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Catching a Falling Financial Knife

The TSA's False Tradeoff

Politics / Gold and Silver 2010 Nov 25, 2010 - 11:28 AM GMT

By: Robert_Murphy

Politics

Best Financial Markets Analysis ArticleThe national furor over the TSA's new procedures — culminating in yesterday's "Opt Out Day" — has elicited the typical response from the bureaucracy and its apologists. Why, these invasive scans and "enhanced pat-downs" are only for your good, in order to ensure safe flying. You don't want another attack, do you?


This is a false tradeoff. Especially in the long run, there is no tension between freedom and safety. If airport security were truly returned to the private sector, air travelers would achieve a much better balance of privacy and legitimate security measures.

The Calculation Problem

Whenever considering government versus market provision of a good or service, we should recall Ludwig von Mises's famous critique of socialism. Specifically, Mises argued that even if the central planners were angels, intending only the best for their subjects, and even if these angels were fully informed of the latest technical knowledge, nonetheless they would be groping in the dark when they tried to design a blueprint for the entire economy.

The socialist central planners would suffer from a calculation problem, meaning that they couldn't evaluate whether a given enterprise — such as a car factory or a farm — was making efficient use of society's scarce resources. Sure, the car factory might be cranking out vehicles that the comrades enjoyed driving. But that alone is not enough to prove that the car factory is economically efficient. For all the planners know, the resources (steel, rubber, labor hours) going into the production of the cars could be diverted into other lines, increasing the production of items that the comrades enjoy even more than the cars.

The market economy solves this problem effortlessly through market prices and the profit-and-loss test. If a car factory is using up resources that consumers would prefer go into alternate sectors, this fact manifests itself objectively when the accountant announces that the car factory is "losing money." After all, to be unprofitable simply means that the car factory cannot earn enough revenues from its customers in order to pay the prices for resources that other entrepreneurs are able to afford. That is the sense in which consumers are "voting" (through their spending decisions) that the car factory either reform or shut down.

In Mises's view, the fundamental superiority of the market economy over socialism was not that entrepreneurs happened to be bold innovators, while government bureaucrats were dull yes-men. No, the problem was an institutional one. In the market economy, the factors of production are privately owned, which allows the generation of market prices for every unit of every resource. Thus people in the private sector get immediate and constant feedback on the success or failure of their operations. There is nothing analogous in government, because its "customers" cannot withhold their purchases if they don't like the "services."

The Calculation Problem and the TSA

When it comes to the apparent tradeoff between privacy and security, the TSA suffers from the same calculation problem that plagues all socialist agencies. The proper balance of the various considerations cannot be discovered through some "objective" procedure if it doesn't involve private property and market prices.

Consider: Even if there are no further terrorist incidents on planes, that won't prove that the new patdowns and scans were the right thing to do. For one thing, it's possible that there are other security procedures, which do not humiliate large numbers of customers, that would yield the same success of zero incidents. In that case, the current TSA procedures would be inappropriate because they cause needless suffering with no offsetting benefit.

"In the long run, there is no tradeoff between freedom and security."

But more importantly, it's possible that the "efficient" number of terrorist incidents — for the rest of US history — is not zero. In fact, no matter what procedures are implemented, it's always possible that wily terrorists will still manage to beat the system. In real life, we can never guarantee safety. This is why so many pundits' discussions of airline travel miss the mark completely: they assume that there is some objective answer of "the right" amount of security, when this is a complex economic question.

To see this last point, we should switch from terrorism to something far less emotional: car crashes. If the government completely nationalized automobile production (something that may happen eventually), and insisted on making a uniform model for every driver in America, we would hear the pundits discuss various issues in the abstract.

For example, Rachel Maddow might argue that the government-issued cars should have three sets of seat belts, air bags for every passenger, and a top speed of 55 miles per hour in order to contain healthcare costs (which would also have been completely nationalized by this point). On the other hand, Sean Hannity might go ballistic over the nanny-state regulations, and point out that the Founding Fathers didn't even have mirrors on their stagecoaches.

The Market Is the Only Solution

Yet such hypothetical arguments over "the correct" amount of vehicle safety would be absurd if they conceded the premise that the government should set the standard and apply it uniformly to everyone (except for the politicians, who would get to drive vintage Ferraris). The only way to solve the conflict would be to privatize car production and allow consumers to spend their money, focusing on whatever attributes they cared about the most.

The same conclusion holds for air travel. Only in a truly free market — where different airlines are free to try different approaches to safety — could we approach a sensible solution to these difficult questions. Passengers who don't mind invasive scanning or sensitive inspections could patronize airlines offering these (cheap) techniques — assuming they were really necessary to achieve adequate safety. On the other hand, passengers who objected to these techniques could pay higher ticket prices in order to fly on airlines that hired teams of bomb-sniffing dogs, or set up very secure prescreening procedures (perhaps with retinal IDing in order to board a flight), or implemented some as-yet-undreamt-of method to keep their flights safe, without resorting to methods that their customers found humiliating.

The Role of Insurance

Most people who are sympathetic to the free market would endorse the above sentiments, but with one nagging concern: How does the airline take into account the huge damages imposed on others if one of its planes is hijacked?

One possibility is that the legal system would hold airlines strictly accountable for such property damage, and that the airlines would need to purchase massive insurance policies before obtaining permission to send giant steel containers full of jet fuel hurtling over skyscrapers and shopping malls.

I spell out the mechanics of such a system here. For our purposes, let me deal with one possible objection: Someone might say, "But what happens if an airline has lax security, and terrorists use it to cause an enormous amount of damage, wiping out their insurers? That's why we ultimately need the government in charge of security."

Yet I could pose the same question: What happens if the TSA screws up, and a major terrorist incident occurs? Will John Pistole and his immediate staff be fired? Will the TSA itself have its budget gutted? And who is to say that even the US federal government could "afford" such a catastrophe?

Once we consider the incentives (and lack of consumer feedback) plaguing the TSA, we realize that not only will it err on the "invasive" side of the spectrum, but that it will do so ineffectively.

Here's one obvious example that numerous people have pointed out: What's to stop a terrorist from placing a plastic explosive in an area where it would not be detected by even an "enhanced patdown"? Therefore it is not even true that these scandalous new procedures "at least keep us safe."

Conclusion

As Murray Rothbard pointed out, most of the vexing "social problems" of the day would fade away if we lived in a voluntary society based on private property. This result holds in the specific application of airport security.

In the long run, there is no tradeoff between freedom and security. To paraphrase Franklin, those who would consent to temporary groping in order to avoid terrorism will end up with both.

Robert Murphy, an adjunct scholar of the Mises Institute and a faculty member of the Mises University, runs the blog Free Advice and is the author of The Politically Incorrect Guide to Capitalism, the Study Guide to Man, Economy, and State with Power and Market, the Human Action Study Guide, and The Politically Incorrect Guide to the Great Depression and the New Deal. Send him mail. See Robert P. Murphy's article archives. Comment on the blog.

© 2010 Copyright Robert Murphy - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Paul
25 Nov 10, 14:55
crotch bomber

Bearing in mind that the "Crotchbomber" in who's name much of this securtiy layering has been added was assisted around the screening processes at Schipol airport by persons witnessed yet still unknown, then security is not what this TSA nonsense is about. Obediance maybe but certainly not security.


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Catching a Falling Financial Knife