In the aftermath of the Grenfell Tower fire,
Jeet Heer posted what seemed to me a thoroughly ungenerous Tweet aimed at Megan McArdle, a frequent punching-bag for the Twitter left. (Full disclosure: I regard Megan as a friend, and intensely admire her book on failure, The Upside of Down.)The Tweet has a picture of a friend of one of the victims, and reads (in full) â€œMegan Mcardle [sic] should tell him that libertarian cost/benefit analysis proves his friend’s death is totally worth it.â€ Since the original Tweet didnâ€™t link to anything McArdle had written, it looked as if Heer had simply picked her at random as his target.
But that wasnâ€™t in fact the case. The Tweet was an allusion to a McArdle essay on Bloomberg NewsÂ headlined â€œBeware of Blaming Government for London Tower Fire.â€ And while that piece does not in fact say that the deaths in Grenfell Towers were â€œtotally worth it,â€ it really is just about as unfeeling as Heer makes it out to be. Worse (from my somewhat unusual perspective), itâ€™s also a catastrophically bad piece of policy analysis. This is a case where the self-parody is even meaner than the parody. As someone who teaches and practices benefit-cost analysis, let me say that Meganâ€™s essay is the sort of thing that gives the rest of us cold-blooded, heartless bastards a bad name.
To start with the facts. (Mike Oâ€™Hare has more here.) Grenfell Towers was a â€œcouncil estateâ€ (British for â€œpublic housing projectâ€) housing mostly refugees. It had about 600 residents, approximately 30 of whom died when the whole building went up like a torch. Roughly every fire-safety measure that could have been ignored was ignored: the building had no sprinkler system or external exits and its external cladding was of non-fireproof material. Replacing that cladding with fireproof material would have cost about Â£5000 ($6000).
- Safety measures cost money.
- Money has alternative uses (including other safety measures).
- Sometimes safety trades off against convenience (e.g., in determining highway speed limits) and itâ€™s not obvious that the trade-off should always be made in the interest of safety.
- Benefit-cost analysis is the right way to make such decisions.
- Markets outperform governments in making such benefit-cost calculations.
- Until we do the calculation in this case, we canâ€™t know whether (considered ex ante) the decisions not to install specific fire-safety measures at Grenfell Towers were wise or not. (Obviously, if you knew the tower was going to burn, youâ€™d want to do lots of things to that specific tower that might not make sense for the average tower, which has only a tiny probability of burning.)
The article quotes approvingly the former Tory housing minister telling Parliament â€œWe believe that it is the responsibility of the fire industry, rather than the Government, to market fire sprinkler systems effectively and to encourage their wider installation. â€¦ The cost of fitting a fire sprinkler system may affect house building — something we want to encourage — so we must wait to see what impact that regulation has.â€ Later, McArdle adds â€œAnd [the minister] is surely right about one thing: When it comes to many regulations, it is best to leave such calculations of benefit and cost to the market, rather than the government. People can make their own assessments of the risks, and the price theyâ€™re willing to pay to allay them, rather than substituting the judgment of some politician or bureaucrat who will not receive the benefit or pay the cost.â€
Let me take the points one at a time. Points 1 through 4, I would argue, are not only true but more or less obvious: thereâ€™s always something else to do with (the resources represented by) the money a safety measure costs, and whether any given safety measure is cost-justified is a question that can be answered only by calculation. And Matt Bruenig is wrong to say that the question is the same for all residents, regardless of income; being poor means that you have more urgent uses for the next dollar than your rich neighbor does. (That’s part of the case for income redistribution.)
Point 5 seems to me a half-truth; there are disadvantages and irrationalities in private as well as public decision-making, and which is to be preferred needs to be resolved case-by-case.
But itâ€™s on Point 6 that I want to say, â€œOh, come on!â€ In this case, you can do the relevant calculation on the back of the nearest envelope, and you conclude that whoever made the decision to clad that building in non-fireproof material made an obvious mistake.
To do that calculation you need four assumptions:
- The cost of the safety measure in question (counting the value of any inconvenience or loss of amenity as well as money).
- The value of whatever that safety measure is protecting.
- The probability that the situation in which that measure is protective will arise. (In this case, that would be the probability that a given high-rise apartment building suffers a structural fire over the useful life of the safety measure in question.)
- The probability that having that safety measure in place will prevent that loss when that safety measure comes into play. (In this case, the improved survival rate among building residents.)
(Iâ€™ll simplify a bit here by ignoring risk-aversion, the time-value of money, non-fatal injuries, property damage, and the impact on the public of big disasters as opposed to routine one-off losses such as auto-accident fatalities.)
So letâ€™s look at the fire-resistant cladding question. As noted, the cost of fireproof cladding would have added about about Â£5000 ($6000) or about $10 per tenant, to a Â£8.6m renovation project.
The value of avoiding an early death â€“ based on actual market behavior with respect to wage premiums for riskier jobs – is about $10 million. (That’s a U.S. number; since the UK isn’t as rich as we are, you’d expect the willingness-to-pay for safety to be somewhat lower there.) So fire-resistant cladding would have been worthwhile if the it reduced the probability of the average tenantâ€™s death by one in a million.
I donâ€™t know the rate of structural fires in high-rises (of course it depends in part on building codes) but even if we assumed what seems like a low value of one in ten thousand over the lifetime of the cladding, fireprooofing would only have to improve tenant survival rates in case of a structural fire by one percentage point to be cost-justified. C’mon! Ask me a hard one!
So even if the Monday-morning-quarterback reaction â€œSomeone should have done something to prevent this! Letâ€™s figure out who that was and string him up!â€ is unjustified I general, in this case the reaction â€œWhat idiot used non-fireproof materials to renovate a tall apartment building?â€ is completely justified.
Retro-fitting sprinklers in an existing building is substantially more expensive; to do that calculation precisely youâ€™d need more assumptions and a bigger envelope.
What doesnâ€™t make any sense at all is the idea that somehow â€œthe marketâ€ can answer the problem. The eventual â€œbuyerâ€ of rental housing is the tenant. Do you really expect every tenant to learn enough about fire-safety engineering in the abstract, and the specific conditions of alternative units, to calculate the comparative fire risks of one unit compared to another, and factor that calculation in along with rent, amenity, space, and location in choosing a place to live? I mean, seriously?
Itâ€™s obviously more efficient to have some experts make the calculations and establish appropriate minimum standards. Will that process work perfectly? No. Will it wind up forcing poorer people to pay for a little bit more safety than they really want (given the constraints they face and the alternative uses of that money) because somewhat more prosperous people are writing the regulations and casting most of the votes? Sure. But the idea of letting the distribution of sprinkler systems depend on the skill of sprinkler salesmen really doesnâ€™t pass the giggle test.
In this specific case, the tenants were apparently aware they were living in firetrap, and complained repeatedly to the local authorities about the negligence of the company that had the contract to operate the building. (Think about this the next time someone tells you that contracting-out to the private sector is far more efficient than having things done by public employees.)
So, even allowing for the benefit of hindsight, outrage about the negligence of the public authorities and their contractors in this case seems overwhelmingly justified.