The humble fuse is a simple idea. When too much electric current surges through a circuit, it brings the risk of damaging expensive equipment, or people for that matter. The fuse is designed to melt and break the circuit before that happens. The first to suggest such an idea was Louis-François-Clement Breguet in 1847—he wanted to protect electrical telegraph equipment from lightning strikes.
The fuse concept isn’t unique to electrical engineering. The mechanical equivalent is the shear pin, a part which is designed to break in emergency situations before something more expensive does. Engineers understand that in a complex world, sometimes things go wrong, and there is value in making sure that the failure occurs early and in a convenient place. Fuses are cheap. Human beings are not.
Where are the fuses and shear pins in our social and economic systems? Democratic elections can be seen as a kind of fuse—less about voting in competent governments, more about throwing out terrible ones. But our financial system lacked a fuse. The first failures were not small, and they did not protect the rest of the economy from catastrophic damage.
In 2005, the then Chief Economist of the International Monetary Fund, Raghuram Rajan, paraphrased St. Augustine, saying “Lord, if there be shocks, let them first be small ones. The danger is that the economy will be hit unexpectedly by a perfect storm before it has been stress-tested.” Rajan was hoping that the financial system had a fuse that would fail before something more serious happened. It didn’t. 52
Tim Harford is an economist, journalist and broadcaster. He is the author of The Undercover Economist Strikes Back and the million-selling The Undercover Economist. He is a senior columnist at The Financial Times, and the presenter of Radio 4’s More or Less and Pop Up Ideas. Tim has spoken at TED, PopTech and the Sydney Opera House and is a visiting fellow of Nuffield College, Oxford.