Risk Management Reports

May 2001
Volume 28, Number 5

Supply and Demand

Drugs and energy are in many ways essential life-forces for modern economies. When employed wisely they enhance the quality of life. When misused or wasted they cause us considerable pain. When the unexpected trumps the expected, we rush to redress the balance by attacking that side of the problem that appears easiest to control, overlooking the need to balance our response. Current drug and energy problems in North America and Europe illustrate this situation Consider drugs. The United States is a nation of pill-takers. While there is no doubt that many drugs are substantial boons to our existence, we've built a new dependence on chemical relief for every ailment, real or imagined. Prudent use prevents and cures disease; overuse can lead to disaster. For example, Americans are a citizenry of slobs, the most conspicuously obese people on the globe. Instead of treating the problem with regular exercise and diet modification, we rush to every new mixture of diet pills promising a desired slim and svelte body, disregarding warnings of possible adverse side effects. And then, when the inevitable occurs we demand more stringent governmental regulation and hire the hovering plaintiffs lawyers to bring class-action lawsuits to redress our assumed injuries. Earlier this year, American Home Products Corporation, to cover remaining litigation costs for the lawsuits from its "fen-phen" diet pills, announced a $12.25 billion write-off, topping an earlier $4.75 billion! These are "legal" drugs. As for the illegal variety, from marijuana to cocaine and heroin, we have a comparably insatiable habit, fed by growers and cartels in Asia, Central America and South America, and home gardens in the US. Our political response has been waging a "war" on suppliers abroad and at home, one that costs billions and shows limited results. Supply is the culprit, we say. Put the growers and traffickers in jail! Yet at home every day, some children see their parents using "legal" drugs for every occasion, from excess flab and an inability to sleep to hyper-activity and stress. With such examples, how can we expect them to avoid sampling the "illegal" variety? We will never stop

the flow until we curb our demand. Some realistic observers, including The Economist, urge the legalization of all drugs as the first step toward changing this pattern of behavior. Consider energy. Headlines trumpet the rolling blackouts in California that threaten to spread to other states. We unnecessarily constrict supply through excessive regulation, forcing a company like Pacific Gas & Electric into bankruptcy. We bow to public hysteria against new plants, an hysteria that says nuclear energy is unacceptable and fossil fuel generation must be scrubbed clean of all contamination. At the same time, we stimulate demand through population and economic growth and the sale of innumerable new "necessities" such as electric can openers and toothbrushes. We leave computers connected 24 hours a day and lights burning through the night. We believe there is no end to readily-available electrical power. But don't build that power plant in MY backyard! Strip the environmental hazards from those fossil fuel plants! We want power but won't allow generators. We want all the benefits without any harms. With both energy and drugs, we attack only one side of the economic equation. Constricting supply doesn't work for illegal drugs and increasing the supply of energy will take decades to become effective. We must attack demand as well. For drugs, adopt a concerted educational effort to change behavior. Legalization should help. Link this program to a reduction in our "habit" for legal drugs. Restraint and personal accountability are stronger palliatives than attacking suuply alone. For energy, conservation should be the primary response of both corporate and personal consumers, even as we search for alternative supplies and build the new facilities a growing economy requires. Much of this is common risk management sense. It is a recognition of the gains and harms inherent in every decision that we make and an effort to increase the first while reducing the second. We cannot afford to address one side of the equation alone. We must address both sides simultaneously.

. . . we live in a world in which information, acting in concert with the vagaries of human perception and cognition, has reduced our vulnerability to pandemics of disease at the cost of increasing our vulnerability to massive social and economic catastrophes.

Howard Kunreuther and Paul Slovic, "Coping with Stigma: Challenges and Opportunities," RISK, Vol. 10, No. 3, Summer 1999

Copyright H. Felix Kloman and Seawrack Press, Inc.

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