Moral Hazard: A parable
I'm still not talking about the crisis; specifically I'm not talking about all these plans which, at this late date, are still banging on about "moral hazard" and "the need to bail in private creditors" and so on. But I can tell stories:
I once knew a guy who trained martial arts, a lot. He had a proverb he was fond of. He used to say "Pain is just the sensation of weakness leaving the body". And so he kept on training, even when it really hurt, because he knew it was just weakness leaving his body. And it worked; over a period of twenty years, nearly all the weakness left his body. When I last saw him, there wasn't enough weakness left in his knees or ankles for them to even bend. He walks with a stick, of course. Turns out that you probably ought to leave a bit of weakness in there.
All right, let's look at it another way. Once, the Guardian Notes & Queries column had a question in it, asking what the economic consequences would be if suddenly God stepped in and made us all honest, and made it so we all knew that we were all honest. The idea was that it would quickly result in economic collapse; between security guards, ticket inspectors, makers of Tensator queue management equipment, some ungodly part of a modern economy is based on people being employed to check up on one another. It was quite a good laugh as a thought experiment about an economy exposed to a sudden technology shock.
But of course, the world would get used to it, and a new economy would grow up based on our universal trust, and one with a much higher average standard of living, since basically unproductive labour would be replaced by the production of goods and services. What would happen to such an economy if the devil came in and reintroduced dishonesty? Absolute collapse, surely; vast amounts of previously productive effort would have to be diverted once more to constantly checking that relationships which had previously been implicitly recognised to be completely free of risk were actually valid and that every single party to a transaction could be relied upon to meet their obligations. If you had a system of relationships based on more or less unquestioning trust, and then you broke that trust, how on earth could you expect the system to function again until the basis of that trust was somehow replaced?
Anyway, I'm just saying.
There are a few ways to restore the credibility, but if you need to do it quickly, I believe the traditional approach is this: you catch a couple of looters, shoot them on the spot and parade the bodies through the streets. If that didn't help - rinse and repeat; rinse, reload, and repeat. Until everyone out there becomes convinced that everyone else has gotta be convinced that 'crime doesn't pay'.
ReplyDeleteBut what they're doing now seems like exactly the opposite - rewarding the looters. Hey, what do I know, maybe that works too.
Scenario #2 always struck me as a particularly convincing strike against Say's Law. Increasing productivity, rather than freeing resources to be applied to the production of even more desirable goods and services, seems to just leave them idle until they can figure out a source of employment in some parasitic industry.
ReplyDeleteCertainly, no one I know does anything that a farmer would willingly trade food for.
-msw
Actually, not "scenario #2" but this observation: "some ungodly part of a modern economy is based on people being employed to check up on one another." Some negligible amount of a modern economy is based on making goods and services that, say, a Kalahari Bushman would have any interest in. Everyone else works in Marketing.
ReplyDelete-msw
Not only does he have little interest in all that stuff, he actually goes to the end of the world to get rid of that evil Coke bottle.
ReplyDeleteYeah, well, that's cuz the movie was made by hippies. The guy who played the main character in the movie took what little money the capitalist hippies gave him and got himself some running water and electricity.
ReplyDeletePain is just the sensation of weakness leaving the body
ReplyDeleteThis is Nietszche, isn't it? "Whatever does not kill us makes us stronger". No it fucking doesn't, Fred.
Right, I'm sure the actor did take the money. So, Radek, just curious: what about them hippies? Also Franciscans, Buddhist monks and others who embrace this sort of thinking. Is this a pathological condition in your opinion?
ReplyDeleteTaking the question seriously: if by pathological you mean that the majority of people are never going to be into it, then yes. If by pathological you mean those people are sick in the head than no. That's just their thing, just like other people's thing is Renaissance Fairs, or race car driving or hiking in the snow. It's only when you start thinking that your thing should be everyone else's thing that it becomes obnoxious. Until then, love, peace and understanding brother.
ReplyDeleteYeah, I think it can become pathological at some point. Still, provides an interesting insight into human nature.
ReplyDeleteHe may have went to get rid of that Coke bottle, but not because he had no use for it. As you know Bob, the bottle was so desired it tore the tribe almost apart so useful was it...
ReplyDeleteWhy, it was so profitable as to become evil. Quite typical, actually.
ReplyDeleteTo go back to abb1's first comment, so you're pro-death penalty? Works as a deterrant, right, just common sense? Except it doesn't. No one who's about to commit a murder stops and thinks, "Well, I'll do it if it means prison for life, but not the death penalty!" Same with the guy able to rip off the economy for billions. Parading his corpse through the street isn't going to stop him.
ReplyDelete"Shoot them on the spot" was, of course, a figure of speech.
ReplyDeleteNevertheless, is it your thesis that a guy who wants to commit a murder or steal a large sum of money will just go ahead and do it regardless of what the likely consequences are? Are you skeptical about the concept of punishment-as-deterrent in general?
Here. These guys will restore trust:
ReplyDeleteHONG KONG (MarketWatch) -- A Chinese court has handed a death sentence to Li Peiying, a former chairman of Capital Airports Holding Co., for bribery and embezzlement of more than 100 million yuan ($14.6 million), according to a state media report. Li was given the sentence by the Jinan Intermediate People's Court in Shandong province in eastern China, after he was found guilty of seeking or accepting bribes for 26.61 million yuan while he was in office from 1995 to 2003, Xinhua reported. Li also misappropriated 82.5 million yuan from 2000 to 2003, according to the court, the report added
To: "A Chinese court has handed a death sentence to Li Peiying, a former chairman of Capital Airports Holding Co., for bribery and embezzlement of more than 100 million yuan ($14.6 million), according to a state media report. Li was given the sentence by the Jinan Intermediate People's Court in Shandong province in eastern China, after he was found guilty of seeking or accepting bribes for 26.61 million yuan while he was in office from 1995 to 2003, Xinhua reported"
ReplyDeleteDo you think this is really true???
It doesn't matter what I think. Hopefully they will make it look convincing for the intended audience. Shouldn't be too difficult.
ReplyDeleteImpalement isn't a cure-all, but it can be useful as part of a well-balanced and carefully executed reform program.
ReplyDelete