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Time to listen to the market about fracking.

It’ll be no surprise to my regular readers that I’m a bit skeptical when people praise “the market” (by which is usually meant “powerful companies that do not operate in anything resembling a real free market”), but there is a case when leaving things to private business is clearly better than leaving it to government: When an issue has become so gummed up with politics that a simple profit-and-loss approach can cut through the bullshit.

An example: The drug Accutane is (was?) an acne drug (so it was taken by teens) and it caused horrific birth defects. Faced with the problem of keeping teens not pregnant, the drug company (Roche) created a pregnancy prevention program for girls and women taking the drug. I bring it up because I worked on it and it was admirable—clear, correct information presented frankly, with barely a mention of abstinence. After all, Roche had no incentive to screw around; every baby born with Accutane birth defects was bad press for the drug. And the program was successful: There were very few pregnancies among Accutane patients.

This is pretty definitive proof (if more proof were needed) that the government’s politically motivated “abstinence-only” sex education is wrongheaded: When a private company’s profits depended on preventing pregnancy, they didn’t waste their time talking about abstinence. The market spoke, and in this instance (because the company had the right incentives), the market was right.

That’s the thing, though: the market is only worth listening to when its incentives are right—when companies are being paid to honestly evaluate what we want to know.

Now let’s look at hydrofracking. Blindly relying on the market won’t help here, of course: fracking companies are paid if we say yes to fracking, which means they’ll say it’s safe whether or not it really is.

But what about insurers? Insurers have the right incentives: when they insure frackers, they make money if the process turns out to be safe, and they lose money if frackers wind up having to pay for poisoned wells and sick babies.

So this news is important: Nationwide, one of the country’s biggest insurers, has decided that it won’t even try to insure frackers. In the company’s own words:

We do not have a comfort level with the unique risks associated with the fracking process to provide coverage at a reasonable price.

If fracking was as risk-free as its advocates say, Nationwide would be rushing to insure frackers. It’s rushing in the opposite direction.

The market has just spoken about the risks of hydrofracking. They’re very real.

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