Tag: jared bernstein

Accidental Deliberations: Sunday Morning Links

Assorted content for your Sunday reading.

– Tim Harford discusses how insurance and other industries are built on exploiting people who are risk-averse due to the inability to absorb substantial costs as “money pumps” for those who have more than they need:

(L)et’s step back and ask ourselves what insurance is for. Classical economics has an answer: people are risk-averse, which means that they will pay good money to reduce the variability of outcomes they face. If home insurance guards against the loss of a million pounds when my house burns down, I’m happy to buy the insurance even though the insurance company expects to make a profit from it.

But this risk aversion emerges from the fact that money is worth more to poor people than to rich people. Gaining a million pounds would make me rich but losing a million pounds would make me poor. I should not gamble a million pounds on the toss of a coin, because the million pounds I might lose is more precious to me than the million pounds I might gain.

As so often with classical economics, this is an excellent description of how we should behave. It is not such an excellent description of how we actually do behave. Risk aversion can only explain why we insure large risks. It cannot explain why we insure small ones. 

…

A money pump is a person whose irrationalities can be systematically exploited for financial gain. The simplest money pump is a person who prefers an apple to a doughnut, prefers a doughnut to a chocolate bar, and prefers a chocolate bar to an apple. Just offer them an apple in exchange for their doughnut plus a penny. They will accept. Then offer them a chocolate bar for their apple plus a penny. Then offer them a doughnut for their chocolate bar plus a penny. They end up with their original doughnut and are three pence poorer. Repeat for ever.

Money-pump arguments are sometimes deployed to object that people cannot be irrational, otherwise they would be bankrupted by money pumping. But economists are increasingly coming to realise that, instead, we should be looking for money pumping in action.

Given our anxiety about small risks, what would the money pumping look like? It would be an insurance policy focused on the narrowest possible slice of risk. It would be sold alongside another product or service, often at the last moment. It would be marketed by creating anxiety and then offering the product to make the anxiety go away. In short, it would look like the collision damage waiver, the extended warranty, and PPI. These bespoke slices of insurance are among the largest money-pumping projects in the modern economy. No wonder the banks abandoned their principles to join in.

– Jared Bernstein and Lori Wallach highlight (PDF) the need for an international trade regime which serves the public interest, not only the greed of the people who already have the most. And Yves Smith theorizes that the public backlash against corporate-centered trade deals may lead both to changes in how international trade is managed, and the identity of the countries at the forefront of developing the standards to be pursued.

– Needless to say, the Libs’ devotion to the current trade model figures to exclude Canada from that group for the foreseeable future. And the Alberta Federation of Labour laments the Libs’ determination to exploit foreign labour at the expense of both easily-abused temporary workers, and the Canadians who would otherwise fill the positions.

– Derek Thompson makes the case for a long-overdue round of trust-busting to reduce corporate power over innovation and economic development.

– Finally, Ed Finn writes that our health system should focus far more on maintaining wellness rather than responding only once an illness develops.

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Accidental Deliberations: Monday Morning Links

Miscellaneous material for your Labour Day reading.

– Jared Bernstein comments on the prospect of a labour revival which can boost the prospects of unionized and non-unionized workers alike. And Thomas Walkom makes the case for closer identification between the NDP and Canada’s labour movement:

Labour needs a political party because unions, on their own, are a declining force. Only 29 per cent of the Canadian workforce is unionized. The number continues to fall.

This has happened because the economy, once characterized by large manufacturing plants, is now dominated by smaller service firms that, under current labour laws, are more difficult to unionize.

The decline of well-paying union jobs is one of the key factors behind the rise in income inequality that politicians routinely fret about.

Yet to reverse this trend would require a total rethinking of employment and labour laws, most of which were designed in the 1940s and ‘50s.

Among other things, the laws must be amended to eliminate the loophole that allows so many employers to pretend their workers are independent contractors who do not qualify for benefits or statutory protection.

As well, labour relations laws would have to be changed to allow unions organizing, say, fast-food franchise outlets, to take on the ultimate employer.

These are just a couple of examples. The point is that, if unions are to survive, labour laws must be rethought.

That in turn requires a political party willing to do the rethinking.

– And CBC reports that Ontario’s NDP looks to be taking that advice by looking to facilitate both certification and collective bargaining – though there’s still more to be done in examining the broader trends affecting unionization rates.

– Mark Dearn discusses how the CETA figures to undermine democratic governance in Canada and Europe alike. And the CP reports on Justin Trudeau’s attempt to stifle discussion of the actual terms of corporate control agreements by indiscriminately bashing anybody who raises reasonable questions about business-oriented trade deals.

– Michael Winship points out how profiteering around the EpiPen the fits into a wider pattern of pharmaceutical price gouging and other anti-social behaviour.

– Finally, Lyndal Rowlands writes that developed countries have a strong stake in working toward meeting global development goals – and suggests it’s long past time that we started acting like it.

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Accidental Deliberations: Monday Morning Links

Miscellaneous material for your Monday reading. – David Graeber writes that unfettered capitalism will never tame itself, but will instead need to be countered by a sufficiently strong counter-movement to seriously question its underpinnings. And Thomas Frank follows up with Graeber about the warped incentives facing workers as matters stand

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