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    Maxine's Essays

    • 21st Century Regress
      Sometimes it seems like the world is going to hell and there's absolutely nothing a girl economist can do about it.
    • What Exactly Are We Crowding Out?
      The current economic downturn isn't a random draw of a black ball from an urn containing white balls and black balls. There's no sampling distribution. Very specific policies and actions landed us here. Now we must decide not only what policies need to be put in place to prevent it happening again, but also what policies would best drive us out of the ditch faster and sustainably.
    • I Wish It Were Only Butter
      We should be giving up some butter if we must. We should not give up education or health investment (or infrastructure or the environment (hello, BP). They may be the only legacies of any value that we pass on to our children and grandchildren.
    • Rational Health Investment?
      The obvious "market solution" is to improve the long run return on investments in health among the disadvantaged through meaningful and effective publicly funded education. The obvious short run "market solution" is to reduce the costs of investment and the shadow price of health for the disadvantaged by providing health insurance cover and reduced out-of-pocket costs.
    • The Socrates Parameter
      To the extent that our limbic systems respond to such engineering by over-riding the judgment of our frontal lobe and to the extent that our frontal lobe is deprived of the information it requires to make a rationally self-interested judgment, we are not only pigs and fools, we are slaves.
    • The Economic Rewards of Virtue
      If individual virtue tempers our "piggy" desires and conditions our choices to something that is both individually and socially better, then the economic rewards of virtue as embodied in and promoted by societal norms and institutions are far greater than we have ever suspected. As economists, we would do well to recognize this when we teach U max.
    • The Market for Morals
      Markets then are places where more is exchanged than goods and services, labor and product, credit, and interest. They are places where we also develop the personal virtues of temperance and prudence and the social virtues of benevolence and justice. When they function well, they produce trust, loyalty, and sympathy among those who trade there.
    • Post-Modern Applied Economics: It’s the Error Term, Stupid
      Maxine believes it’s time to refocus attention and discussion on the error term. It is often where much of the action is in our models. It is where unexpectedly catastrophic events dwell resulting in fat tails. It is where our animal spirits manifest and cause us to do the right thing or the wrong thing or the thing everyone else is doing rather than the self-interested, fully-informed rational thing. It is where God and miracles and chance dwell.
    • Intergenerational Win-Win: Health Insurance, Education, Environment, Infrastructure
      So when we’re talking about fiscal stimulus packages and we’re borrowing from our grandchildren to finance them, we should be thinking about how to use stimulus monies to create value for those grandchildren AND stimulate our economy.
    • Short-term Private Payoffs, Long-term Social Costs
      The real health reform discussion, the one we should be having, is “What must we do to create a health system that is both efficient and fair?” The answer will almost certainly include relegating the private sector to markets where market forces or regulation are effective at aligning short-term private incentives and goals with long-term societal interests. If such markets are scarce or non-existent in health, then the private health sector will be of limited value.
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    07/23/2010

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    those meanies! they should be ashamed of themselves!

    The Obama administration's pay czar said Friday that he did not try to recoup $1.6 billion in lavish compensation to top executives at bailed-out banks because he thought shaming the banks was punishment enough.

    Kenneth Feinberg said 17 banks receiving taxpayer money from the $700 billion financial bailout made "ill-advised" payments to their executives. But he stopped short of calling them "contrary to the public interest" — language that would have signaled a fight to get the money back.

    Feinberg couldn't force the banks to repay the money. But the law instructed him to negotiate with banks to return money if he determined that allowing them to keep it was not in the public interest.

    He said such a fight could have exposed banks to lawsuits from shareholders trying to recapture the executives' money. Feinberg said his public shaming of the 17 banks was sufficient.

    Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2010/07/23/financial/f080037D20.DTL&feed=rss.business#ixzz0ubyWB7cw

    Read The Spirit Level: Why More Equal Societies Almost Always do Better. Don't be turned off by the "spirit" part, which sounds kind of hokey and is not actually mentioned in the text. It is a excellent empirical overview of the relationship between inequality and a range of social, health and economic outcomes.

    I took the time to read the referenced study because I was intrigued with the notion that there was experimental evidence to suggest that the grant of power itself leads to arrogant and abusive behavior. I still find the idea intriguing, but I am not much convinced. It seems reasonable to me that the exercise of power can erode one's moral center over time, but I think that this is much more a case of self-selection. I have been watching that self-selection process at work in companies large and small for forty years now. I have observed in excruciating detail not only outcomes, but the processes and mechanisms that lead to the selection. I have watched good people forgo promotion because they hadn't the stomach for the work that the organization would ask of them, and I have seen people of little talent move up with alacrity armed with nothing more than ambition and a willingness to do anything in service of it. I have watched an organization which tolerated intra-management back-stabbing become an organization which depended on it as part of the selection process, and become so toxic that decent people self-selected out the door in droves. I think it works in reverse as well. Can you imagine your father tolerating employees who curried favor by preying unfairly on vulnerable customers?

    It is certainly impossible to imagine that Elizabeth Warren did not have the intellectual capacity or work ethic to compete for the big bucks with the likes of Joseph Cassano. Something besides ability was either lacking or present in each of them that explains the different paths they are on.

    I think we need to explore some new mechanisms for making the moral component of commercial life obligatory. Outlawing bad behaviors one at a time does not not seem to be getting us where we need to be.

    The comments to this entry are closed.

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