David Xia.jpgDavid A. Moss’s When All Else Fails is a story of the United States government as the ultimate risk manager. When I first read the subtitle, I had no idea what “risk management” was. It sounded like one of those corporate pieces of jargon that managed to say so little with so much. After seeing dozens of everyday examples, however, I began to understand that risk management is simply the practice of decreasing the probability and magnitude of bad things happening and increasing the chance and degree of good things happening.

Moss gives us a historical narrative of how the government stepped into the private sector to manage risk. These policies encompass Social Security to bank deposit insurance. The book takes the reader through three phases of the U.S. government’s risk management policies: security for businesses (e.g. limited liability), for workers (e.g. Social Security), and for all (e.g. product liability law).

The fifth chapter on bankruptcy was especially illuminating. Readers will discover how America, from its founding, “has long distinguished itself as a nation with a special fondness for debtors.” Some of the original thirteen colonies enacted debtor protection laws as early as 1740s, and the first federal statute, the Bankruptcy Act of 1800, was passed in 1800. The main goal of these policies was to setup a process for nursing down-on-their-luck individuals back into being productive members of society—essentially giving them a fresh start—by shifting risk onto creditors.

In a time of health care reform and proposals to enhance consumer protection, Moss’s book shows us that the government has played and will continue to play an increasing role in all aspects of American life through its risk management policies.

Bio: David Xia is an intern at Guernica. Read his last recommendation here.

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One Comment on “Rec Room: David Xia: When All Else Fails

  1. I’ll comment as someone who works professionally as a risk analyst. I haven’t read the book, but the thesis of the US government as a risk manager is an interesting one. I think it’s a great paradigm to understand what the government is doing wrong. The most important part of risk management is understanding what is possible, and how likely it is. Managing risk is dependent on understanding it first.

    The US government does a horrible job of this, because they view risk in isolation of the system. This means they don’t understand the risks they are supposed to manage. Politicians vote on one bill at a time, and do not manage systems, or even spend time really trying to understand them.

    As an example, the risk of the elderly living in poverty is real, but it needs to be understood in a full context. As an example of part of the context, we can look at US fiscal policy and economics. The possibility of stagflation and economic ruin needs to be viewed along with the entitlement programs – we must either tax to pay for our expenses, or inflate the debt away. Risk incorporates the fact that these are correlated possibilities. I’m tremendously in favor of social safety nets, but they are not free, and the linear increases in leverage in our economic system increases risk exponentially.

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