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: Friday Morning Links

Assorted content to end your week.

– Henning Meyer interviews Tony Atkinson about the readily-available options to combat inequality – with the first step being to make sure people actually have a voice in the decisions which define how wealth and power are allocated:

So, if you dive into the potential solutions you seem to suggest institutional changes. You mentioned that public policy should aim at a proper balance of power amongst stakeholders; what exactly do you mean by this?

Well I think I should say first of all that my aim in writing the book was to try and dispel the sort of sense of inevitability about high inequality and therefore I was putting forward various ways of seeking to understand why it comes about and therefore how we can moderate it. And I think one of the things that has certainly happened is that institutions, like for example corporate institutions, companies, which used to have a broader view of their responsibilities, that they recognised that they had a responsibility in addition to that to their shareholders – also to their workers and to their consumers and their customers.

And I think it’s this broader notion of the social obligations of institutions and of course of individuals as well that we have responsibilities beyond both our own personal economic gains and losses. So I think that it’s part of a reaction that I have had to what seems to be a narrowing to a very much individual based self-interest which has come to emerge in the last two or three decades.

Okay, and then new ideas like Michael Porter’s shared value capitalism, they try to sort of, not revive the old dichotomy between shareholder and stakeholder models but try to align public and private interest in addressing some of the most pressing social and economic needs. Could that be one way of addressing these considerations?

Yes, I think in a sense part of the issues arise because we had in the post-war period some kind of balance of power between on the one side employers and the other side often trade unions or workers’ representatives. And that of course has shifted in quite a number of countries as a result of a number of things including, for example, the effect of privatisation resulting in reducing the power of trade unions to influence the behaviour of those institutions. So, I think we’ve seen a shift of power definitely away from workers towards capital, those who run firms.

So I think a number of proposals were designed to try and at least make sure that those interests of workers and indeed consumers should be represented. And a good example is provided by the negotiations with regard to trade agreements which seem to involve only one side as it were of that equation.

– And Van Jones writes that the Trans-Pacific Partnership and other trade deals are set up to block action against climate change.

– CUPE points out the leakage of massive amounts of revenue to tax havens and avoidance as a crucial factor in austerity politics. And Craig Wong reports on the latest increase in Canadian consumer debt as people borrow to try to make up for the lack of advancement in wages.

– Susan Ochs discusses Wells Fargo’s widespread fraud as yet another example of workers and consumers being punished for the misdeeds of high-ranking executives.

– Alia Dharssi continues her reporting on migrant workers in Canada by highlighting how recruitment agencies exploit workers who can’t stand up for themselves. And Chris Buckley argues that labour and employment laws in general need to be updated, particularly to protect people stuck with precarious work.

– Finally, APTN reports on the Canadian Human Rights Tribunal’s latest order requiring the federal government to stop discriminating against First Nations children – though the fact that two previous orders haven’t led to the government complying signals that the Libs’ in following through may be rather less than advertised.

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Accidental Deliberations: Monday Morning Links

Miscellaneous material to start your week.

– David Dayen and Ryan Grim write that “free trade” agreements are in fact turning into little more than cash cows for hedge funds and other big-money speculators:

Under this system, a corporation invested in a foreign country can appeal to arbitration panels, consisting of three corporate lawyers, if that country enacts a law or regulation that violates a trade agreement or discriminates against the company. The ISDS courts can then award billions of dollars to the corporation to compensate it for the loss of expected future profits.

The problem is that these courts can also be used by speculators, who buy up companies for the sole purpose of filing an ISDS claim, or who finance lawsuits from corporations for a piece of the claim award.

“ISDS allows a small group of ultra-rich investors to extract billions of dollars from taxpayers while they undermine financial, environmental and public health rules across the world,” Sen. Elizabeth Warren (D-Mass.), an early opponent of ISDS, told HuffPost. “Our trade deals should not include ISDS in any form.”

The use of ISDS as a moneymaking engine, rather than for its initial purpose ― to protect foreign investors from having their factories expropriated or their businesses nationalized ― raises the question of whether there’s a better system available.

“Why should hard-won sovereign advances, like rules against polluting or consumer protections, be at risk when the obvious solution is for the investors to put their skin, not ours, in the game?” wondered Jared Bernstein, former chief economist to Vice President Joe Biden and a critic of TPP. “The simple solution is to have them self-insure against investment losses.”

– Mike Balkwill highlights the need to stop consulting endlessly about poverty, and instead take action by ensuring people have enough resources to meet at least their basic needs. Ann Hui reports on the especially dire circumstances facing First Nations families in Northern Ontario who have to spend upwards of half of their income on overpriced food. And Miguel Sanchez criticizes the Wall government’s attack on benefits to people with disabilities in Saskatchewan.

– Nicole Thompson points out how the Libs’ changes to the temporary foreign worker program are actually making matters worse for caregivers by eliminating any right to apply for permanent resident status. And Martha Burk documents how workers can lose out when employers force them to accept payroll cards rather than paycheques.

– Erich Hartmann and Alexa Greig argue that it’s long past time for Canada’s federal government to provide stable funding for health care in partnership with the provinces, rather than contributing only as much as it wants to at any given point. And Tom Blackwell reports on the dangers of relying on private providers by highlighting how they inevitably leave the public system to deal with complications.

– Finally, Tom Parkin notes that we should base our discussion of electoral reform on the actual experience of similar countries, not the obviously-false claims of people wanting to fearmonger us into accepting the status quo. And Andrew Coyne draws a parallel to the census as an argument for mandatory voting.

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Accidental Deliberations: Tuesday Morning Links

This and that for your Tuesday reading.

– Dennis Howlett discusses the public costs of allowing tax avoidance – as Canada could afford a national pharmacare program (and much more) merely by ensuring that the rich pay what they owe:

Eliminating tax haven use could save Canada almost $8 billion a year. That’s enough to cover universal public prescription coverage almost eight times over.

Time after time, budget after budget, poll after poll, those in charge make it sound as if we’re too poor as a country to afford the programs that would really improve Canadians’ lives. The fact that revenues are lost to poor policy on tax havens and loopholes is often conveniently ignored.

At this stage of the game, the federal finance minister doesn’t need to raise taxes to pay for pharmacare. Bill Morneau just has to make sure that Canadian multinationals and wealthy individuals pay the tax rate we already have. That isn’t happening right now.

It’s simple. Canadians can continue to support a tax system that lets the richest avoid paying $8 billion in taxes annually — or we can tell them that the party’s over. Instead of ignoring what is happening in the Cayman Islands, Panama and other tax havens, we can urge our politicians to invest the taxes owing on those billions into services that benefit individuals, families, communities and the country as a whole.

There is solid data supporting raising taxes in some areas. But that’s an argument for another day. The issue at hand right now is that we do have enough money for pharmacare — likely enough for public dental care as well. Through a series of misguided and outdated decisions driven by the tax dodge lobby, we are needlessly and destructively giving up that revenue.

It’s time to fix those old mistakes and use the tax system to help this country live up to its potential.

– Meanwhile, Owen Jones discusses a European Commission ruling finding that Apple can’t validly avoid paying tax through a special arrangement with Ireland. And the Star rightly slams the Fraser Institute for presenting a misleading picture of where public revenue comes from and what it can accomplish.

– The CP reports on the Libs’ plans to facilitate the use of temporary foreign workers for liquid natural gas projects in British Columbia – meaning that the last supposed benefit for the province of engaging in a dangerous industry seems to be as illusory as all the others. And Jeremy Nuttall notes that Justin Trudeau seems set to open the door even wider to entrench the use of exploitable foreign labour by multinational corporations. 

– Finally, Catherine Cullen reports on the effects of privatized health care insurance which are being presented in an effort to defend Canada’s medicare system from would-be profiteers:

John Frank, a Canadian physician who is now chairman of public health research and policy at the University of Edinburgh, argues in his report that more private health care “would be expected to adversely affect Canadian society as a whole.”

He cites research that suggests public resources, including highly trained nurses and doctors, would be siphoned off by the private system.

More Canadians would face financial hardship or even — in extreme cases — “medical bankruptcy” from paying for private care, he writes.

Frank even suggests there could be deadly consequences. He says complications from privately funded surgeries often need to be dealt with in the public system because private facilities are generally less equipped to handle complex cases.

“If such complications, arising from privately funded care, are not promptly referred to an appropriately equipped and staffed care facility, the patient is likely to experience death or long-term disability, potentially leading to reduced earnings and financial hardship.”

Overall, “in my expert opinion,” Frank writes, the change would reduce fairness and efficiency and “society as a whole would be worse off.”

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