Risk Management

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"Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns -- the ones we don't know we don't know." ~ Donald Rumsfeld ( February 12, 2003 )

Life is full of risk and uncertainty.  Every day we face potential threats from severe weather, car wrecks, geological events, extreme weather conditions, health concerns, crime, financial ruin, moral hazards, relationship distress and an infinite number of other perils large and small that are too numerous to list.  Further, no one is able to see the future.  Managing risks and dealing with uncertainty about the future can be both overwhelming and rewarding.

Overcoming personal biases, groupthink and wishful thinking in order to properly assess the difference between rational doubt and irrational fear is a daily challenge, one the state is incapable of overcoming for individuals.  Indeed, it purposely fosters irrational fear.  Yet a majority of the population falls into the trap of deferring personal responsibility for this challenge to the state as the risk manager of last resort.  Not only is the state incapable of competently managing the risks that individuals must deal with, it represents the source of the greatest threats we face today.

Consider who takes a big chunk out of your paycheck: the state criminals or the independent criminals?  Who is more likely to kick your door down in the middle of the night and shoot you: terrorists, local gangs or the local police, ATF, FBI, etc.?  Who is more likely to take your house or business from you: private sector criminals or elected officials?  Who is more likely to undermine the free-market: shady businessmen or politicians?  These are just a few of the risk management considerations that our society needs to discuss before the black hole that is the state sucks all the life out of it.

People are born worry-warts, and this is a good thing overall, though it has some distinctly negative ramifications.  In a world of uncertainty, fear has helped us to survive the infinite number of potentially harmful events that could diminish the quality and quantity of our limited years here on earth.  Fear has also led to self-defeating strategies and horrible acts of brutality under the guise of collective self-defense.  The state magnifies, institutionalizes and spreads these negative traits emanating from individual fears.  Thus society has created an apparatus to manage risks for us that instead substantially increases the number and intensity of these risks to individuals.

Humans innately sense threats to survival, intuitively assess the dangers related to these threats and form coping strategies.  Immediate physical threats inspire chemical reactions in our bodies commonly referred to as the “fright, fight or flight” response.  People condition their responses to future threats based on previous experiences.  Sometimes it is best to confront a threat with force, sometimes it is best to run away and sometimes it is best to simply not do anything.  Relative strengths and skills among individuals offer differing matrixes of feasible and proper responses.  Propaganda instilling a sense of forever-escalating fear distorts our perceptions and decision making abilities.

It is better for people to make calm, rational decisions based on facts instead of emotional, knee-jerk reactions based on fear of the unknown.  In risk management jargon, there are three ways to deal with risk: avoid, assume or transfer it.  Before you decide which way to go, first you need to know:

1)  What could happen (threat event)?

2)  If it happened, how bad could it be (threat impact)?

3)  How often could it happen (threat frequency)?

4)  How certain are the answers to the first three questions (recognition of uncertainty)?

Then:

1)  What can be done (risk mitigation)?

2)  How much will it cost (over a time period)?

3)  Is it cost effective (cost-benefit analysis)?

Some risks cannot be avoided and you must therefore assume them or transfer them.  Transferring them usually means to buy insurance to compensate for any losses that may be incurred.  To many people, voting is a means of transferring all personal risks in one fell swoop.  Retirement planning, security, financial risk, food, shelter and every other “need” becomes a political right granted by the state in this delusional world.  Electing Big Brother to take care of you is really assuming the risk without knowing it.  The state offers the tantalizing lie that you can have your cake and eat it too.  You haven’t really avoided a risk or transferred it, but just deluded yourself while passing control of your decision making to others who lie about what they will do to mitigate those risks.  It’s an old shell game called politics.

As silly as the quote from the Minister of War above sounds, the point that he was trying to articulate is very pertinent to his responsibilities.  Give the man credit for recognizing that his position is completely futile.  Though one must wonder why he doesn’t then resign his position.  This type of confusion comes from the determination of men high on power seeking to reconcile their impotence with their responsibilities.  As Mr. T said, “I pity the fool.”  That goes double for anybody that thinks that the state is cost-effective means of dealing with any risk.

The problem is that we have sought to mitigate the risks we face as individuals, including “external threats,” to such an abominable system.  No person should be given the powers that Mr. Rumsfeld and Mr. Bush have been given, because it only makes the threat worse.  The inevitable downward spiral into angry, brutal responses to perceived threats by men put into these positions of power should be evident from history.  This increases the animosity towards “we the people” from an increasing number of “external threats.”  Yet people blame the McNamaras and Rumsfelds of the world for doing what they were entrusted to do in our names because of an irrational belief in the blessings of democracy and the states legitimized by it. 

How did the U. S. Government get to be the “World’s Policeman”?  Do you really think that it was caused by some accident and “we” had to take up the responsibility because “we” are so special?  Do you think that maybe it had something to do with becoming the “World’s Banker”?  Would the threat of religious fanatics from halfway around the world blowing up local buildings really be a concern, much less a threat, if it weren’t for the policies of the state that acts in our names?  Finally consider what will be the ramifications of being the World’s Policeman when a run on the World’s Bank starts?  I hope that you have been following the wonderful public service provided here at Strike The Root byJoe Blow.

The descent from confident people living in a civilized (relatively) free society into fearful paranoids going through the motions of living in a state-controlled, barbaric society is evident everywhere today.  DoubleThink is necessary to believe that the state is the most competent risk manager while witnessing the impotence of the state to manage those risks.  In the end, the state increases the risk of every threat we face until they overwhelm the state’s ability to pretend otherwise. Some call this a day of reckoning.  That this day will come sooner or later is acknowledged even by the impotent fools who lord over us.

It is obvious that the state is incompetent to protect you from flood, hurricanes, bad health, traffic accidents and getting fired from your job.  It is obvious that the state cannot provide basic services better than the market for food, consumer goods, health services, transportation or housing.  So why is the state given a monopoly for providing banking and security services instead of leaving these important functions to the market and individual decision makers?  A simple cost-benefit analysis appears to indicate this was a bad decision by our ancestors that we need to remedy.

People who continue to place misguided trust in the state to protect them and “manage the economy” will end up like those poor folks in New Orleans sitting on their roofs praying for FEMA to come save them.  You better hope one of your neighbors is a Pirate who was wise enough to stash a boat at his house for just such an emergency.  Better yet, stash your own boat and be a Pirate.

 

 

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Mark Davis's picture
Columns on STR: 55

Mark Davis is a husband, father and real estate analyst/investor enjoying the freedoms we still have in Longwood, Florida.