Society gambles with finance and nuclear industries

In the US and elsewhere, even plants that have the same flawed design as Fukushima continue to operate. The nuclear industry’s very existence is dependent on hidden public subsidies – costs borne by society in the event of nuclear disaster, as well as the costs of the still-unmanaged disposal of nuclear waste….

As a society, we are gambling – with our big banks, with our nuclear power facilities, with our planet…..the lucky few – the bankers that put our economy at risk and the owners of energy companies that put our planet at risk – may walk off with a mint. But on average and almost certainly, we as a society, like all gamblers, will lose.

One egg; one basket – you weigh the risk, The Age, Joseph Stiglitz, April 8, 2011 Joseph Stiglitz is university professor at Columbia University and a Nobel laureate in economics. Once-in-a-lifetime events are raining down thick and fast.

THE consequences of the Japanese earthquake – especially the crisis at the Fukushima nuclear power plant – resonate grimly for observers of the American financial crash that precipitated a big recession. Both events provide stark lessons about risks, and about how badly markets and societies can manage them…..

Experts in both the nuclear and finance industries assured us that new technology had all but eliminated the risk of catastrophe. Events proved them wrong: not only did the risks exist, but their consequences were so enormous that they easily erased all the supposed benefits of the systems that the industry leaders promoted….

These wizards of finance, it turned out, didn’t understand the intricacies of risk, let alone the dangers posed by ”fat-tail distributions” – a statistical term for rare events with huge consequences, sometimes called ”black swans”. Events that were supposed to happen once in a century – or even once in the lifetime of the universe – seemed to happen every 10 years. Worse; not only was the frequency of these events vastly underestimated, so was the astronomical damage they would cause – something like the meltdowns that keep dogging the nuclear industry……

By some accounts, how the last crisis was managed may have increased the risk of a future financial meltdown. Banks too big to fail, and the markets in which they participate, now know that they can expect to be bailed out if they get into trouble….

As a society, we are gambling – with our big banks, with our nuclear power facilities, with our planet. As in Las Vegas, the lucky few – the bankers that put our economy at risk and the owners of energy companies that put our planet at risk – may walk off with a mint. But on average and almost certainly, we as a society, like all gamblers, will lose.

That is a lesson of Japan’s disaster that we continue to ignore at our peril.

Joseph Stiglitz is university professor at Columbia University and a Nobel laureate in economics.
One egg; one basket – you weigh the risk