherently less risky than unknown risks. Unknown risks are variable - society determines the cost of taking them, and as most people are rarely forgiving when you knowingly injure them in some way. They are significantly more costly to bad/unethical decisions than any government regulations. Think about it - when was the last time you saw a government jail a CEO of a bank for instance, or force them to publicly accept liability for bad trades and decision making? What about a big drug company for producing drugs with seriously scary side effects?

Fearing Risks & Why This Causes Societal Problems

Risk is scary, and it should be mitigated, but not arbitrarily and not by a central system. Your life being ruined by some corporation’s big mistake shouldn’t be quantified by some suit in Washington DC, under the pay of a lobbying company on behalf of those who harmed you. It should be something that you can quantify as a cost with far more accuracy than any government institution ever could hope to do. And if that cost exists, it should be paid by those who incurred it. If your bad decisions caused it, you can’t blame anyone but yourself, but if someone else caused it they should be responsible. Right now, both government & the malfeasant actors are to blame.

We can keep hoping government will do that work on our behalf, and keep getting disappointed by the lack of any real recompense or lesson being taught to those that commit these acts of aggression against us, our property and our environment. Or, we could try something more novel – remove government from the process, assess the risks using the private means we always have had, and see what society as a whole actually thinks is good or bad behaviour. It would definitely reduce the number of insane activities that are taken, just because every unethical action would become just that bit more risky than it was under government.

Arbitrary Risks & Why You Should Not Care

There is one more type of risk that government deals with - arbitrary risks. These are risks that the government creates of its own volition on its own (or its sponsor's) whims. The justification for these types of risks is to "protect the security/moral fibre of the people". These "risks" would not exist without government making them risky. The prime example of this type of risk is prohibition, which today is carried out via the drug war. By criminalising drug use and trade, governments manufactured a black market from an open one, and made what would have been either an agricultural or pharmaceutical sub industry into a market controlled by ruthless drug cartels and criminals.

The reason those individuals control that market is the inherent risks are only profitable to those who are willing to risk everything, including their lives & the lives of others, for huge returns. Decriminalisation of drugs would bring it back under society's control, allowing everyday individuals to grow and produce drugs at a sensible price, without having to worry about their neighbours trying to murder or imprison them for a quick buck.