Thursday, April 9, 2020

Spare the Rod

To err is human; wanting to punish those who err is, unfortunately, also human. And at the moment, the U.S. economy is threatened not just by the coronavirus, but also by the American obsession with making sure that people don’t end up with more than they deserve.
Mehrsa Baradaran, The U.S. Should Just Send Checks—But Won’t
It's a simple enough premise for a straightforward essay: the idea that a certain level of sanctimony, coupled with the human tendency (as shown in "the Ultimatim Game") to reject deals that they perceive as unfair, even if that means forgoing a free benefit, has lead American policymakers to place the whole of the economy at risk in the name of only offering aid to "upstanding" citizens. Fair enough. Professor Baradaran describes it this way:
Our desire to punish bad actors may have given humans evolutionary advantages, but it has led to punitive economic policies that harm us all. Policies built to punish supposed freeloaders above all else end up punishing society as a whole. Shutting out the unworthy may feel good—but not for long, if doing so pushes our economy into an ice age.
But then, the professor goes on to describe how large companies are not being held to the same stringent moral standards: "The larger and more complicated the corporation," we are told, "the harder it is for policy makers to enforce justice and fairness."

But my recollection of the 2008 financial crisis, and the logic of that event that has been carried forward to this one, is that large corporations, whether they be large banks, or a certain large aircraft and aerospace manufacturer, are fundamentally important to the overall health of the economy, regardless of their prior bad acts. The reason why they weren't (or won't be) saddled with the full results of their poor decision-making and/or adherence to moral principles that that allowing them to fail would push the economy into the ice age that Professor Baradaran warns against.

The reason why pornographers and former felons are being shut out and major corporations are being let in isn't because the former are more unworthy than the latter. It's the realization that shutting out the latter has consequences that shutting out the former does not. In other words, its understood that thoughtlessly building policy simply to punish freeloaders punishes everyone. But not all freeloaders, supposed or not, are created equally.

And it is this point that the article wordlessly assumes, but never takes the time to address. The problem isn't simply one of a sanctimonious public looking to cut off their noses to spite their faces. The invocation of "the Ultimatim Game" is somewhat out of place, because in the game, the sum of money to be divided up between the players comes from the researchers, not either of the players; or their credit balances. For all that the United States is widely touted, and touts itself, as the wealthiest nation on the face of the Earth, many individual Americans that I encounter in my own life are acutely aware of their own poverty. While comparisons to Scrooge (Ebenezer or McDuck) abound, the truth may be closer to Americans are simply a people who are very much tuned into the scarcity that they see (correctly or not) all around them. And those for whom access to resources is a concern are unlikely to simply give for the sheer enjoyment of giving. Instead, they're looking to invest. Generosity is not the point; relieving a sense of privation is. Giving money to "banksters" and corporate leaders may also lack a return on investment, but it avoids a punishing increase in scarcity that a loss of jobs (that typically American obsession) and international competitiveness would bring.

Given this, I think that the audience may have been better served is Professor Baradaran had laid out the rationale for making the point that not treating people "whose work is of a 'prurient sexual nature'" or "small business owners who have been convicted of a felony" as essential to avoiding the economic Ice Age that they warn of. When CNBC's Rick Santelli ranted about how bailing out people who had taken out unwise mortgages was promoting bad behavior through moral hazard, he wasn't approaching this from the point of view that his viewers should be willing to suffer economic privation, rather than assist them. Rather, he was calling for the privation to be limited to those people who made the unwise choices. And this isn't a wholly irrational outlook. I live near Seattle, and the homeless population is disproportionately large for the overall population. This has yet to cause an economic ice age here. Tents under bridges and along expressways have yet to chill the local business climate. And when people call for assisting them, the arguments I hear are not that we need the greater economic output that they could theoretically create.

I suspect that many Americans understand that several big businesses have an effective gun to their heads. They may not appreciate that they are being held hostage, but they understand that they are. And this leads to something altogether different than an understanding that "we're all in this together." Given that, even though I note that Professor Baradaran says that the line of potential extortionists should be considered longer, I don't know that even if that case were made, that it would be appreciated.

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