Firehouse follies

I haven’t been particularly impressed with either side of the recent Tennessee firehouse kerfuffle.  The left seems to simply assume that any problem is the fault of the evil free market.  If a documentary shows awful sweatshop conditions in Chinese factories or coal mines, well then it obviously shows the folly of laissez-faire capitalism, even if the factories and mines are government-owned.  And apparently if a government-owned fire department behaves in a cruel and callous fashion, it shows the folly of privatization.

In fairness to the left, the argument was a bit more subtle.  I think they argued that this government-owned fire department was behaving as they’d expect a private fire company to behave.  But as Coase showed with his lighthouse example, we can’t assume that real world firms will behave as our models predict they will behave.  We need empirical evidence that libertarianism won’t work, and this example sure doesn’t provide it.  There are privately-owned fire companies—I’d be much more interested in how they behave.  David Henderson points out that one in Arizona behaves very differently from the Tennessee firehouse.

I was also not impressed by the conservative defense of the fire department’s action.  They argued that the way to prevent deadbeats from not paying their fire dues is to set an example by having the house burn down.  I doubt that is the best option, and Henderson’s example of the private Arizona fire company makes me even more skeptical.

Some would argue against forcing people to pay for fire services on dogmatic libertarian grounds.  My problem with making it a matter of principle is that it would seem to also apply to pensions and catastrophic health insurance.  But would we really want to let an old lady starve because she didn’t voluntarily contribute to a pension?  I wouldn’t, which is why I favor forcing her to contribute to a pension, and also buy catastrophic health insurance (with a government subsidy if she is poor.)

I don’t know enough about fire services to have a firm opinion, but off the top of my head I can’t really see a good reason for letting houses burn down.  But I also don’t favor the big government approach that seems to favor.  If private fire companies are good enough for Denmark, they are good enough for me.  I recall reading that we have twice the number of firehouses that we need in this country, so if the service was contracted out we’d presumably save billions of dollars as the industry was rationalized.  And I always wanted to turn one of those neat old firehouses into a private residence.

I’m not a dogmatic libertarian and I’m not a statist.  I’m a pragmatic libertarian who wants to drastically shrink the size of government, but I have an open mind on whether we might want to compel insurance coverage in a few cases.  I don’t know what sort of government role (if any) is optimal for the firehouse industry.  All I know is that it is absurd to make sweeping ideological generalizations on the basis of such murky examples, especially when there are plenty of private firehouses to examine.  The fact that thinks this is what constitutes a good argument against libertarianism makes me think that libertarian critics don’t have much of a case at all.



28 Responses to “Firehouse follies”

  1. Gravatar of Indy Indy
    9. October 2010 at 06:42

    I think a better “defense” would be to proceed a few steps down the Game Theory path to see what would have happened had the department saved the guy’s house, and let it be knows that, essentially, this was their policy. Liberals and Conservatives have no trouble doing this in other contexts.

    People will stop paying their premiums unless there is some post-facto penalty. The penalty must be punitive, that is, having enough of a greater expected present value than premium-paying that it incentivizes almost all people to keep paying their premiums. But we are uncomfortable (or legally unable, in the case of bankruptcy) of applying such penalties to the impecunious. So now you need subsidies from general taxes, and politics enters into it, etc..

    The principle that prevents all this from happening is the non-satirical form of Voltaire’s “Pour encourager les autres”.

    You can easily just pass a law and force / coerce “mandate” everybody to pay their insurance fees. Fire-protection is just another aspect of home-insurance – a damage-mitigator instead of a damage-compensator. (Speaking of that, I wonder if he told his home insurer that he had “fire department coverage” available to get lower premiums, and then didn’t pay the fire-department fees anyway. I smell rescission! Oooh, double-whammy.)

    But if you’re going to have a voluntary regime that resists adverse selection and folks who take their chances on not paying their bills, but nevertheless go on to make last minute pleas, then you gotta let one guy’s house burn to the ground every few years to ensure that a thousand other homeowners are scared into doing the sensible thing and paying their insurance bill. That works just as well as any post-facto “penalty” regime.

    “Social Brutality”, like a public hanging, works to have the population in a free society police and deter and nudge themselves, but only if the rare incidence of tough-love is well-publicized. I bet you all his neighbors have chosen for themselves to be fully paid up with fire department now!

    If you want anything to be truly voluntary and functional – then one’s choices need to have consequences. “Tough Love” is another way to express the concept. Does anyone see any way around this?

  2. Gravatar of scott sumner scott sumner
    9. October 2010 at 08:01

    Indy, That’s right, but I’m having trouble seeing why we need to make fire protection voluntary. I don’t doubt that it can be done, I’m just not sure the gains outweigh the costs associated with voluntary fire protection. To be honest, I don’t really care how it’s done, as long as a private company is doing it. The Tennessee company was publicly-owned, which is a really stupid idea. The last thing conservatives should be doing is defending a publicly-owned fire company

  3. Gravatar of OneEyedMan OneEyedMan
    9. October 2010 at 08:17

    There are two sorts of pragmatic libertarian arguments. First, to favor libertarian policies because you like the outcomes they deliver. The second is to favor some mildly statist policies because they prevent far more statist outcomes from happening.

    It is interesting that from both the perspective of expedient libertarianism by way of utilitarianism and by way of preventing even worse statism, we could favor compulsory insurance.

    In the former, the efficiency gains of private fire protection and insurance to pay for it improve upon the typical government system of funding both out of general revenue.

    In the latter, failure to compel private insurance would likely necessitate as a matter of political reality a more expensive and intrusive government intervention. In this case, one where the state supplies too many fire services and fire regulations because they fund protection and enforcement to generally prevent from having to let the houses of free riders burn.

  4. Gravatar of Indy Indy
    9. October 2010 at 08:22

    In auto insurance, we mandate, as a requirement to earn the privilege of a license to drive upon the public roads, that one possess “liability insurance”. This is a sensible approach because the tort system alone is simply not an efficient mechanism to handle the reality of modern automobile travel and the frequent legal claims which arise from it, or one that ensures that every harmed party can actually recover a remedy, even if the guilty party is “judgment-proof” or simply too poor to pay the claim.

    But no government, to my knowledge, and even globally, requires “comprehensive coverage”. If you get in a wreck and your car is totaled (and a car is the main store of wealth for many poor renters) and you don’t have comprehensive coverage, you’re out of luck. And no one cries about it or rents their garments about the “injustice of the capitalist system”.

    After these events, many people in our society just lose whatever wealth they had in their car, and have to make do with whatever alternative means of transport they can come by. It’s hard and tragic, but happens all the time, I’m guessing, thousands of times a day. Many owners of new cars, appreciating this risk, opt for comprehensive coverage, but many other opt out and deal with the very real and painful consequences.

    And you know what? This works. At least, it works well enough that no one feels the need to write blog posts or reform the laws or the system. It’s functional, acceptable, and voluntary – it is pragmatically libertarian.

    So, why is fire different? So this guy’s house burnt down, ok, he took that chance. If he has home insurance – they write him a check or rebuild his house. He may have lost some photos – and I sympathize – but that happens to people everyday. And if he doesn’t – we’re back to the automobile scenario. Why is someone’s house different from their car?

    My suspicion is that many people aren’t really thinking from principles at all, and that’s there’s just something emotionally special about the fire department and one’s home. Ok, fine, I accept the reality of that human sentiment, and I admit, I feel it myself. But when people avoid saying “This is just my personal human emotional response to all this” to writing long discourses on how this story encapsulated deep lessons about the ideal political-economic system and the pitfalls of “capitalism” or what-have-you, I’ve just got to shake my head.

    If someone can explain the whole car-vs-house critical distinction to me from principles instead of sentiment, I’ll change my mind. But right now, I don’t see it.

  5. Gravatar of mbk mbk
    9. October 2010 at 08:28

    But Indy,

    people don’t just behave as profit maximizers. As is shown precisely by the lack of pity for the homeowner who didn’t pay, people ostracize opportunists and the whole game theory argument collapses. And people do feel shame over not behaving in good civic spirit. In other words you don’t necessarily have a strong moral hazard in these cases, you can probably pass laws to recover much of the expense post fact – saving a house costs a lot less than rebuilding it, what can it possibly cost, a few thousand bucks??

    It is common in other emergency rescue situations that you’ll be helicoptered out of danger no matter what, but you’ll get the bill and if not insured you’ll have to pay. Yes, the taxpayer will have to foot the bill of the odd insolvent ‘customer’, that’s not unusual in many other cases too. Before this happens you still get the escrow department at your door. And in many _public_ fire departments you _will_ pay for false alarm sorties. etc etc The point is as Scott says, there are a lot of more intelligent ways to handle this than callousness.

    In any case, in these situations with a strong flavor of potential negative externalities, as with liability insurance for cars, it is easy to argue that one should just force this insurance on the public. And then make the actual service provider private, say the way it is done here in Singapore with the refuse collection: public tender to private companies for 4 year contracts (time limited monopoly for one area). Then a public poll over satisfaction with the service, which influences chance of renewal. It’s not that hard to find solutions once people get rid of their ideological blinders.

  6. Gravatar of mbk mbk
    9. October 2010 at 08:33

    Well the posts came in hard and fast.


    why are house fires different from car accidents?

    1- more capital at stake, 10 to 100 times more. Cars are not stores of value, they depreciate fast. Houses usually appreciate.
    2- lack of rescue endangers lives in the house
    3- lack of rescue endangers houses around it
    4- morally, having a home in my book is far more important than having a car

  7. Gravatar of OneEyedMan OneEyedMan
    9. October 2010 at 08:48

    Houses mostly depreciate, it is land that appreciates.

  8. Gravatar of TGGP TGGP
    9. October 2010 at 10:34

    The obvious course of action is to apply a high-penalty rate for those who don’t initially buy the insurance. The fire department was a government body that had to abide by its own rules which forbade saving the man’s house. A profit-maximizing company would not leave the $20 bill on the sidewalk but would make the Pareto-improving choice to put out the fire at a rate bounded by their costs (including reputational ones resulting in potential free-riders) and the man’s willingness to buy at the time of the fire.

    If you think people should be forced into pension programs, it seems questionable whether you can declare yourself a libertarian.

  9. Gravatar of Jon Jon
    9. October 2010 at 10:56

    Its pretty amazing how this story has set all economics blogs on fire.

    It seems like just another one of those contrived single-event cases that a certain set of people cannot seem to resist saying, “well how do you explain this one Mr. Fancy Pants EMH supporter”.

  10. Gravatar of John Papola John Papola
    9. October 2010 at 11:00

    The fact that thinks this is what constitutes a good argument against libertarianism makes me think that libertarian critics don’t have much of a case at all.

    Bingo. They don’t. What they have, at the end of the day, is nothing more than a rejection of humanity in general and democracy in particular. We are all inherently evil slobs to them, save for a few wise paternalists without whom we could never manage. It all begs the question how public institutions form to begin with if private people are so incapable of collaborating to provide public goods. There is lots of talk about “democracy” on the other side, but we all know that it is autocracy or techocrach that I their real model. As Keynes said of his own theory, it is particularly well adapted to a totalitarian state.

    The anti-libertarian “argument” is simply an argument against humanity itself.

  11. Gravatar of david david
    9. October 2010 at 11:45

    Some relevant notes –

    The fire department involved is a municipal fire department with no authority to tax people outside the city (South Fulton FD). It cannot even legally pursue debts from contracts signed “under duress”, like when your house is already on fire.

    The county (Obion County) involved has no fire department, relying wholly on eight nearby municipal departments. Although the majority of calls came from outside the relevant cities, the cities did not have a way of recovering costs so city taxpayers paid for rural fire protection. Some of the departments attempted to charge ex post but since there was no penalty for not paying, collections were unsurprisingly mediocre.

    It seems that the cities recently realized that they were paying for rural fire protection and have been wanting to cut it off for some time now. The homeowner, a Mr. Cranick, has been quoted saying that he thought the fire department
    “would turn up anyway”, despite non-payment; it seems that this is better read as a statement of historical fact rather than a freeloader attitude – the municipal fire departments did, until recently, turn up anyway.

    David Henderson seems to have missed the fact that the fire department involved was from a government of a jurisdiction that did not include the relevant house, and that private fire services were entirely legal in the area (albeit absent, since until recently the cities would have done it for free, at their own taxpayer’s expense). This is really a case of rocky adjustment between service-provision regimes rather than any libertarian or anti-libertarian parable.

  12. Gravatar of q q
    9. October 2010 at 13:47

    one problem that isn’t often brought up — i suppose because it doesn’t fit in with any ideology — is this: what happens if the insurance company/fire company screws up and doesn’t think you’re covered when you have paid in full? would it be my responsibility as a homeowner to call frequently and verify coverage? now i’m not just being a snark here — currently given that fire companies cover a geographical area, lines of responsibility are absolutely clear and mistakes are never, or hardly ever, made. determining insurance coverage always takes time and often isn’t done properly. for me, this is a reason why we would want some kind of universal coverage.

  13. Gravatar of Mark A. Sadowski Mark A. Sadowski
    9. October 2010 at 14:12

    Scott wrote:
    “I don’t know enough about fire services to have a firm opinion, but off the top of my head I can’t really see a good reason for letting houses burn down.”

    Me neither. But I think that covers it in a nutshell.

  14. Gravatar of scott sumner scott sumner
    9. October 2010 at 15:14

    OneEyedman, I agree,

    Indy, I think you missed the point. We all agree that fire and auto insurance should be handled the same way. No one sheds a tear when someone’s house burns down and they lack fire insurance, just as with comprehensive auto. So they are treated the same. There is no double standard being advocated by anyone as far as I can see.

    mbk, I agree with your first post. As for the second, see my reply to Indy.

    TGGP, You said;

    “If you think people should be forced into pension programs, it seems questionable whether you can declare yourself a libertarian.”

    Milton Friedman, Hayek, Ron Paul, etc, all favor some government intervention in the economy. If only those who favor no intervention can be called libertarians, then it’s not much of a philosophy, hardly worth even talking about. I think the vast majority of people would consider by views libertarian, if examined in totality.

    Jon, Yes, these things always struck me as really stupid. I can’t believe people think there are important principles at stake in these extreme cases. The EMH analogy is a good one.

    It would be like me pointing to a welfare recipient driving a Caddy and saying “How can you support welfare after seeing THAT?” Liberals rightly scorn those arguments, and they should do the same with this one.

    John, There are some with those tendencies, but I wouldn’t categorize all anti-libertarians that way.

    David, I agree, it says nothing pro- or con- regarding libertarianism.

    q, I agree.

    Mark, I agree. But that’s not to say I have a closed mind on the issue. It’s possible that in a 100% free market this would happen once and a while, and it’s possible a 100% free market is best. My hunch, however, is that the best solution is to have the government contract the service out to private companies, and have everyone pay via taxes. I’ll say this, however, I’d prefer a completely free market that let uninsured houses burn down to (bad as it would be) to the gold-plated system we have in Newton, MA.

  15. Gravatar of mbk mbk
    9. October 2010 at 18:53

    Scott and Indy,

    the analog to comprehensive auto is not fire department rescue coverage (a cheap emergency service).

    comprehensive auto homeowner’s insurance (covers expensive capital damage after the fact)

    Fire department rescue road accident first response team (covers cheap first response in distress when as “q” says you shouldn’t waste time on establishing legal fact).

    I stand by the rest of my post, nevermind what it is exactly that appreciates in a property.

    David’s account sounds tragically probable, a mixture of individual tangled-up badly adjusted bureaucratic procedures, claims and counterclaims, much of it to do with the intricacies of the US legal system and not with any ideology.

  16. Gravatar of mbk mbk
    9. October 2010 at 18:54

    Some characters didn’t show up. Intended meaning:

    comprehensive auto is equivalent to homeowner’s insurance (covers expensive capital damage after the fact)

    Fire department rescue is equivalent to road accident first response team (covers cheap first response in distress when as “q” says you shouldn’t waste time on establishing legal fact).

  17. Gravatar of TGGP TGGP
    9. October 2010 at 21:40

    John Stuart Mill, who wasn’t libertarian enough in my view, argued that the only reason for regulating a person’s activity was to protect others. You are endorsing paternalism, something libertarians reject.

  18. Gravatar of Tomasz Wegrzanowski Tomasz Wegrzanowski
    10. October 2010 at 01:11

    How do we know that semi-privatization of firefighting won’t end up just like semi-privatization of prisons, with fires suddenly starting everywhere? There’s plenty of things that work in Denmark that wouldn’t work in most other countries with less honest people.

    Most government firefighting is normally financed from general taxes. This is already hybrid semi-private solution. These tend to share worst features of both ends. And when you see teachers’ unions having more say in how schools are run than department of education – this is another semi-private situation. You’d be better off if you moved either fully public or fully private.

  19. Gravatar of Tomasz Wegrzanowski Tomasz Wegrzanowski
    10. October 2010 at 01:25

    Also I have no idea where are you getting this analogy with car insurance.

    Car/House/whatever insurance is about money after the accident.

    Firefighting is about emergency response to prevent damage. It’s like ambulance services, police, etc.

    These two things have nothing in common at all. Market is good at insurance. Government is good at emergency response.

    And most healthcare belongs in emergency response category, if you need another example of market failing at it.

  20. Gravatar of mbk mbk
    10. October 2010 at 03:34


    “Car/House/whatever insurance is about money after the accident.

    Firefighting is about emergency response to prevent damage. It’s like ambulance services, police, etc.”

    That is what I meant. You said it clearer. And emergency responses should not waste time asking around who has insurance etc., because the damage could spread to others, or hit innocents (for instance, people in the burning house).

  21. Gravatar of Alejandro Alejandro
    10. October 2010 at 04:24


    The fire dept. is from the city. Supported by city taxes. The house that burnt down was outside the city limits and didn’t pay taxes to the city. So this fire department had no chance to tax this house. Still they offered a subscription service for houses outside the city. The county voted not to have a county fire department. The guy chose not to pay the fee, even after he already had a fire last year. You could argue that the fire dept failed to name a price when they showed up, but what are the chances of collecting that price? Apparently they tried that system before and it didn’t work.


  22. Gravatar of scott sumner scott sumner
    10. October 2010 at 05:23

    mbk, Yes, that was my point as well. You and Tomasz may have misunderstood my response.

    TGGP, You didn’t address my point. If you are not going to allow any activities of the sort that people like me and Friedman and Hayek favor, then there are virtually no serious libertarians in academia. Would you say someone could not be called a socialist if they favored nationalizing 99% of industry, but favored keeping 1% in private hands. All language has fuzzy meaning, it is silly to demand precise definitions for something as fuzzy as political philosophy. Does Rush Limbaugh hold “conservative” views on all issues? Is he a conservative?

    I agree on one point, I am not as libertarian as the more dogmatic libertarians. But I see no reason not to call people like Milton Friedman ‘libertarians’. It is a very useful descriptive term.

    Tomasz, You said;

    “How do we know that semi-privatization of firefighting won’t end up just like semi-privatization of prisons, with fires suddenly starting everywhere? There’s plenty of things that work in Denmark that wouldn’t work in most other countries with less honest people.”

    Did privatization of prisons lead to fires starting everywhere? I don’t think so. As I tried to explain to you in another reply, the privatization of prisons was a success, they are better run than government prisons.

    Government fire departments have the same incentive to start fires as private companies.

    The vast majority of privatizations around the world have been successful. The presumption should always be that an activity should be in the private sector, unless there is strong evidence to the contrary. You haven’t provided strong or weak evidence that private fire companies would be worse. Indeed you haven’t provided any evidence.

    You said;

    “Also I have no idea where are you getting this analogy with car insurance.”

    I never said fire response was like car insurance, indeed I argued exactly the opposite. I said car insurance was like house insurance.

    Alex, Yes, I know all that. But it doesn’t affect my views at all. There are no ideological implications flowing from this example. See David’s comment above.

  23. Gravatar of TGGP TGGP
    10. October 2010 at 10:20

    From what I recall, Milton Friedman advocated replacing the entire welfare state with a “negative income tax”. That is redistributive (though no more so than the status quo), but it is not paternalist. You advocate taking people’s money for their own good, not that of others poorer than them.

    Tomasz, how do teacher’s unions make education “semi-privatized”? And can you point to any research on the effect of semi-private/contracted prisons?

  24. Gravatar of ssumner ssumner
    10. October 2010 at 13:02

    TGGP, Friedman favored vouchers for education–how is that not paternalism?

    My policy views are very similar to groups like CATO, the Reason Foundation, etc. And these are almost universally regarded as libertarian organizations.

    I’m certainly not liberal or conservative or Democrat or Republican, so why not call my views libertarian? Libertarians violently disagree with each other on all sorts of issues, from abolishing the Fed to abortion to immigration to Afghanistan. There is no one “libertarian” position, rather libertarianism is support for much smaller government–and I’d like to see 95% of government programs abolished.

  25. Gravatar of Richard W Richard W
    10. October 2010 at 16:18

    The Falck Corporation is the Danish firm providing fire services. It is worth pointing out that it is not at all like Libertarians imagine. They do not collect fees as such from subscribers but are publicly funded from general taxation. They provide a whole range of services in addition to fire services. Until Nordic Capital a private equity firm bought them they used to be a listed firm.

  26. Gravatar of scott sumner scott sumner
    11. October 2010 at 05:40

    Richard, I’m a libertarian, and that’s exactly as I imagined. But I agree that most libertarians imagine a voluntary service.

  27. Gravatar of Mark Mark
    11. October 2010 at 08:17

    For the pure libertarian approach to work, consumers must know that if they don’t pay, they don’t get service. There must be a rule rather than discretion on the part of service providers. There are too many “nice” people that won’t allow someone’s house to burn down or someone to die in the street, so that that any rule won’t be strictly followed and then people will game the system…in other words, Scott is correct.

  28. Gravatar of ssumner ssumner
    12. October 2010 at 05:08

    Thanks Mark

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