The Smokey the Bear Effect: What Forests, Housing, and Healthcare have in common.

According to Thomas Swetnam at the University of Arizona, every time there is a forest fire, it leaves a scar in the rings of surviving trees. Across thousands of tress these fire scars appeared every 5-10 years from the 1600s until about 1900. What changed?

The US Forest Service was formed in 1905 to stop all forest fires. They did a great job stopping small fires that burnt up scrubs, small trees and only damaged large trees. Since these small fires never started there was more fuel for bigger fires. According to Stephen Pyne via NPR, “Over the past several years, even as fewer fires have struck the Southwest, they’ve burned more land. The U.S. Forest Service now spends about half its budget on firefighting.”

The Forest Service sought to end all forest fires, but they ended up creating bigger, more damaging fires. Trees that would have survived the smaller fires and returned to regular growing burned in the larger, hotter fires fueled by the Forest Service’s policy. It’s called “The Smokey the Bear Effect.”

If you believe in evolution, the forests had become so large through the process of natural selection. Those forests existed because they were stable, despite the small fires. In fact, the small fires were part of the reason the forests had grown so large. There was a natural equilibrium between the forests and fires that allowed the forest to become it’s size. When the US Forest service stepped in, the balance changed, but natural selection still applied. A new equilibrium had to be reached.

Capitalism is a the natural selection of businesses. Businesses constantly compete with each other in the environment of the marketplace to provide customers with a product for the most value while still making a profit for the business. Afterall, the business that doesn’t cover expenses, dies. Even non-profits have to cover their expenses.

An equalibrium in which the business makes more than it spends must be reached to survive. Businesses that can survive, do; the ones that can’t, don’t.

Home loans were of the safest bets for investment. Banks had reached an equilibrium: they did not loan to people who were credit risks or could not afford the payments which allowed them to profit. Then, in their desire for everyone to own a home, the government stepped in and forced banks to provide “affordable housing” loans, which, lowered the standards to get a home loan. Banks gave loans to people who would not merit a loan in the past; those people didn’t pay on the loan, banks took huge losses and the market collapsed.

Not only did those people the government sought to get homes lose their homes, other home owners lost value on their homes when foreclosed homes flooded the market, raised supply of homes, thus lowered home prices. Retirement accounts that relied on the banks and mutual funds took a hit as well.

It’s another form of the Smokey the Bear Effect. Government got involved then made the problem they tried to solve even worse by tampering with the natural equilibrium.

Barack Obama wanted everyone to be have health insurance. Just like the banks and home loans, health insurance companies did not cover people who were high risks because insurers would spend more than they made if they did so. Then government stepped in with the PPACA(Obamacare) forcing insurers to cover everyone including high-risk clients and 100% financial liability pre-existing conditions. The results again: 4.7 million lost coverage because their plans did not meet the new PPACA standards, “one-third of counties are projected to have just one insurer on their Obamacare exchanges this year”, premiums cost 99% more than before the PPACA.

In my exchange with Consumer’s Union on Twitter, once I questioned them directly on premiums they decided not to respond.

Why does government interference lead to the compounding of the problems they seek to solve in healthcare, affirmative action, and housing? See Milton Friedman, Adam Smith, and Thomas Sowell. The free market allows the real experts to do their jobs, and competition between businesses creates the highest value product. Just like natural selection, in free-market capitalism the best businesses survive and thrive. Their policies and practices are not arbitrary; they exist to allow the business to survive. If those policies are changed, the business will die. If the business inflates their prices, their competitors will make a equal quality product at a lower price and drive the former out of business. The constant competition keeps even the largest companies from taking advantage of consumers.

When government steps in to save bad businesses, like George W. Bush did to save the banks or Barack Obama to save the auto industry, businesses have no incentive to change their policies that caused failure. After all, they’ll just get bailed out when they fail, with each failure successfully growing, hurting more people.

If government got out of the market, bad businesses would fail, allowing the rest of the market prosper; just like small fires would burn vulnerable trees allowing the rest of forest to grow.

Government can’t prevent forest fires or market bubbles. It can only make them bigger.

P.S.

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