When All Else Fails: Government as the Ultimate Risk Manager

by David A. Moss

One of the most important functions of government―risk management―is one of the least well understood. Moving beyond the most familiar public functions―spending, taxation, and regulation― When All Else Fails spotlights the government’s pivotal role as a risk manager. It reveals, as never before, the nature and extent of this governmental function, which touches almost every aspect of economic life.

In policies as diverse as limited liability, deposit insurance, Social Security, and federal disaster relief, American lawmakers have managed a wide array of private-sector risks, transforming both the government and countless private actors into insurers of last resort. Drawing on history and economic theory, David Moss investigates these risk-management policies, focusing in particular on the original logic of their enactment. The nation’s lawmakers, he finds, have long believed that pervasive imperfections in private markets for risk necessitate a substantial government role. It remains puzzling, though, why such a large number of the resulting policies have proven so popular in a country famous for its anti-statism. Moss suggests that the answer may lie in the nature of the policies themselves, since publicly mandated risk shifting often requires little in the way of invasive bureaucracy. Well suited to a society suspicious of government activism, public risk management has emerged as a critical form of government intervention in the United States.

Genres: Economics, Nonfiction, Politics, Finance

464 pages, Paperback

First published January 1, 2002

Reviews

[Gill · Rating 5 out of 5]

Most people would find this a dry read, however I found it fascinating.
Moss describes the history of American public policy as a reaction to challenges posed by risk. He organizes policy into three phases that correlate to: business risks, risks to workers, risks to all. He provides a useful introduction to risk: asymmetric information, perception (framing, optimism), commitment, and externalities. He argues that government is the ultimate risk manager. He provides an overview of the development of American public policy regarding risk management.

Risk comes from several sources and our approaches to manage it must acknowledge problems of:
(1) Assymetric information leading to adverse selection and moral hazard
(2) Perception (optimism, framing, etc.)
(3) Committment (the need of the government or other institutions to step in no matter what)
(4) Externalities (pollution... ways to internalize externalities)

He divides policy into three phases:
(1) Security for business: limited liability, money, bankruptcy
(2) Security for workers: Workers comp, social security, social health insurance (lack thereof)
(3) Security for all: Product liability, federal disaster, state level insurance guaranty, environmental liability

He frames three ways to manage risk:
(1) Reduce risk through regulation/changing behaviors
(2) Shift risk through several options including changes in law or contractual obligations
(3) Spread risk through changing contracts or through nationalizing risk/insurance

Sometimes it is socially/politically unacceptable to move risk calculations on to the books and into planning (e.g. force everyone or a subset of the population to pay for natural disaster insurance when a individuals through choice/circumstance are exposed) even though it is understood that the government is committed to providing relief.

Is there a unique American approach? Perhaps in that Americans have an aversion to redistribution of income (which is social risk management), redistributions of other forms of risk are more palatable.

[Yizhou Jin · Rating 5 out of 5]

It's an education - the materials (esp historical ones) are well researched, and the writing is incredibly clear and insightful. A "fresh" perspective and an important one on social insurance that has thus far been largely ignored by mainstream economists.

[BJ Cefola]

A good read for understanding how government could and should respond to the coronavirus pandemic.

[Nick Geiser · Rating 3 out of 5]

This book gives an interesting historical account of the American welfare state's development. Moss conceives of the welfare state as a set of public policies that shift, spread, or reduce risk. This conceptualization differs from distributive or class-based accounts of welfare state development. The book documents the progression of risk management policy, beginning with risk management for industry and expanding to include workers and consumers. Instead of creating new bureaucracies or administrative agencies, American risk management policy primarily developed through legal changes (e.g. limited liability) or intellectual trends within law schools (e.g., product liability law).

Moss documents how concerns about market inefficiencies such as adverse selection motivated many changes in risk management policy, but also how less familiar inefficiencies such as psychological biases, commitment problems, and feedback problems contributed. He focuses much of his attention on legislative debates to argue that policy-makers in even the 19th century had a sophisticated understanding of the economic mechanisms behind problems such as contagion and credible commitments that would be formalized only in the 20th century.

I give this book only three stars, however, because Moss neglects to analyze the economic and political coalitions at play in debates over risk management policy and pays insufficient attention to their distributive implications. Moss conceives of risk-management policy development primarily as a problem-solving activity, but this is at best half the story. The study of risk management also needs to pay closer attention to the public choice problems that arise from social insurance policies and the unintended consequences of risk management policies. Otherwise, however, this is a really interesting and illuminating study that policy nerds of all ideological stripes can enjoy.

[Mark Anderson · Rating 5 out of 5]

This is an academic history of government regulation in the United States. It's a bit dry, but loaded with details and altogether fascinating if you have an interest in the subject and don't know much about the history. I'd suggest you need to be familiar with and interested in the general history of the United States before jumping into this specialized history.

Much of the public policy and historical reading I've done has focused books like Friedrich Hayek's "The Road to Serfdom" or Forrest McDonald's "Novus Ordo Seclorum: The Intellectual Origins of the Constitution". That is, reading which emphasizes Federalism and Libertarianism over other attractive isms. Those are books I’d recommend, although neither is really light reading.

However, I don't read simply to shore up an ideology; it's not interesting having a conversation with a person who believes their position is infallible and runs away when anything resembling a dialogue comes along. It's somewhere between rude, unproductive and un-Socratic to show up in a conversation unwilling to listen to challenging ideas or unable to present the best alternatives to the ideas you hold most defensible. Disliking that sort of thing in others, I try to be mindful of it my reading.

Toward that end, “When All Else Fails: Government as the Ultimate Risk Manager “ was one of the more influential and challenging books I've read and it still plays an important role in how I think about American politics and history, years after reading it.

[Jack · Rating 4 out of 5]

Content is as would be expected from the title, with exploration of historical progression.