Another risk-risk tradeoff (almost)

Like I've mentioned before, one thing that makes risk management hard is the fact that things are always more complicated that you first think. When you try to reduce one risk, you may inadvertently increase another one, and in some cases, this can actually leave you off worse than you were to begin with. It's not exactly risk management, but it seems that the government's Cars Allowance Rebate System, more commonly known as the "Cash for Clunkers" program, may have created a similar situation.

According to the analysis done by the people at Political Calculations, the net affect of this program will actually be to increase the amount of gas consumed by American cars. You can read their analysis that leads them to this conclusion here.

Their argument is essentially that newer cars are driven more miles per year, and this more than compensates for the better gas mileage that the newer cars get. Their analysis tells us that the Cash for Clunkers program will actually result in an additional 289 gallons of gasoline being burned each year for each older car that it takes off the road when you account for this. That's probably not what the government meant to do, and it's probably an example of an unintended consequence.

Comments

[Jon Robinson]

Nice post.

Frederic Bastiat wrote about this in 1850:

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

Taleb also wrote about the Black Swans arising out of the unseen.