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Wednesday, July 30, 2008

Marginal Company

Robert Reich on what not to take to the beach:

Robert Reich, Marketplace: Ordinarily, I'd never recommend you take a book by an economist to the beach. I wouldn't even recommend you take an economist to the beach. ...

An example of an economist at the beach? Robert Reich again:

Moral Hazard, by Robert Reich: One day while sitting on a beach last summer I overheard a father tussle with his young son about whether the child was old enough to take out a small sailboat. The father finally relented. "Go ahead, but I’m not gonna save you," he said, picking up his newspaper. A while later, the sailboat tipped over and the child began yelling for help, but father didn’t budge. When the kid sounded desperate I put down my book, walked over to the man, and delicately told him his son was in trouble. "That’s okay," he said. "That boy’s gonna learn a lesson he’ll never forget." I walked down the beach to notify a lifeguard, who promptly went into action.

Letting children bear the consequences of their risky behavior -- what some parents call "tough love" -- is equally applicable adults, and conservatives have made something of a fetish out of it. A few weeks ago, as George W. announced a paltry plan to help out a few of the millions of homeowners who got caught in the sub-prime loan mess, he reiterated the credo: "It’s not government’s job to bail out ... those who made the decision to buy a home they knew they could not afford."

It’s true that people tend to be less cautious when they know they’ll be bailed out. Economists call this "moral hazard." But even when they’re being reasonably careful, people cannot always assess risks accurately...

When it comes to risky behavior in the market, America has a double standard. We’re told that economic risk-taking as the key to entrepreneurial success, but when big entrepreneurs take big risks that fail it’s amazing how often they get bailed out. Indeed, the history of modern American business is littered with federal bailouts, loan guarantees, and no-questions-asked reorganizations. ...

CEOs get away with stupid mistakes all the time. .... But... If you’re an average American who gets canned from his job, even through no fault of your own, you probably won’t even get unemployment insurance (only 40 percent of job-losers qualify...). Conservatives tell us that unemployment insurance reduces their incentive to find a new job quickly. In other words, moral hazard.

Some CEOs use bankruptcy as a means of getting out from under pesky labor contracts they might have "known they could not afford" when they agreed to them (Northwest Airlines most recently, for example). Others use it as a cushion against bad bets. Donald ("you’re fired!") Trump’s casino empire has gone into bankruptcy twice -- most recently, last November, when it listed $1.3 billion of liabilities and $1.5 million of assets -- with no apparent diminution of the Donald’s passion for risky, if not foolish, endeavor. After all, his personal fortune is protected behind a wall of limited liability, and he collects a nice salary from his casinos regardless. But if you’re an ordinary person who has fallen on hard times, just try declaring bankruptcy to wipe the slate clean. A new law governing personal bankruptcy makes that route harder than ever. Its sponsors argued -- you guessed it -- moral hazard.

Bush’s "ownership society" has proven a cruel farce for poor people who tried to become home owners, and his minuscule response to their plight just another example of how conservatives use moral hazard to push their social-Darwinist morality. The little guys get tough love. The big guys get forgiveness.

Economists see economics in everything. If you take them to the beach, or pretty much anywhere else, you're just going to have to put up with that.

Robert Reich is going on vacation again, and he notes:

The Myth of Summer Vacation, by Robert Reich: I'm about to take a few weeks off. If you are, too, we're in the minority. A Conference Board poll last April found fewer than 40 percent of Americans planning a summer vacation.

Of course, for most Americans, there's not much summer vacation to begin with. The average American employee gets a total of 14 days off each year. If you want to take a few of them around Thanksgiving, between Christmas and New Years, and maybe when the kids are home on spring break, summer vacation is already practically gone.

Those 14 days, by the way, are the fewest vacation days in any advanced economy. The average French worker gets 37 days off annually; In Britain, it's 26.

And even when we take those 14 days, we don't always get paid for them. The Bureau of Labor Statistics tells us 1 out of 4 workers gets no paid vacation days at all. Every other advanced nation -- and even lots of developing nations -- mandate them.

On top of all this comes the current economic squeeze. That figure of 40 percent of Americans planning a summer vacation is the lowest in 30 years.

Not incidentally, consumer confidence in the economy is the lowest it's been in 28 years. In other words, there's a correlation between the small number of Americans taking a vacation this summer and this very bad economy.

It's not that we're too busy to vacation. Just the opposite: There's not enough work go around. Which means we don't dare leave work, lest we lose us a customer who might just happen to want us when we're gone. Or we could even lose the job, because employees on vacation might seem expendable to an employer looking for a way to cut costs.

Despite all this, you need a summer vacation. I do, too. ...

Should the government require firms to offer paid vacation after some period of time, say after a year of employment? If so, how much?

    Posted by on Wednesday, July 30, 2008 at 05:40 PM in Economics | Permalink  TrackBack (0)  Comments (40)

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