Risk, growth, and political division

This post is a response to A Red/Blue Risk Divide by Allison Schrager in City Journal.

I encourage everyone to read the full piece, but here are some relevant excerpts:

Risk is fundamental to growth, but everyone has a different tolerance for downside risk and a different willingness to pay to reduce it. How we value these trade-offs and impose choices on citizens explains part of the partisan divide that has emerged in America.

The world was always risky; famines and disease outbreaks regularly killed many people. But market economies offered more wealth and scope to diversify and insure. Differences in wealth, culture, and urbanization meant that the welfare state developed unevenly across America.

Red states and counties have a history of protecting individual risk-taking over imposing risk reduction... We often think of blue states as being more open and tolerant of individual freedoms; they were the first to allow gay marriage, for example, and are more liberal on transgender issues. But openness to social change is only one aspect of risk. When it comes to other issues, blue states often stress protecting the community over individuals’ right to take risks and bear the consequences.

If America could make these choices less divisive, perhaps it could strike a better balance between risk toleration and risk mitigation.

Schrager assesses the Red/Blue risk divide in a sensible way, pointing out that each side is generally (though not always) more comfortable with some types of risk and less comfortable with others. She also reminds us that risk is a necessary precondition for growth. My only addendum, then, is to put a sharper point on the idea that the mechanism for mitigating risk is inextricably intertwined with the willingness to take a certain kind of risk, specifically the kind that the political Right is currently more interested in taking.

That is, the challenge is not just about balancing two competing interests, where one side wants to steer the car left and the other side wants to steer the car right. Rather, because risk mitigation in the form of welfare and regulation is expensive, there is a kind of feedback loop where the steering wheel will become harder to turn in either direction the further we stray from the equilibrium of balancing risk toleration and risk mitigation. For instance, a Left without a Right would fall out of equilibrium by slowing (or even reversing) growth so much that the ability to pay for risk mitigation (welfare, regulation, etc.) would begin shrinking.

On the other hand, a Right without a Left might likewise fall out of equilibrium by reducing risk mitigation to such an extent that it would reduce the appetite for taking on meaningful, entrepreneurial risks. (Friedrich Hayek, after all, thought that capitalism could benefit from the state ensuring certain kinds of security for individuals.) The two sides need each other, whether or not they are willing to recognize it.

This still leaves us in the ever-fraught position of trying to agree on where we stand today within the landscape of risk. But sharing an understanding of the map, itself—how risk interacts with growth, and how growth interacts with latitude—should give the Left and Right an appreciation for each other. Without that understanding, however, we seem destined to make decisions about risk more political and divisive.