Tuesday, March 6, 2012

If you picked World A, you are not an actual person

It seems to me that Frank is placing a value judgement on individuals decisions to sacrifice risk for income. I didn't see how he could say that more people would choose World A in the first example. That didn't make sense to me. Frank breaks down how people make decisions on the margin and then says that they have been misled into making a bad decision. He says that as more people make these decisions they will be driven toward taking riskier and riskier jobs to buy some positional good. Because everyone is seeking this positional good, the price goes up and thus the extra pay ends up not meaning much. I challenge the very premise that people behave this way. At a certain point an individual decide something is too much risk. Since this is an inherently personal decision. How can any outside individual say that it is right or wrong, too much or not enough? That goes against one of my first premises which is to not make value statements about another individual's utility function. In other words, don't judge other people for their personal and peaceful decisions. So I'm just rubbed the wrong way by this entire chapter.

Regulations as Data
Not everything is like an arms race, Frank. If we didn't have that federal regulation for kids to start kindergarden at a given age I'm more than positive that local districts or schools would have rules about it. You don't want 8 year olds with 5 year olds. It wouldn't be allowed.

He brings up the no cash on the table again. (pg 76) But once again, what is the appropriate amount of workplace safety? Apparently Frank knows.

Progressive Consumption Tax

Colleen wrote about this pretty thoroughly but I'll just reiterate and add a few points. So Frank wants people to save more. But I thought he wanted the economy to be stimulated? No matter. I'm not concerned with stimulating the economy. What I am concerned with though, are rationale choices based on bad information.
What is the appropriate amount a person should save? It is different for everyone. Each person has different time preferences. So individuals, right or wrong, make plans, good or bad, for the future, near or far, and then implement those plans. But not everyone wants or needs to save. Some people want to improve their quality of life now not later. So they buy goods and services. They consume.

But what happens when we incentivize people to either save or spend? If we reward a behavior, we'll get more of it. I'll ignore the hypocrisy of taking someone's money in order to get them to save it. How will individuals make rational decisions in the market, (what to buy, when to buy, how much to buy, when to save, how much to save, etc.) when the signals in the market keep changing or are wrong. When government steps in to try to 'fix' the economy they deny the nature of prices. There is a reason we are in a recession. The housing prices didn't match the real value. That's a bubble. Those prices, being unrealistic and therefore unsustainable, came back down. That is vital information. Let's ignore why they got so high and stayed so high for so long. How could attempts to restore prices to those levels be a good idea if they clearly didn't represent the market?

This thinking can be applied to any discussion where price is involved. What do prices tell us? They give individuals all the information needed to decide how to behave in the market. This includes savings. When we try to incentivize people to save, they save more. But is that really good? It isn't good for the individual being coercively taxed. It results in less spending in the market. That won't be good for the economy as a whole.

We shouldn't incentivize people to spend or save. The government shouldn't incentivize anything. If we want sustainable economic growth we need individuals making 'good' decisions in the market place. For people to make 'good' decisions, they need 'good' information. Prices are that information. Let's not distort them like Frank suggests.

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