Monday, September 29, 2008

The problem with incentives under capitalism

First of all: 100th post!

OK . . . I don't know much about economics, but it's important to me to have some strong opinions about it anyway. If I have a strong opinion about something, that gives me a good feeling that I have some minimal understanding of it (which is open to question when it comes to me and economics).

[UPDATE: That paragraph elicited an unexpectedly strong reaction from LemmusLemmus over at Church of Rationality:

I say hats off for writing that. I'm pretty sure that 99% of humans, including myself, are like that, but no one ever admits it.]
So hearing this brief comment by Mickey Kaus in the latest "Bob & Mickey" Bloggingheads diavlog was a minor revelation for me. It could certainly provide the impetus for one to shift significantly leftward in one's economic views. The point seems so obvious that he couldn't have been the first to come up with it, but it hadn't occurred to me before.



I'm going to try to notice more instances of this, not just about bankruptcy. It obviously has huge implications for the controversy over the United States government's bailout of Wall Street in the current financial crisis, which is the context in which Kaus brought it up.

Someone should write a whole article based on this insight. Not me! To steal an old running feature that a blogger used to have, I should start "Jalcoh's assignment desk." I assign this to . . . Mickey Kaus! (By the way, the first paragraph in the blog post I just linked to was pretty prescient about terrorism.)


"Why is he waving a stuffed moose?"
No, it has
nothing to do with Sarah Palin.

10 comments:

Ann Althouse said...

I'm no bankruptcy expert, but I think there's a limit to the homestead exemption. You don't get to keep a big mansion. Isn't the exemption capped at something like $125,000? So Mickey's blowing smoke.

I don't see why the existence of some cushioning at the bottom end of wealth is a reason to become more left wing. You only need to readjust the cushioning so you get the incentives right so that people don't take what you think is too much risk.

I really don't understand this preference for strong opinions. Why not a completely wimpy opinion on things you don't know much about, something like, I want the experts to figure out how to tweak the system appropriately?

John Althouse Cohen said...

I don't see why the existence of some cushioning at the bottom end of wealth is a reason to become more left wing.

Well, I do -- namely, it seems to contradict the right-wing assumption that less regulation leads to a more rational, effective incentive system. If the low end is severely distorted -- that is, the impact you experience from your poor decisions is disproportionately small -- then that could justify artificially capping the extent to which people realize the fruits of their good decisions. Kaus's point suggests that rather than distorting incentives so that affluent people are insufficiently motivated to be productive (i.e. the standard conservative critique), such regulations could shape the overall incentive structure into a more rational form.


I really don't understand this preference for strong opinions. Why not a completely wimpy opinion on things you don't know much about

Well, that's a very provocative issue, but there's no time to address it here -- hopefully later. Remind me! (It connects to Al Gore, and also something you and Megan McArdle said in the diavlog you did together.)

Ann Althouse said...

Where's the contradiction? The cushion isn't right wing. Mickey complained about capitalism on top and socialism on the bottom. If the problem is a badly mixed system, you have to ask which un-mixed approach is better. You could remove or decrease the "socialism" at the bottom. I'm saying readjust it, so the incentives are better. The idea of adding socialism to the top is one response, but not the only one and not the best one in my view.

John Althouse Cohen said...

The cushion isn't right wing. Mickey complained about capitalism on top and socialism on the bottom.

Oh, I'm not saying the cushion is right wing, and I'm not denying we have a mixed system. We do have a mixed system. The discussion presupposes that bankruptcy law is going to stay the same, and I'm not aware of any reason to think otherwise (I know almost nothing about bankruptcy, so I don't really know what I'm talking about here). The question I'm interested in is how to change the system that exists right now, not what the ideal system would be. (If I were to just talk about the ideal system, you'd say I was being too utopian!)

Anonymous said...

Here's your Phd in Economics:

http://www.youtube.com/watch?v=NU6fuFrdCJY

Wayback said...

Hi JAC,
I've been enjoying your Grunge series (after suffering through your exhaustive complaints about Obama), and wonder: What would you recommend for the best Grunge albums of all time?

John Althouse Cohen said...

What would you recommend for the best Grunge albums of all time?

An absolutely essential collection would start with these:

Nirvana - Bleach, Nevermind, In Utero

Pearl Jam - Ten

Smashing Pumpkins - Gish, Siamese Dream

Alice in Chains - Dirt

Soundgarden - Badmotorfinger, Superunknown

My Bloody Valentine - Loveless

Sonic Youth - Experimental Jet Set Trash & No Star

The Breeders - Last Splash

And probably something from Stone Temple Pilots -- I don't have any of their albums, so I can't recommend anything.

Runners-up:
Hole - Live Through This
Bush - Everything Zen
Pearl Jam - Vs.

Albums from the mid '90s that aren't consistently "grunge" but would go well in the collection:
Radiohead - The Bends
Smashing Pumpkins - Mellon Collie and the Infinite Sadness
Alice in Chains - Jar of Flies

After you get the essentials, go through my grunge list, look for songs that especially stand out to you, and get the albums that have those songs on them. That should last you a while!

wayback said...

Hey, thanks for the list! That's great! I was looking at your song list and was going to just buy some of the albums correponding to those songs, but thought I might get better results if I just asked you for the best albums. I appreciate you taking the time to respond in such detail. I've heard all the songs on your list, but in many cases didn't know what band performed them. In any event, I've greatly enjoyed your musical reviews.

Time to go load up my cart. :)

LemmusLemmus said...

Why did you find the comment "unexpectedly strong"?

To turn to more important topics, I second the recommendations for Nevermind, In Utero, Siamese Dream, Last Splash and Mellon Collie. As for Sonic Youth, I'd rather recommend Goo and Dirty - Experimental Jet Set and everything that followed didn't do much for me.

John Althouse Cohen said...

Why did you find the comment "unexpectedly strong"?

If every post I wrote had something in it that would make someone say, "Hats off for writing that. I'm pretty sure that 99% of humans, including myself, are like that, but no one ever admits it," then I'd consider myself to have a very successful blog.

As for Sonic Youth, I'd rather recommend Goo and Dirty - Experimental Jet Set and everything that followed didn't do much for me.

I recommended EJST&NS specifically as a "grunge" album because it's always seemed to me like closer to conventional alt-rock than their earlier stuff. It's not their best album because it's not the mostly distinctively "Sonic Youth," but that made it more plausible to get as a "grunge" album. It also has a lot of songs with strong hooks that reach out and grab you. I haven't listened to Goo in a long time, but I've recently been listening to Dirty and agree it's better than EJST&NS (and so is Daydream Nation).