Score one for common sense.
Common sense says it’s a bad idea to leave policing complex activities to those who profit more if they don’t follow all the rules, especially if there is no obvious way to see when they take those profitable shortcuts.
Milton Friedman gained his demi-god status by advising Chile how to “get the government off the people’s backs.” Some have even referred to post-Friedman Chile as a “miracle.”
Now the cracks running through the foundations of recently built apartment buildings many miles from the quake epicenter are symptomatic of the cracks in the foundations of the Friedman economic catechism.
I chose the word “catechism” because most Friedmanites I’ve tried debating on the merits of their ideas are just as rigid in their beliefs as anyone in the Catholic church’s middle management.
To them, all government is bad and all private enterprise is good.
What spurs these thoughts was a “boots on the ground” report from Santiago, a city far enough away from the quake that deaths and infrastructure damage are thankfully quite light.
At the end of the interview, the US reporter asked the Chilean correspondent about her personal experience.
That reporter described awakening in the middle of the night and “riding” her house as it bucked like Urban Cowboy’s mechanical bull, fearing that she would end up riding the second floor of her house down to ground level.
Instead, she was fine, and so was her house. Then she said something I noted with some surprise. She said her house had been built in the 1960’s, when the government inspected construction and made sure Chile’s strong building codes were followed.
She then pointed out that her friends in newer buildings aren’t nearly so lucky. A number of owners of apartments in Santiago buildings completed in the last few years are finding themselves locked out of their homes as the buildings are condemned.
I thought building techniques and understanding of earthquake effects had improved over the last 50 years.
Are the Chilean building codes weaker than the past with respect to earthquake safety?
Do Chilean builders have access to improvements developed in the US and Japan following the Kobe and Loma Prieta quakes?
So why are new buildings not safe, while decades old buildings are fine?
Because Chile bought into Friedmanism, and allowed architects and the construction industry to monitor themselves and self-regulate compliance with the building codes.
As the debate heats up over whether we need to toughen regulation or take back self-regulation deals with the financial industry, think about where you want us to be in the next financial earthquake.
As Saint Ronald famously said “Trust, but verify.”