Free Your Teacher Said What?! by Joe Kernen Page A

habitat of a single population of fish or birds, why the Food and Drug Administration tries to ban food colorings with a risk of one death in ten billion , and why cap-and-trade legislation is projected to cost about ten times as much as the benefit it might realize.
    But there’s another reason for libertarians—for anyone, really—to be suspicious of regulation, and that’s the unavoidable fact that politicians make decisions, well, politically (see Nowhere, Bridges to). Regulation may be necessary—but it should always be regarded as a necessary evil.
    Risk. Noun. The probability that a future event will diverge from its expected value; the chance of a particular event occurring multiplied by its monetary (or other) cost or benefit.
    It’s a pretty short jump from the idea that people are irrational about risk (especially financial risk) to the idea that they need to be protected from it.
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    â€œBlake, I have ten boxes here. One of them has a dollar bill inside.” I move it to the left side of the table. “One of the other nine has a ten-dollar bill in it.” I move the other nine to the right. “Which one do you want?”
    Blake picks one of the nine boxes on the right.
    â€œWhat if there were twenty boxes on the right, and one of them had a ten-dollar bill in it?
    She still picks one of the boxes on the right. Blake likes long shots.
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    Though risk is, technically, just as much a measure of positive uncertainty as negative, the popular understanding is overwhelmingly about the likelihood that bad things might occur; when people talk about the risk of global climate change, they aren’t referring to the possibility that Siberia might become as fertile as California’s Central Valley (though they would if they had a proper understanding of risk).
    A good case can be made that the most important difference between today’s economies and yesterday’s is the degree to which we have developed tools to measure, and manage, risk rather than to fear it. This difference in the understanding of risk is one of the most dramatic differences between Progressives and free-market advocates. When a welfare state tries to remove the dangers of bad economic outcomes—and, to be fair, when businesses ask to be rescued by government from either bad luck or their own ineptitude—they are trying to eliminate the element of risk; when entrepreneurs start new businesses, they are doing their best to manage it. It’s no accident that “risk” is derived from an Italian word, risicare , meaning “to dare.” Blake’s attraction to the big payoff, even in the face of poor odds, is classic entrepreneurial behavior. John Nye, an economist at George Mason University, has made a career proving that irrational choices—what he calls “lucky fools”—are the foundation of real economic growth.
    Scarcity. Noun. Insufficiency or shortage of supply.
    One of the most important lessons Penelope and I try to teach Blake and Scott is that they will always want more stuff—desserts, video games, musical instruments—than there is stuff available, which means that they have to choose. This is also the core of all economics, free market or otherwise: the idea that people always want more of things of which there are, at any moment, a finite amount.
    Scarcity is what gives things value, but the way it does so isn’t all that obvious. The first free-market economists thought that people valued things based on what it cost them—in pain or effort—to acquire. The bigger the nuisance you were willing to suffer, the more you valued whatever you were suffering for. Since the 1930s or so, value from scarcity has been generally defined (by a group of economists from Vienna, the so-called Austrian School, led by Friedrich Hayek ) as an opportunity cost: not the effort or pain required but the “highest-valued alternative