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Tilting at Windmills

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October 12, 2006
By: Jacob Hacker

Al asks a good question in the comments (well, he presents it as a statement of fact, but I will take it as a question): Is increased risk just the flipside of the increased returns of our economy? Don't we have to take risks to achieve rewards, and won't providing security prevent that?

Al's not the only one making this point. Both Brink Lindsay in his review of my book in the Wall Street Journal, and Tyler Cowen, in his otherwise favorable assessment of my book on "marginal revolution," suggest that I understate the gains that have come with increased risks. So is economic security just an inconvenient but necessary byproduct of our economic success?

The answer, I am convinced, is no. In fact, quite the opposite: We could increase the gains of our economy--and make them more fairly distributed--by providing basic financial security.

Let's start with the first simple point, one that Kevin has been drumming away at (sorry for the pun) for years: It's not as if middle class Americans are making out like bandits in the American economy. The statistics are pretty clear. Median-income Americans have seen only modest growth in their incomes over the past generation; most of the gains have been at the top. Plus, most of the gains at the middle have been due to the increasing work hours of families (specifically, the increasing work hours of women). I think the movement of women into the workforce is something to celebrate, but it can't be described as a great victory for the middle class that families have gotten ahead only because they've worked more.

This is when the risk-return folks turn to other arguments. They say that upward social mobility has increased (it hasn't). Or they say, as Cowen and Lindsay do, that Americans are living longer (true, but it's hard to argue that this is a result of us facing more risk--after all, people live even longer in many European countries with generous welfare states--or that it makes the increased economic insecurity families face irrelevant, or that it should make us less concerned about the rising number of Americans without health coverage). Or, to pull out the ace card that Lindsay finally resorts to in his rebuttal, they say that income inequality has increased, but inequality of consumption -- what people spend -- hasn't.

What should we make of this claim? Well, first, it's probably wrong. Consumption inequality is less than income inequality, but it seems to have increased just as much. But the broader implication is that we shouldn't worry about drops in income because people can deal with these drops on their own -- hence their consumption is less unequal than their incomes.

But how are people dealing with these drops on their own today? Mostly by going into debt. As I show in my book, median household debt as a share of income for married parents was more than 125 percent of income in 2004. The economist Herb Stein once said, "If something can't go on, it won't." And the debt hemorrhage of the American family simply can't go on.

If the returns of rising risk add up to the ability to borrow more to dig oneself out of short-term holes (thus digging a deeper long-term hole), then I think we can safely say that most Americans would be happy to give up the returns to obtain greater security.

But here's the kicker: We can provide security and help our economy. Just as businessmen and entrepreneurs are protected against the most severe economic risks they face to encourage economic investment and growth, we are most capable of fully participating in our economy, most capable of taking risks and looking toward our future, when we have a basic foundation of financial security. Economic security is not opposed to economic opportunity; it is its cornerstone. And restoring a measure of economic security in the United States today is the key to transforming the nations great wealth and productivity into an engine for broad-based prosperity and opportunity in an ever more uncertain economic world.

How do we do that? That's the subject of my next post.

Jacob Hacker 11:33 AM Permalink | Trackbacks | Comments (93)

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Comments

Al is not a real commenter, dude.

You've been Drummed...

Posted by: Pale Rider on October 12, 2006 at 11:40 AM | PERMALINK

Oh God. No. Not a post specifically for the Al-Bot...

Posted by: Global Citizen on October 12, 2006 at 11:40 AM | PERMALINK

"median household debt as a share of income for married parents was more than 125 percent of income in 2004."
Do you mean that new debt acquired each year (what I'd call deficit) is 125% of income, or that total outstanding debt is 125% of income? The latter doesn't seem too unusual- most homeowners have mortgages for more that 125% of their income. The former would indeed be bad, but seems highly unlikely.

Posted by: SP on October 12, 2006 at 11:44 AM | PERMALINK

I'm finding this discussion fascinating. I have nothing to contribute, but ... thanks.

Posted by: gussie on October 12, 2006 at 11:45 AM | PERMALINK

Jacob Hacker wrote:

"But here's the kicker: We can provide security and help our economy. Just as businessmen and entrepreneurs are protected against the most severe economic risks they face to encourage economic investment and growth, we are most capable of fully participating in our economy, most capable of taking risks and looking toward our future, when we have a basic foundation of financial security. Economic security is not opposed to economic opportunity; it is its cornerstone. And restoring a measure of economic security in the United States today is the key to transforming the nations great wealth and productivity into an engine for broad-based prosperity and opportunity in an ever more uncertain economic world."
___________________

This is fascinating and I will eagerly await your next post. But how are entrepreneurs more protected against risk than any other economic entity? Do not most entrepreneurial efforts fail? For that matter, how do you define an entrepreneurial effort?

This topic crosses several disciplines and is therefore vulnerable to misunderstanding between the different orientations. What collaboration have you done with behavioralists regarding worker motivations?

Posted by: Trashhauler on October 12, 2006 at 11:48 AM | PERMALINK

I await your next post eagerly. But in the meantime, it's important to note that even if there is a trade-off between increased productivity and increased risk, then the proper balance is set by the political system and is a proper subject of political debate.

Saying that "we" have to take "risk" in order to realize higher productivity masks the fact that in the real world increased risk means increased suffering. If a million workers run the increased risk that is the result of having no health insurance or inadequate health insurance, then some number of real families will be bankrupted, some number of real children will die or be crippled because they got second-rate, or late, or no care, some number of real families will break up because of the stress of chronic illness compounded by the pressure of having no money. When you aggregate large numbers of individuals, increased risk by definition means increased harm.

It seems reasonable for a society to decide to accept a slightly lower annual growth rate in order to avoid the suffering caused by the increased risk that is associated with no health insurance. What seems peculiar is a society that is so fixated on the goal of maximimum growth that it is willing to let people die in order to reach it.

Posted by: JR on October 12, 2006 at 11:50 AM | PERMALINK

I think he's using the Al-bot as the 2nd person in a Socratic dialogue.

Posted by: Ben Cochran on October 12, 2006 at 11:51 AM | PERMALINK

it's official. this site has jumped the shark.

Posted by: cleek on October 12, 2006 at 11:51 AM | PERMALINK

Economic security is not opposed to economic opportunity; it is its cornerstone.

Upper class Americans who run businesses have shifted risk away from their enterprises, and then seen their incomes skyrocket, while the recipients of the risk - the rest of us - have stagnated. So risk and income gains correlate negatively.

Security is indeed the cornerstone of prosperity.

Posted by: Dan-o on October 12, 2006 at 11:52 AM | PERMALINK

Is economic security just an inconvenient but necessary byproduct of our economic success?

D'uh. No.

What we have been observing over the past six years is that the richest of the rich have been getting even richer--so indeed THEY have been reaping the benefits of "our" economic success. But the risks are born by everyone else.

For the winners, it's a nice gig as long as they can get away with it. For everyone else, it's medieval.

Posted by: PTate in MN on October 12, 2006 at 11:56 AM | PERMALINK

The riskier the road, the greater the profit. If you want safe, move to France, where wages stagnate and the best career path is 'civil servant'.

Posted by: American Hawk on October 12, 2006 at 12:06 PM | PERMALINK

Jacob,

I think you give way too much credit to this argument. First off, it came from Al, and 2nd it flies completely in the face of common sense. It's simple, people are more likely to take risk in one area of their life if they are secure in others. If one doesn't need to worry about losing Health Care then people will be more likely to start a home business or take a job with less benefits and pay but higher potential.

Posted by: kj on October 12, 2006 at 12:07 PM | PERMALINK

The riskier the road, the greater the profit. If you want safe, move to France, where wages stagnate and the best career path is 'civil servant'.

So says the supporter of the Bush Administration, which has increased the number of civil servants and contractors since taking office...

Posted by: Pale Rider on October 12, 2006 at 12:08 PM | PERMALINK

Oh, Jesus, you said something nice about Al...first time in three years.

Now he'll never go away...

Posted by: cynic on October 12, 2006 at 12:09 PM | PERMALINK

When more people have more capacity they want and need a greater variety of things, which creates the basis of a yet greater variety of things, but if all capability is segregated to a few then we can have only what those few are willing to provide us, for their own gratification.

This is why corporate participation in politics should be criminalized and the corporation as we know it today must be eliminated and re-imagined from the ground up.

A system that allows a general advancement of authoritarian personalities has to be regarded as both ineffectual and a threat to society.

It's a public health problem.

Posted by: cld on October 12, 2006 at 12:09 PM | PERMALINK

"Plus, most of the gains at the middle have been due to the increasing work hours of families (specifically, the increasing work hours of women)."

Working women have vastly increased the supply of workers. This (like immigration) puts a downward pressure on wages. Is this effect substantial? (I know there isn't a completely fixed 'pie' of jobs, so the pressure isn't as strong as if there were permanently a limited supply of jobs).

But that is probably a sidenote. One thing that doesn't seem to be fully appreciated is that the risk of failure is a strong incentive. Furthermore a well-functioning economy has to root out failure and in doing so move the resources used in the failing project to something useful. To use the time-worn example: if you don't allow that, we would still have lots of buggy-whip manufacturers.

Posted by: Sebastian Holsclaw on October 12, 2006 at 12:11 PM | PERMALINK

American Hawk: "The riskier the road, the greater the profit"

Not true. You have to perform cost-benefit analysis. A risky road that leads to a precipice does not provide greater profit.

Two investments with the same probability of return can have different levels of risk. The greater risk therefore does not provide a greater return.

Usually American Hawk just spouts empty platitudes that don't warrant comment. "Liberals are...." In this case his comment is plain wrong.

Cost-benefit analysis. Risk is an ingredient. For a better understanding of risk, read "Fooled by Randomness." Great book.

Posted by: T.R. Elliott on October 12, 2006 at 12:12 PM | PERMALINK

KJ: If one doesn't need to worry about losing Health Care then people will be more likely to start a home business or take a job with less benefits and pay but higher potential.

And it's not worth taking risks to get paid more if all that money is going to pay for other people's heathcare, food stamps, eight week paid vacations, etc., etc., etc. If you ant people to produce more wealth, how about letting them keep some of it?

Pale Rider: So says the supporter of the Bush Administration, which has increased the number of civil servants and contractors since taking office...

Every time Bush tries to reduce government buerecracy, the Democrats stadn in the way. e could have efficient, cost-effective schools if democrats would just support school choice. Similarly, the social security crisis would be solved if we let people choose how to invest their own money.

Posted by: American Hawk on October 12, 2006 at 12:12 PM | PERMALINK

American Hawk: "Every time Bush tries to reduce government buerecracy"

You apparently haven't looked at the medicare drug law signed by Bush.

Bush doesn't try to reduce bureaucracy (not the spelling Hawk). He just makes it more ineffective. Which tends to make it more bloated.

Posted by: T.R. Elliott on October 12, 2006 at 12:16 PM | PERMALINK

What you're showing is largely (not entirely) an artifact of lower interest rates, which have allowed Americans to take on higher mortgages. If you look at the debt service ratios (the ratio of debt payments to income) they've actually dropped substantially for renters, while rising slightly overall, as more people buy homes.

The rise in the DSR (about 2% under Bill Clinton, and roughly 1% since Bush took office) might be problematic, but while 3% of income is big, it's not disastrous--particularly not if a sizeable chunk of that results from people building up equity in their homes. We might worry that we will see a big jump as ARMs begin to bite, but we should be in the worst of that transition now, since interest rates began rising in 2004 and the worst credit quality borrowers generally had to take 2-year teasers.

Posted by: Jane Galt on October 12, 2006 at 12:17 PM | PERMALINK

We provide insurance because we want people to make decisions, which require taking on risk, and to make those decisions rationally and realistically.

Also, when people do make good, but risky decisions, we do not want even a very few to suffer horrific consequences, if those consequences can be ameliorated.

Posted by: Bruce Wilder on October 12, 2006 at 12:18 PM | PERMALINK
Oh God. No. Not a post specifically for the Al-Bot...

Hey, if the trolls aren't useful to use as pivots for framing responses to common right-wing objections to progressive ideas, what good are they at all?

Posted by: cmdicely on October 12, 2006 at 12:18 PM | PERMALINK

2nd graf: "So is economic security just an inconvenient but necessary byproduct of our economic success?"

I think you mean "insecurity."

Posted by: skimble on October 12, 2006 at 12:18 PM | PERMALINK

"The riskier the road, the greater the profit."

Tell that to restaurant owners.

Besides, it is one thing to *pursue* risky ventures and fail. It is quite another thing to simply want a secure job and a healthy family without worrying about getting kicked to the street every month. They are two different kinds of risk altogether.

Or are you stating that you are willing to tolerate seeing Americans that want to work and provide for their families (the majority), not be able to do so for the sake of maintaining a class of "lottery winners" ?

Posted by: OhNoNotAgain on October 12, 2006 at 12:19 PM | PERMALINK

Economic security is not opposed to economic opportunity; it is its cornerstone.

This is a good point. Not that some meausure of risk isn't necessary for a dynamic, prosperous economy, mind you. But the benefits or risk, like anything else, face the law of diminishing returns. A certain amount is beneficial, but eventually diminishing returns set in. Just take the case of the talented person who passes up a job that makes sense from a career-building standpoint because he dare not risk his family's health insurance benefits. Don't kid yourself that this doesn't occur. It does occur -- on a regular basis. Multiply these occurances by thousands and thousands, and you risk doing real damage to what hitherto has been a great strength of the American economy. One suspects it's becoming a easier to make the "agressive" career move (ie., with a startup) in Ontario or New South Wales than it is is California or Massachusetts. That can't be good for the US economy.

Posted by: P.B. Almeida on October 12, 2006 at 12:21 PM | PERMALINK

> Al asks a good question in the comments (well, he presents it as a statement of fact, but I will take it as a question): Is increased risk just the flipside of the increased returns of our economy? Don't we have to take risks to achieve rewards, and won't providing security prevent that?

Yes, but who's taking the risks? and who's getting the rewards? They aren't always the same people; a lot of risk is forced onto the workers and other stakeholders...but they don't get the rewards when things succeed, witness the economy doubling in the last 30 years, but wages stagnant

Posted by: Stewart Dean on October 12, 2006 at 12:24 PM | PERMALINK
We might worry that we will see a big jump as ARMs begin to bite, but we should be in the worst of that transition now, since interest rates began rising in 2004 and the worst credit quality borrowers generally had to take 2-year teasers.

Rates aren't that much higher than they were in 2004, and the worst credit quality buyers are a limited slice of the ARM marketplace. The worst of the effect you point to will be experienced when and if interest rates are significantly higher than when borrowers took loans, and when a larger portion of the borrowers are in the floating period.

Posted by: cmdicely on October 12, 2006 at 12:25 PM | PERMALINK

I can allow Mr. Hacker the mistake of responding to Al, but the real issue is why he thinks the question about increasing risk achieves increased reward is valid. I think it is because his friends and colleagues are financiers and executive managers at large corporations. It is the opinions of these types of people that Mr. Hacker wants to win at the expense of the welfare of the masses.

When medical bills of over $10,000 are the cause of 50% of household bankruptcies, we should know the risk being borne by the majority of people in order to provide wealth for the few is too high. The friends and colleagues of Mr. Hacker do not have to worry about such mundane issues of how to pay for such small debts, but most people do. When Democratic politicians voted to decrease bankruptcy protection, everyone should have learned there is no mainstream political party interested in the welfare of the average citizen. When political moderates act this way, we should know that they have been co-opted by the elites and enticed with privelaged status to betray the public welfare.

Posted by: Hostile on October 12, 2006 at 12:27 PM | PERMALINK

One suspects it's becoming a easier to make the "agressive" career move (ie., with a startup) in Ontario or New South Wales than it is is California or Massachusetts.

Also, it seems that more people make aggressive career moves in California, Mass, and New York (that is, blue states) than, say, Mississippi or Nebraska. Why is that? Based on what the righties are saying, the red states should be hotbeds of innovation and the blue states should be stagnant. Doesn't seem to be the case, does it?

Posted by: ericblair on October 12, 2006 at 12:32 PM | PERMALINK

Sebastian Holsclaw [Hi, Sebastian!] writes:

But that is probably a sidenote. One thing that doesn't seem to be fully appreciated is that the risk of failure is a strong incentive. Furthermore a well-functioning economy has to root out failure and in doing so move the resources used in the failing project to something useful. To use the time-worn example: if you don't allow that, we would still have lots of buggy-whip manufacturers.

I don't think that you are correct here. The risk of failure doesn't provide an incentive for innovation, it provides an incentive for playing it safe. It is the promise of reward that provides the incentive for innovation.

You can think of it in terms of playing poker. Suppose you have a hand that might possibly win, but it's not certain. To stay in the game, you would have to risk a certain amount of money. If losing that money means that you will starve to death, then you're not going to risk it. On the other hand, if you have enough of a "cushion" that you can afford to lose a little, then you are more willing to take a chance.

Posted by: Daryl McCullough on October 12, 2006 at 12:34 PM | PERMALINK

YHBT.

Posted by: charlie don't surf on October 12, 2006 at 12:35 PM | PERMALINK

Even if the argument that people are assuming greater risk for the chance at greater reward were true, it's still screwed up. That's because, in the real world of financial markets, firms can hedge risks. If they don't want to bet the farm on volatile commodities or interest rates, firms can buy futures contracts, options, and other derivatives to limit the downside of risk--usually by limiting the upside as well.

But the average American worker didn't volunteer for more risk as described here, and has no tools to reasonably hedge it.

Their are some financial instruments to hedge risk for actual people (as opposed to companies)--health insurance, for example. But the problem is that the hedges that are available to the average person are increasingly onerous--to the point that more and more people are forced to chose between them and nonnegotiable things like food and shelter.

Posted by: RWB on October 12, 2006 at 12:36 PM | PERMALINK

American Hawk writes: Every time Bush tries to reduce government buerecracy, the Democrats stand in the way

It's amazing that conservatives have such overinflated view of Democratic power. The Republicans control the Senate, the House of Representatives, and the Presidency. Yet they are helpless when faced with the supernatural powers of the Democratic minority. Republicans are just helpless victims of those meanies.

God, you are a bunch of babies.

Posted by: Daryl McCullough on October 12, 2006 at 12:39 PM | PERMALINK

And it's not worth taking risks to get paid more if all that money is going to pay for other people's heathcare, food stamps, eight week paid vacations, etc., etc., etc. If you ant people to produce more wealth, how about letting them keep some of it?

True, but all that money is not going toward those things. It is a silly argument to say people will stop trying to make money if they will end up making 10% less due to increased security for the rest of us. In fact, it's likely the opposite. If the government raises your taxes 5% to fund health care for all, would you simply stop working hard? Of course not. You'd probably work to replace those funds you lost.

But of course if the government raised your taxes 5% to fund health care, you'd take home more money at the end of the day because you could demand from whoever employs you the money they are saving on paying for your health insurance (or look for a higher paying job since you don't have to worry about your health benefits). My Family plan currently costs over $900 a month, around 15% of my total benefit and pay package.

It is simple. Increasing security, increases our ability and desire to take risks. Risks are good for the economy. This couldn't be much simpler.

Posted by: kj on October 12, 2006 at 12:43 PM | PERMALINK

Our economy is affected greatly by shareholders of large business concerns, who in their desire to "minimize costs" (i.e., eliminate risk) hammer management to reduce or underpay their workers. Thus, corporate owners make obscene amounts of money by delegating risk to their workers. This refutes the common conservative myth that "more risk brings more rewards." It brings rewards to people who do not experience risk. And that is patently unfair.

Posted by: CT on October 12, 2006 at 12:43 PM | PERMALINK

Every time Bush tries to reduce government buerecracy, the Democrats stadn in the way.

Those pesky Democratic politicians! Using their control of the House, the Senate, all the committees, and the Executive branch to force more and more civli servants to work for the government!

What's that? The Republican'ts control all of the levers of power? And they don't listen to any of the Democratic politicians anyhow?

Never mind...

Republican'ts:

Can't accept any responsibility for their clusterCheneys.

Can't tell the truth.

Can't balance the budget.

Can't stop torturing people.

Can't keep their hands off the little boys.

Posted by: (: Tom :) on October 12, 2006 at 12:45 PM | PERMALINK

The problem is that the people who are assuming all the risk (i.e. the workers) are not the people who are reaping all the rewards (i.e. the owners of the capital).

Posted by: mfw13 on October 12, 2006 at 12:50 PM | PERMALINK

"You can think of it in terms of playing poker. Suppose you have a hand that might possibly win, but it's not certain. To stay in the game, you would have to risk a certain amount of money. If losing that money means that you will starve to death, then you're not going to risk it. On the other hand, if you have enough of a "cushion" that you can afford to lose a little, then you are more willing to take a chance."

I don't like poker analogies to most economic issues because poker really is a zero-sum game (and if there is a rake it is a negative-sum game). Furthermore, there are lots of people in poker who take risks that they can't really afford, and there are lots of people who avoid the risks by making the wise choice not to play.

In order to have the economy properly allocate resources, you have to allow businesses to fail and that failure has to mean something. You have to let the Texas Instruments personal computer division go bankrupt because people really were buying IBM products. If you don't, you have people wasting their time, energy and economic output putting together computers that no one buys. One of the key legitimate complaints about the current functioning of the economy is that CEO's often get paid even when they fail. But that isn't an argument to insulate everyone from failure. Quite the opposite.

Posted by: Sebastian Holsclaw on October 12, 2006 at 12:52 PM | PERMALINK

Jesus, Jacob -- people don't assess with the remotest degree of rationality. People who are terrified of flying in airplanes wouldn't blink at driving across the country -- even though the risk is several orders of magnitude greater. People always feel like they take less risk when they are "captains of their fates" behind the wheel of somethingg rather than, say, building luxury homes in the paths of hurricanes.

It's why the thought of health insurance never even crosses the minds of many uninsured young people.

Bob

Posted by: rmck1 on October 12, 2006 at 12:57 PM | PERMALINK

When corporations depend on US military intervention to guarantee sources of oil, or when agribusiness depends on price supports to guarantee revenue after a bumper corn harvest, where's the risk?

In America, the bigger the economic unit, the more risk-averse the behavior. Some anti-risk behaviors have become so ingrained in our way of life we don't even recognize them for what they are.

Posted by: pj_in_jesusland on October 12, 2006 at 1:00 PM | PERMALINK

If you're going to take Al seriously, then you make it very hard to take you seriously.

Seriously.

Posted by: craigie on October 12, 2006 at 1:05 PM | PERMALINK

The riskier the road, the greater the profit.

Sometimes there's a profit, sometimes it breaks even. Sometimes there's a huge loss. you and others like you talk as if profit is the only possible outcome.

Posted by: tomeck on October 12, 2006 at 1:13 PM | PERMALINK

Every time Bush tries to reduce government buerecracy, the Democrats stadn in the way.

Right, dude. The minority party is in charge.

Keep peddling your bullshit--someone's got to buy it at some point.

Posted by: Pale Rider on October 12, 2006 at 1:13 PM | PERMALINK

Are you referring to the comment by "Al" on Oct 10 2:38 PM, in your article What is the Great Risk Shift? of Oct 10 11:54 AM? Um, I guess I better fess up. That was me, doing a fake Al. Every once in a while the mood just comes over me and I use the name Al to make the most idiotic statement I can think of. However Ive noticed that even my most half-wit Alisms sometimes elicit howls of humorless outrage.

However if you think Als observation needs refutation, heres my real opinion (similar to points already made by others).

Sure, entrepreneurs take risks to get rewards. But what is happening now is that we are forcing risks onto people who have neither the desire nor the aptitude to take risks. Further, the rewards they are offered in return are negative ones the reward of not being thrown into poverty, or not seeing their dream of retirement evaporate. They certainly dont see the possibility of rewards on the scale that a CEO makes.

Also, its a myth that entrepreneurs are risk-takers by nature. Like all rational people, they avoid risk when they can, and lobby for laws that reduce their risk. Hell, thats why limited liability corporations were invented! So they can take risks with other peoples money!

In other words, weve evolved into a system of socialism for the rich and free enterprise for the poor.

Posted by: 2.7182818 on October 12, 2006 at 1:28 PM | PERMALINK

In order to have the economy properly allocate resources, you have to allow businesses to fail and that failure has to mean something. You have to let the Texas Instruments personal computer division go bankrupt because people really were buying IBM products.

What people are trying to say here is that if the failure of the TI PC business means personal economic disaster for everyone involved in it, everyone involved is going to move heaven and earth to keep it alive, competitive or not. It's hard to make objective, optimal decisions with the sword of Damocles over your head.

Yes, you must let bad businesses fail, but you've got to let the businesspeople get back on their feet and try again, maybe older and wiser this time. If you look through corporate history, the early bird may get the worm, but the second mouse gets the cheese.

Posted by: ericblair on October 12, 2006 at 1:29 PM | PERMALINK

Um, I guess I better fess up. That was me, doing a fake Al. Every once in a while the mood just comes over me and I use the name Al to make the most idiotic statement I can think of. However Ive noticed that even my most half-wit Alisms sometimes elicit howls of humorless outrage.

That's hilarious - Jacob has predicated an entire discussion on the rantings of a fake Al.

My theory has always been that old Drum himself posts as Al in order to drive the discussion along. In this case, I can see that I was mistaken. See what spoof posting can do? It can cause perfectly sane people to completely lose their minds...

Posted by: Pale Rider on October 12, 2006 at 1:32 PM | PERMALINK

Sebastian writes:


I don't like poker analogies to most economic issues because poker really is a zero-sum game (and if there is a rake it is a negative-sum game). Furthermore, there are lots of people in poker who take risks that they can't really afford, and there are lots of people who avoid the risks by making the wise choice not to play.

I don't think those details are relevant to my point, which is that having a certain amount of security increases your ability to profit from risk-taking.

In order to have the economy properly allocate resources, you have to allow businesses to fail and that failure has to mean something. You have to let the Texas Instruments personal computer division go bankrupt because people really were buying IBM products. If you don't, you have people wasting their time, energy and economic output putting together computers that no one buys. One of the key legitimate complaints about the current functioning of the economy is that CEO's often get paid even when they fail. But that isn't an argument to insulate everyone from failure. Quite the opposite.

I don't think anyone here is arguing in favor of decreasing the risk for CEOs. That's more of a Republican thing. We're talking about increasing financial security for those of middle income and below.

Posted by: Daryl McCullough on October 12, 2006 at 1:40 PM | PERMALINK

I find it useful to look more broadly at how people around the world deal with this issue, and also to scan a wider sweep of history in thinking about the current state of affairs. First, the fact of the matter is that in most other cultures, societies, and times, the way that people have managed risk has been to invest in relationships, not in abstract financial instruments, careers, loyalty to the legally fictitious individuals called "corporations," etc. The typical path to risk management was to produce offspring whose labor could be partially directed to the interests of the family, clan, or kin group; and who could also be deployed in creating affinal (in-law) relationships with others in society. When the chips were down, and a crisis or shortage or emergency hit, it was this network of relationships that sustained a person. And, when times were good, it was the capacity to deepen, grow, and manipulate such a network that led people to enhance their social standing or power. The past 200 years has seen three great shifts in this scenario initially in the West, and later throughout the world: the capacity to gain a return on investment in technological innovation has become much greater; the capacity to bundle, collateralize, and group risk through the legal & political institutionalization of the joint stock company has become a way of life; and the capacity of these corporations to securitize risk through ever larger and more sophisticated techniques in the financial markets. However, the historical trajectory of both of these factors has altered, and the curve of change associated with them has become steeper in the late 20th century. The leverage of technological innovation has extended to include the knowledge capital of the information revolution; the joint stock company has become even more deeply entrenched in the legal fabric as a fictive "individual", with ever more protection loaned to it through the legal system under (mostly) Republican administrations; and the growth of secondary, tertiary, etc. mechanisms for securitizing risk in the financial markets has skyrocketed. Many fortunes have been made through technological innovations over the past 2 centuries, with the relative proportion of such increasing sharply in the 20th century. However the legal power and position of the corporation, whose extension into the social fabric really accelerated in the 20th century, was initially tracked by the growth of the labor movement. Labor clearly won many battles in the early part of the century, but, as many of the stats often shown on this very site make clear, the decline in membership and clout of organized labor began in the 60's and continues today. The pace and extent of technological innovation is largely responsible for this. Labor concentrated its battle in those industries with massive fixed capital investments. The pace of technological innovation means that these investments are rarely made anymore -- or, where they are, the risk they pose to a corporation is offset by bundling and securitizing them into products for the financial markets. Where does the system go from here, and what can/should one do in the teeth of these accelerating trends? One possibility is to invest (again) in relationships -- the explosion of social networking sites on the internet testifies to the durability of this strategy. Another possibility is to diversify risk along the lines of the financial markets themselves, and simply put more assets into these markets in a diversified way.
In any case, I've got other work to get to as I build my own (entrepreneurial) business, so, I'll just appropriate Forrest Gump's line and declare that 'that's all I have to say about that.'

Posted by: ptb on October 12, 2006 at 1:45 PM | PERMALINK
The problem is that the people who are assuming all the risk (i.e. the workers) are not the people who are reaping all the rewards (i.e. the owners of the capital).

If by "assuming" you mean "having thrust upon them", I agree.

Posted by: cmdicely on October 12, 2006 at 1:48 PM | PERMALINK

It raises an interesting point that the same faction which seeks to reduce political freedoms in the name of physical security advocates less economic security in the quest for increased economic potential.

Posted by: brodix on October 12, 2006 at 1:53 PM | PERMALINK

I am continually amazed at how the know-nothings are continually advocating less regulation and more breaks for the rich as some sort of magical elixir for the improvment of the commonwealth. If you look at places like Somalia, Afganistan, [your favorite country in chaos here] there isn't a lot of enforced governement regulation and their is a lot of laissez-faire libertarianism. In accord with trickle-down economic theory, this would mean that these societies should become wildly economically successful very quickly...alas, they do not. Ask them why they do not. And if they tell you it's because folks there have the wrong work ethic, check to see how hard folks scrabble there just to stay alive and kept fed, let alone worry about their stock portfolio and credit debt.

Posted by: parrot on October 12, 2006 at 1:55 PM | PERMALINK
What people are trying to say here is that if the failure of the TI PC business means personal economic disaster for everyone involved in it, everyone involved is going to move heaven and earth to keep it alive, competitive or not.

As a perhaps more concrete set of examples, consider the various bailouts of American auto manufacturing, airline, and other firms by the federal government.

If workers were more insulated from the risk of firms of failing (if they had secure, non-employment dependent healthcare benefits, and better unemployment safety net with improved transitional assistance, etc.), then there would be far less incentive for the government to take direct steps to protect the failed ventures of capital.

Which is, of course, why the defenders of capital want workers exposed to as much risk as possible: the more workers are exposed to risk, the more the defenders of capital can sell politically sell policies to favor capital as the salve for that risk that workers face.

Posted by: cmdicely on October 12, 2006 at 1:57 PM | PERMALINK

its a myth that entrepreneurs are risk-takers by nature

It certainly is a myth that capitalists are risk takers. The ideal business environment for any captitalist is a monopoly. Capitalists hate competition and they do everything they can, inside and outside of the law, to eliminate competition and guarantee stable revenue flows. Since the late Eighties, capitalists have been allowed to transfer as much financial risk as possiblle to those least able to survive its effects. The electorate is to blame for this, but they rely on main stream media to inform them, and the MSM has been co-opted by the very institutions that are making the risk transfers. I think it is only the decentralizing ability of the internet and global communications that allows us to make the argument for changing the political economy, but I doubt the best possible outcome of providing the greatest utility for the largest amount of citizens will happen easily. There is too great of an accumulation of wealth to contend with, without having to have massive economic privation turn the well accepted economic platitudes that the rich earn their wealth through hard work and ingenuity upside down.

Take for example, universal healthcare. Universal healthcare would provide the best care to the most people, but it is opposed in America by the largest financial institutions and medical industries because they make so much money from the present system. The wealth these companies earn from the present system allows them to frame the political debate with bought pundits and politicians, preventing the adoption of a medical system that would objectively provide the greatest good to the greatest number. This is raw capitalism at its best, creating the worst possible public policy.

Posted by: Hostile on October 12, 2006 at 2:10 PM | PERMALINK

"What people are trying to say here is that if the failure of the TI PC business means personal economic disaster for everyone involved in it, everyone involved is going to move heaven and earth to keep it alive, competitive or not. It's hard to make objective, optimal decisions with the sword of Damocles over your head."

And with particularly bad products, they will fail (TI Personal Computers). Which is good (because the reason they went out was that someone else was doing better) and exactly what we want. If moving heaven and earth gets new and better ideas going, the firm is revived. Think Apple and iPod.

Posted by: Sebastian Holsclaw on October 12, 2006 at 2:43 PM | PERMALINK

Sorry, but I don't agree with the basic premise of this thread. The middle class is much better off than they were a generation ago. Economists understand that the official inflation rate undervalues technological change.

Today's middle class is far better off in so many obvious ways: adequate diet; much improved medical care; longer life spans; healthier populace, able to participate in more activities; color TVs; air conditioning; computers; cell phones; Tivos; wide choice of TV shows; highest historical rate of home ownership; frequently eat out (granted a lot at fast food); high proportion of college educated; more reliable automobiles; microwave ovens...

Posted by: ex-liberal on October 12, 2006 at 2:45 PM | PERMALINK

Today's middle class is far better off in so many obvious ways:

[truncated]

adequate diet
healthier populace
frequently eat out (granted a lot at fast food)

Q: Do you even believe the bullshit you post?

Posted by: Pale Rider on October 12, 2006 at 2:55 PM | PERMALINK

If risk is so great, then why won't my HMO provide me with better coverage?

Posted by: Osama_Been_Forgotten on October 12, 2006 at 3:19 PM | PERMALINK

Taking Al seriously is the true mark of a n00b.

Incidentally, is there any member of the Beltway elite that actually speaks l337? One of the really scandalous things about the Foley IMs is the lack of internet jargon (OMFG LOLZ to teh M4X!).

Posted by: Jim D on October 12, 2006 at 3:20 PM | PERMALINK

From American Hawk: Every time Bush tries to reduce government buerecracy, the Democrats stand in the way

AH,

Statements like this one will mean that you won't be taken seriously by anyone.

Posted by: Yancey Ward on October 12, 2006 at 3:22 PM | PERMALINK

Nobody gives a @#$%&* about the lower class. It is as if they did not even exist. No reason to have any public policies that benefit this large segment of our society.

Posted by: Hostile on October 12, 2006 at 3:23 PM | PERMALINK

That's hilarious - Jacob has predicated an entire discussion on the rantings of a fake Al.

"OMFG LOLz to teh M4XORS!"

Posted by: Jim D on October 12, 2006 at 3:23 PM | PERMALINK

And, how do we know that was not a fake Al, or a fake, fake Al? Anyone want to fess up?

Posted by: Yancey Ward on October 12, 2006 at 3:25 PM | PERMALINK

LMAO! It was a fake Al!

Posted by: Yancey Ward on October 12, 2006 at 3:35 PM | PERMALINK

And with particularly bad products, they will fail (TI Personal Computers). Which is good (because the reason they went out was that someone else was doing better) and exactly what we want. If moving heaven and earth gets new and better ideas going, the firm is revived.

You're assuming that "moving heaven and earth to save TI PC" equals "making better products". When your personal economic ass is on the line, this is rarely the first choice.

The most innocuous way to save the business is to relentlessly market and/or BS the business to the executives and board and get a reprieve. Less ethical methods are to fudge the numbers and smear other company businesses. None of these activities are efficient uses of resources, and I can tell you they do happen.

Your examples seem to suggest that the more pressure you put on people to perform the better off your results, but what really happens is that the better/more entrepreneurial people leave for a better work environment and management goes into full-time butt-saving mode. You end up discouraging any risk-taking whatsoever.

Risk management is an established discipline in any reasonable-sized company. The company works better when good processes are established, risks are identified and managed at the proper level, and a proper portfolio of tasks is maintained. Companies don't work well when they dump risk on the shmucks at the bottom of the totem pole and tell them to perform or else.

Posted by: ericblair on October 12, 2006 at 3:42 PM | PERMALINK

In other words, weve evolved into a system of socialism for the rich and free enterprise for the poor.

Posted by: 2.7182818 on October 12, 2006 at 1:28 PM

As plain as the sun in the sky since Reagan was elected. That's why the rich still love him, and I don't.

Posted by: slanted tom on October 12, 2006 at 4:11 PM | PERMALINK

Putting all debts on the same page of credits, has the median family income increased, or decreased?

Posted by: Crissa on October 12, 2006 at 4:14 PM | PERMALINK

Do you mean that new debt acquired each year (what I'd call deficit) is 125% of income, or that total outstanding debt is 125% of income? The latter doesn't seem too unusual- most homeowners have mortgages for more that 125% of their income. The former would indeed be bad, but seems highly unlikely.

Generally, consumer debt doesn't include housing.

Posted by: Crissa on October 12, 2006 at 4:15 PM | PERMALINK

If risk is real, then if 50% fail, the that's one in two people going without food, shelter, healthcare.

We're dealing with a Nation, where we have both the ones who succeed and those who failed.

In other words, can the failed people camp on your lawn until they make it big?

Posted by: Crissa on October 12, 2006 at 4:21 PM | PERMALINK

The previous articles (most of them) prove Liberals are afraid of the sky falling. Pass a law against falling sky's,feel good about it,go have a Drink. Living proof Capitalism is mis-understood by Libs. Socialism is the way to go. Regulate & Tax all firings and lay-offs,problem solved.Then you will have 75 million dead beats to feed.Have a Labor Zar like in China,just shoot the Evil Company CEO.Castrate anyone who is sucessful and works hard.Fine anyone who makes more money than Min.Wage,which should be at around $30 to $33 per hour.Just think about it we will be like The Frenchies fat,drunk ,stupid and lazy.Pass this along to Miss America Nancy Peloopsi she needs ideas.

Posted by: Glyn Lockhart on October 12, 2006 at 4:53 PM | PERMALINK

Doesn't government have a responsibility to serve people who fail, however society chooses to define failure? Where does the Constitution state that "failures" are excluded?

Years ago slaves were considered failures because they were born with dark skin. Look how far we have come since then (or have we??).

Posted by: pj in jesusland on October 12, 2006 at 5:05 PM | PERMALINK

American

Posted by: SocraticGadfly on October 12, 2006 at 5:11 PM | PERMALINK

That's right Glyn, most of the previous comments prove Liberals are afraid of falling sky. Pass a law, feel a good page up, then blame the drink. It feels good, especially if it is 110 proof that Capitalism is mis-ogenous to Libs. Way to go society. Fire the taxes and regulate the liberty-offs, solved probllem. You will have 75 million beating their meat dead, like in Congress, just shoot it in the face of the Company CEO. Castigate anyone who is successful and works hard to save the dying. Fine anyone who makes more money than the Chinese Min Way, which should be at around Y30 to Y33 per hour. Just believe it, we will be like The French fries dunked in fat, stripped and made crazy with new interrogation techniques. Pass this along to Missed America, she needs a poopsie smeared on her face to remind her of her ideals.

Posted by: Will on October 12, 2006 at 5:21 PM | PERMALINK
And, how do we know that was not a fake Al, or a fake, fake Al?

All Als are fake Als.

Posted by: cmdicely on October 12, 2006 at 6:05 PM | PERMALINK

I'd like to see some discussion of the change in perceived risk vs. the change in actual risk.

It seems to me that for a great period of time, particularly in industrial jobs, there was very little perceived risk. You got your job, worked your 30 years and retired to collect a pension. However, as the companies which guaranteed those pensions have suffered, those benefits have been reduced or in some cases, eliminated. This was always a risk of a system which relied on the companies providing pensions to grow and be healthy over a period of many decades. But it was on such a timescale that it's people had a hard time internalizing it. Whereas it's pretty easy to feel anxious about losing your job tomorrow.

Now there's obviously a value to feeling comfortable and not at risk over the in the short term, even if there is some real, but easily obscured long term risk, but, feeling too secure can be a detriment as well, as I'm sure that people who've lost their pensions can attest to.

I'd like to know how much more risk are we all exposed to now vs. historically, what the balance between short and long-term risk is, and how our relative valuation of short term risk vs. long term risk impacts our assessment of how well off we all are.

Posted by: TW Andrews on October 12, 2006 at 8:08 PM | PERMALINK

Jacob Hacker, you ignorant twit!

I shall deal with you as I deal with all things small, demented and wrong. I shall crush you.

Al asks a good question in the comments (well, he presents it as a statement of fact, but I will take it as a question): Is increased risk just the flipside of the increased returns of our economy? Don't we have to take risks to achieve rewards, and won't providing security prevent that?

Well, get a clue, you socialist moron. Capitalism is risk. A man take a pile of money and risks it to make wealth. Please tell me you went to a good school and not some diploma mill...

Al's not the only one making this point. Both Brink Lindsay in his review of my book in the Wall Street Journal, and Tyler Cowen, in his otherwise favorable assessment of my book on "marginal revolution," suggest that I understate the gains that have come with increased risks. So is economic security just an inconvenient but necessary byproduct of our economic success?

Understate the gains? Where else in the world can a man take a few hundred thousand dollars of his father's money and make himself into the President of the United States of America? Oh, that would be George W Bush, thank you very much. Daddy Bush's startup money fueled a vastly successful business career that took George through the oil business, Major League Baseball, the governor's mansion in Texas, and then, most wonderfully, the Presidency. That's what risk gets you, young man.

The answer, I am convinced, is no. In fact, quite the opposite: We could increase the gains of our economy--and make them more fairly distributed--by providing basic financial security.

Yeah, see where that gets you, Vladimir! My goodness, you really did fall for the bullcrap your flares-wearing professors spewed at you. What's next, Jacob? Going to put on a tie-dyed hairshirt and crack your skull against the baton of a state trooper outside of the Student Union?

Let's start with the first simple point, one that Kevin has been drumming away at (sorry for the pun) for years: It's not as if middle class Americans are making out like bandits in the American economy. The statistics are pretty clear. Median-income Americans have seen only modest growth in their incomes over the past generation; most of the gains have been at the top. Plus, most of the gains at the middle have been due to the increasing work hours of families (specifically, the increasing work hours of women). I think the movement of women into the workforce is something to celebrate, but it can't be described as a great victory for the middle class that families have gotten ahead only because they've worked more.

Bah, Kevin Drum! No greater socialist ever walked the streets of California than Kevin Drum! You mention women--they belong in the home not the workforce. Take the women out of the workforce, unemployment disappears, my good man! Women are driving wages and productivity down, sir, down! Families with working mothers need to make due without Mamma's paltry income and limit themselves to one meal out of the town, if need be. It worked in the 1950s and it can work again today if only these Sheilas and Shelleys would plant their little fannies down at home and raise their bratty little kids instead of clogging up our places of business.

This is when the risk-return folks turn to other arguments. They say that upward social mobility has increased (it hasn't). Or they say, as Cowen and Lindsay do, that Americans are living longer (true, but it's hard to argue that this is a result of us facing more risk--after all, people live even longer in many European countries with generous welfare states--or that it makes the increased economic insecurity families face irrelevant, or that it should make us less concerned about the rising number of Americans without health coverage). Or, to pull out the ace card that Lindsay finally resorts to in his rebuttal, they say that income inequality has increased, but inequality of consumption -- what people spend -- hasn't.

Again, did you hear me? Joe Six Pack and his ugly wife need to make due with less and give this economy a chance to correct itself. Income inequality is the Maoist way of saying that the man who brings risk to the table to create wealth needs an AK-47 round to the temple.

What should we make of this claim? Well, first, it's probably wrong. Consumption inequality is less than income inequality, but it seems to have increased just as much. But the broader implication is that we shouldn't worry about drops in income because people can deal with these drops on their own -- hence their consumption is less unequal than their incomes.

Poor mush-headed fellow. Have you ever stood up and made a point before? Or did you dribble in your drawers and call it genius?

But how are people dealing with these drops on their own today? Mostly by going into debt. As I show in my book, median household debt as a share of income for married parents was more than 125 percent of income in 2004. The economist Herb Stein once said, "If something can't go on, it won't." And the debt hemorrhage of the American family simply can't go on.

Go back to what I'm saying--Joe Six Pack needs to stop buying DVD players and air conditioning units and buy a book and a fan and shut his claptrap. Once the American working man realizes that his lot in life is to make due, he can aspire to the greatness of the venture capitalist, something you have obviously failed to celebrate here. Can we have three "hurrahs" for the man who risks his wealth? Or has the Politburo told you not to say a word, Jacob?

If the returns of rising risk add up to the ability to borrow more to dig oneself out of short-term holes (thus digging a deeper long-term hole), then I think we can safely say that most Americans would be happy to give up the returns to obtain greater security.

Or just shut his yap. I didn't hear you say your "hurrahs" Jacob. I wish you would just come out and admit that you hate Capitalism and want us all to live in a worker's paradise.

But here's the kicker: We can provide security and help our economy. Just as businessmen and entrepreneurs are protected against the most severe economic risks they face to encourage economic investment and growth, we are most capable of fully participating in our economy, most capable of taking risks and looking toward our future, when we have a basic foundation of financial security. Economic security is not opposed to economic opportunity; it is its cornerstone. And restoring a measure of economic security in the United States today is the key to transforming the nations great wealth and productivity into an engine for broad-based prosperity and opportunity in an ever more uncertain economic world.

So what you're saying is, take all the risk out of Capitalism and let the Secretary-General tell the American people on which days they may stand in line outside of the department store to buy one shoe at a time made out of sackcloth and dust? The elimination of risk from Capitalism is impossible, dear lad, so please spare me your hatred of America rap. I doubt very much that the kids are going to put your spiel on their iPod and rock the night away dreaming of being with their homies and their comrades at the Dhzerinzky Tractor Factory.

How do we do that? That's the subject of my next post.

I shall wait with baited breath. Can I go to the fields and pick cabbage for the glory of the state, now?

And you wonder why I think you're a moron.

Posted by: Norman Rogers on October 12, 2006 at 11:32 PM | PERMALINK

Norman Rogers writes: I shall deal with you as I deal with all things small, demented and wrong. I shall crush you.

...and he then proceeds to attempt to crush his enemies under the weight of 6187 characters (not including spaces).

Nice try, Norman, but I managed to hit page-down just in the nick of time.

Posted by: Daryl McCullough on October 12, 2006 at 11:46 PM | PERMALINK

Norman,

Nice to hear from you again. How's your man Manuel?

Posted by: alex on October 12, 2006 at 11:48 PM | PERMALINK

Norman and others,

The forcing of risk taken by corporations upon employees is the same as betting with other people's money. This is how deregulation has gutted pension funds for the last 25 years. There is no motovation to be responsible when they have the power to keep all winnings to themselves and leave all losses on the backs of employees and minor investors.
Free market my ass --it's embezzelment.

Posted by: joe on October 12, 2006 at 11:52 PM | PERMALINK

...and he then proceeds to attempt to crush his enemies under the weight of 6187 characters (not including spaces).

And how do you like that? One moron who can count!

How's your man Manuel?

Dead. He was stealing from the estate. I keep these things hush-hush, so please don't tell anyone in Nicaragua that he's pushing up daisies elsewhere on the property. No, silly! I did not do the deed. He had a coronary when I caught him stealing cookies and I consented to have him buried in the family plot, with a servant's marker, of course.

Free market my ass --it's embezzelment.

And a free market shall lead them to the promised land. I did not hear any "hurrahs" for the genius of George W Bush and his wonderful economy--nor did I see Kevin Drum or Jacob Cracker post about the Dow hitting its high mark today.

And you all stare and drool while I think you're all morons.

Posted by: Norman Rogers on October 13, 2006 at 12:22 AM | PERMALINK

Norman Rogers: I did not do the deed.

I congratulate you on your self-restraint. I know that I would have been sorely tempted.

BTW, what kind of cookies?

I consented to have him buried in the family plot

Very generous of you, especially considering the circumstances.

Posted by: alex on October 13, 2006 at 12:25 AM | PERMALINK

alex:

BTW, what kind of cookies?

The kind that are scrumptious, of course.

general:

I am quite annoyed. This thread should have a resounding number of "hurrahs" posted on it and it should form a shrine to the genius of George W Bush and his handling of this economy in a time of war, terror and strife. Capitalism is conquering the world and sending tin-horn dictators to flop themselves down onto the burning mattress thrown atop the ash-heap of history. And liberals want Chairman Mao to stride on down to Wall Street and smash the marketplace with his Little Red Book! Quit waiting for the government to give you a handout and get a job, liberals!

Kevin Crumb and Jacob Cracker have failed to post or celebrate the Dow's record high and I am appalled.

And you liberals wonder why I'm richer than you...

Posted by: Norman Rogers on October 13, 2006 at 9:27 AM | PERMALINK

NOTE: for Jacob Hacker

Now, the post above, at 9:27? That was me, spoofing Normie. That's fake.

Normie is a real person, and he's certifiably insane.

Norman posted at 11:32pm last night, and maybe one other time--that's real.

Are we cool on that? There's a 'real' Norman and there are probably a few 'fake' Normans that are fun and exciting to do.

Cool...

Posted by: Pale Rider on October 13, 2006 at 9:35 AM | PERMALINK

Pale Rider,

I have never used the word 'scrumptious' in my life. You have libeled me in print and I am going to demand that Kevin Drum give me your home address so that I can send legal papers to your place of residence and cause you great discomfort.

And you wonder why I think you're an imbecile?

Posted by: Norman Rogers on October 13, 2006 at 9:37 AM | PERMALINK

Norman,

You're not real. I'm just using you to explain to Mr. Hacker how this whole 'fake' poster thing works because I have a feeling he's going to quote you and make a fool out of himself again.

You can go back to your hole now, Normie.

Posted by: Pale Rider on October 13, 2006 at 9:39 AM | PERMALINK

Pale Rider:

You bastard.

Posted by: Norman Rogers on October 13, 2006 at 9:43 AM | PERMALINK

Somehow, I don't think Jacob is going to get it...

Oh well...

Posted by: Pale Rider on October 13, 2006 at 9:44 AM | PERMALINK

Free market my ass --it's embezzelment.

The Savings and Loan deregulation and then failure in the ealry Nineties was a perfect example of reducing risk for embezzlers and passing it on to the tax payer. Neil Bush appreciated the opportunity.

Posted by: Hostile on October 13, 2006 at 2:58 PM | PERMALINK

Pale Rider:

Judgement day is coming for you. Whiny cunt.

Posted by: Norman Rogers on October 13, 2006 at 6:10 PM | PERMALINK

"Just as businessmen and entrepreneurs are protected against the most severe economic risks they face to encourage economic investment and growth"

Uh, how? By whom? I own and run my own small business, and I have yet to encounter anyone who has given me any help or succor in our bad years. Or good years. I don't even get covered by the minimum safety net type stuff my employees have (workers comp, unemployment) without paying extra out of my own pocket, which they don't have to do.

This is exactly the kind of throwaway absurdly false statement that makes it impossible for me as a small business owner to take anyone on the left seriously, however much I am attracted to them for their position on a variety of social and war issues. I am sure that this is the type of statement that most of your readers on the left nod their heads to, sure that all of us business owners are all dialed into the fat life somehow via the government, when in fact I spend most of my life dealing with the myriad of government-required wastepaper that makes it nearly impossible to run a business at all.

PS- I am certainly willing to believe that there are certain Fortune 100 companies that recieve all sorts of government rents -- Steel companies, in the form of protectionism; Wal-mart, in tax abatements and eminent domain handouts; ADM, in the form of ethanol subsidies; tobacco companies, in the form of government roadblocks to new entrants.

However, these type of large politically connected corporations make up about .001% of the total mass of corporations. And, entrepeneurs, unless they are already rich and powerful from a previous business, never get any breaks and in fact often face government roadblocks set in place by powerful incumbents with political pull. I am all for eliminating these coporate welfare handouts and incumbent protection schemes. Before you scream aha! remember that 3 of the 4 government rent recipients I listed as examples are beneficiaries of programs from the left side of the aisle.

Posted by: Coyote on October 15, 2006 at 1:51 AM | PERMALINK

By the way, on the debt issue, I skimmed the book and didn't see any empirical linkage between rising income uncertainty and household debt. I am willing to believe they both went up at the same time, but correlation is not equal to causation. Ten years ago, when folks lamented rising household debt, it was an issue of personal responsibility and having the discipline to live within one's means. Are we past that now? Is debt really going to be added to the list of things nowadays that are-not-my-fault?

Posted by: Coyote on October 15, 2006 at 2:01 AM | PERMALINK

Coyote--

Well, jeez, Coyote, I don't know, is going into debt a sign of moral weakness? It would be pretty funny if it were, since debt is the entire basis of our economy.

Sure, some people live beyond their means, just as some people always have (read some 19th century novels, they're chock full of obscenely indebted aristocrats). But is such a rapid increase in indebtedness really a sign of just laxer spending habits? To make such a statement, you would first have to actually examine what exactly it is that people are going into debt for. Now I am by no means an expert on the matter, but I feel fairly certain that the overwhelming percentage of household debt is connected with education, housing and health care.

Now it is likely that some people "live beyond their means" in regards to these goods, but it is also true that these goods all happen to have gotten much more expensive in recent years.

Perhaps more to the point, it doesn't make sense to talk about "living beyond your means" when the whole point of Mr. Hacker's post is that these "means" (i.e. wages) have stagnated while the economy has supposedly been "booming". You assume that whatever amount of money a certain type of worker is able to earn is his or her "natural wage", and then go on to argue that they shouldn't want to spend more than that. Well, that's really putting the cart before the horse. Obviously, if one believes that people are getting the money they deserve for their work, then rising indebtedness would be a sign of personal irresponsibility. But the entire point of this discussion is that the cards have been stacked against the average wage-earner and that they are not reaping the benefits of their rising productivity. Hence, the debt. The debt is just a symptom, one among many.

Of course, correlation doesn't mean causation. But there are times where a certain explanation seems much more likely than another. Here is one: stagnating wages and rising costs in the last twenty years is a BETTER (not perfect, of course) explanation of rising debt than is some kind of sudden moral decline in the middle class in those years.

Posted by: kokblok on October 15, 2006 at 10:35 AM | PERMALINK

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Posted by: ppstream on October 15, 2006 at 10:39 AM | PERMALINK

Coyote--

Since the dawn of time, small businessmen have been complaining about the government. This is no great surprise, it is difficult to run a business and it is human nature to blame other people for what might just be an insolvable problem or a lack of demand for a certain product. Small businessmen are the first to talk about personal responsibility, but always the last to apply the concept to themselves. Same old human nature, rearing its ugly head.

You know what? Small businesses do lose money. They do go under. Is the government to blame for this? The government demands the same paperwork from all your competitors. If the demand for your product is actually there, you should be fine. The government allows you to write off losses on your taxes, allows you to declare all kinds of personal use items as "business expenses", and in many other ways gives you all sorts of advantages when it comes to paying your taxes. Believe me, I have been around small businesses my whole life and I know exactly what these "business expenses" often amount to. So I find your claim that the government never helps you to be laughable. Finally, if your business does go under, you have recourse to the same bankrupcy protections as does anyone else (well, at least you used to, until your friends in congress gutted them).

If the government isn't helping you, you must not be very savvy about how to obtain this help.

As far as regulation goes, would you really welcome a world without it? Regulation is what substains your market niche. Without health code regulation, for instance, restaurants would have to compete with far more competition from unlicensed vendors, etc. It is no mystery why many in the food industry itself pushed for inspections. If you think you can pass an inspection and someone else can't, then you're golden. Go to a country like India, where such laws are in disarray. See the way that food is sold there, from starving people on the street. Can a "bourgeois" restaurant owner make it in India? Nope. Retail sales is the same. Why do you think the small businesses of Moscow pushed through a law to ban street kiosks recently? It is the height of insolence to complain about regulations that are in fact one of the main reasons you are able to have a stable business at all and eliminate hordes of competitors.

Of course, this benefit of regulation is even more obvious in the case of businesses like doctor's or lawyer's offices. Yeah, I guess it's annoying to have to go through all the "wastepaper" it takes to keep up a medical license, but do you really think any private practice doctor in their right mind would prefer a world without such licenses?

Posted by: kokblok on October 15, 2006 at 11:03 AM | PERMALINK




 

 

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