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Burning Down the House

Mises Daily: Friday, November 12, 2010 by

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One should not blame the free market for something the government does. This is the first thing that should be pointed out to anyone who is under the impression that the situation in Tennessee — where a government fire department sat and watched a man's house burn down because he had not paid a $75 fee — is the result of the free market.

Factually, this was a government fire department. The argument should end right there. This situation is a result of the state, not the market. Unfortunately, it won't end there. A lot of left-liberal media elites, statists, and left-wing bloggers have been using this tragic situation as an excuse to attack the free market and libertarians in general.

The worst attack was an article on Salon.com called "For-pay Fire Department Lets Man's House Burn" by someone named Alex Pareen. The subhead reads "Turns out the invisible hand won't open a hydrant for a free rider." The most bizarre thing about the article is the photo that goes with it. An art director at Salon apparently found a picture of a house burning and pasted a picture of Friedrich Hayek next to it, clearly sending the message that Hayek's ideology and the sound economics that he tried to teach us will lead to everyone's house burning down. Not only that, but this is exactly the outcome that Hayek wanted! After all, the only reason anyone would advocate for the free market is because they secretly want everyone's house to burn down. Right? So here we have bad Photoshop skills combined with bad ideology.

The idea that the free market would lead to this outcome is silly. According to all accounts the homeowner offered to pay the fee on the spot. He even offered to pay more than the fee and cover all costs associated with putting out the fire. What for-profit company would sit there and refuse to extend their services to a potential customer begging to give them his money? Even on the hampered market we live in now, no company operates like this. Only the state operates like this.

The fire chief could not take the homeowner up on his offer to pay because the chief is a part of a bureaucratic chain of command that cannot adjust to new situations. He cannot on his own make the decision to take the money and put the fire out. He has superiors to report to.

As Ludwig von Mises taught us in his classic Bureaucracy, in a bureaucracy the rules are the most important thing, not serving customers and not making money. Bureaucracies have no profit-and-loss indicator to measure success by, so all they are left with is rule making. They measure success by how many rules they make, and how well they adhere to these rules. Only someone terrified of breaking a rule and getting in trouble with his superiors would behave the way this fire chief did.

One of the most popular criticisms we hear of capitalism and the free market is that they are only concerned with money. These heartless, greedy ideologies, we are told, would let a man's house burn down over mere money! But the owner offered to pay the fee. He offered to pay more than the fee. In that case, the issue is not money anymore.

The issue is the state and its bureaucratic rules and procedures, not money. If the only issue was money, the house would have been saved. A greedy, heartless fire department that only cares about getting paid would actually have avoided this situation.

Imagine an actual for-profit fire company on a competitive free market. Would they really do this? Would they really turn down a higher fee and risk the bad press of being the company that sat there while a family home burned? Would they sit there and allow this potential customer to be scooped up by the competition? It is silly to think a profit-seeking operation in would respond like this.

Some may object that if the fire department were to accept fees on the spot for services, this would weaken the incentive for people to pay beforehand. This would then supposedly deprive the fire department of an operating budget unless there are actual fires to put out and provide a revenue stream. This may be a valid point as far at it goes. But those that make this point are essentially arguing that the government fire department was correct to let the house burn down. So then what is the complaint? It would seem that according to this argument the government fire department acted properly.

This issue can easily be handled by the imposition of higher fees for one-time services and on-the-spot opting in. There are many examples of emergency services, such as auto clubs for roadside towing, that already operate like this. A customer can join the auto club, pay his annual fee, and be covered should he need an emergency tow. Someone that doesn't join can still get an emergency tow; he just has to pay the full price. That is usually hundreds of dollars these days. This pricing model is very simple and widely used. It is so simple that only the government could mess it up.

If a homeowner who has not bought insurance or paid into a fire club is not home to agree to a one-time fee, this can be easily handled. On a free market, people are liable for the damages they cause others. If a fire on one person's property has the potential to spread to his neighbors, the neighbors are entirely justified in calling the fire department and sending him the bill for the fee. This would be a better option for him than having his home burn and being liable for damages to his neighbor's property as well.

Another possibility for uninsured homeowners that are not present at the time of a fire would be for a fire company to put out the fire and then place a lien against the property for the price of the service. If the homeowner really did not want to pay for any fire protection and was actually willing to lose the house, then to lose it to the fire company amounts to the same thing. If he did want to receive service, then he would be happy to have his house saved and he could work out a payment plan with the fire company. In all of these possible cases the fire company would be leaving the homeowner better off than they found him.

It is important to note that just as this incident was a marginal case in today's world, such incidents would be marginal cases in a free market as well. It is unthinkable that homeowner's insurance would not include some kind of fire protection, so the actual cases of nonpayers would be extremely limited.

There is historical precedent for privately owned fire departments linked to insurance. Until 1866 the fire departments in London were privately owned and operated by insurance underwriters.Download PDF There are any number of ways that this service could be provided by the free market absent a government monopoly that undercuts and freezes out private options.

The free market, competition, and the profit motive all work together to make service providers as responsive to the needs of clients and potential clients as possible. The government has no incentive to serve any needs but its own. Rather than showing what we have to fear from the possibility of free-market fire services, this incident underscores the problems we already have with government provision of these services. It is only the government that would sit there, watch a man's house burn, and do nothing.