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Accidental Deliberations: Sunday Morning Links

Assorted content for your Sunday reading.

– Tim Harford discusses how insurance and other industries are built on exploiting people who are risk-averse due to the inability to absorb substantial costs as “money pumps” for those who have more than they need:

(L)et’s step back and ask ourselves what insurance is for. Classical economics has an answer: people are risk-averse, which means that they will pay good money to reduce the variability of outcomes they face. If home insurance guards against the loss of a million pounds when my house burns down, I’m happy to buy the insurance even though the insurance company expects to make a profit from it.

But this risk aversion emerges from the fact that money is worth more to poor people than to rich people. Gaining a million pounds would make me rich but losing a million pounds would make me poor. I should not gamble a million pounds on the toss of a coin, because the million pounds I might lose is more precious to me than the million pounds I might gain.

As so often with classical economics, this is an excellent description of how we should behave. It is not such an excellent description of how we actually do behave. Risk aversion can only explain why we insure large risks. It cannot explain why we insure small ones. 

A money pump is a person whose irrationalities can be systematically exploited for financial gain. The simplest money pump is a person who prefers an apple to a doughnut, prefers a doughnut to a chocolate bar, and prefers a chocolate bar to an apple. Just offer them an apple in exchange for their doughnut plus a penny. They will accept. Then offer them a chocolate bar for their apple plus a penny. Then offer them a doughnut for their chocolate bar plus a penny. They end up with their original doughnut and are three pence poorer. Repeat for ever.

Money-pump arguments are sometimes deployed to object that people cannot be irrational, otherwise they would be bankrupted by money pumping. But economists are increasingly coming to realise that, instead, we should be looking for money pumping in action.

Given our anxiety about small risks, what would the money pumping look like? It would be an insurance policy focused on the narrowest possible slice of risk. It would be sold alongside another product or service, often at the last moment. It would be marketed by creating anxiety and then offering the product to make the anxiety go away. In short, it would look like the collision damage waiver, the extended warranty, and PPI. These bespoke slices of insurance are among the largest money-pumping projects in the modern economy. No wonder the banks abandoned their principles to join in.

– Jared Bernstein and Lori Wallach highlight (PDF) the need for an international trade regime which serves the public interest, not only the greed of the people who already have the most. And Yves Smith theorizes that the public backlash against corporate-centered trade deals may lead both to changes in how international trade is managed, and the identity of the countries at the forefront of developing the standards to be pursued.

– Needless to say, the Libs’ devotion to the current trade model figures to exclude Canada from that group for the foreseeable future. And the Alberta Federation of Labour laments the Libs’ determination to exploit foreign labour at the expense of both easily-abused temporary workers, and the Canadians who would otherwise fill the positions.

– Derek Thompson makes the case for a long-overdue round of trust-busting to reduce corporate power over innovation and economic development.

– Finally, Ed Finn writes that our health system should focus far more on maintaining wellness rather than responding only once an illness develops. . . . → Read More: Accidental Deliberations: Sunday Morning Links

Accidental Deliberations: Sunday Morning Links

This and that for your Sunday reading.- Tim Harford discusses John Maynard Keynes’ failed prediction that workers would continue to win increased leisure time over the past few decades:(I)t is worth teasing out the nature and extent of Keynes’s error… . . . → Read More: Accidental Deliberations: Sunday Morning Links

Accidental Deliberations: Wednesday Morning Links

Miscellaneous material for your mid-week reading.- Steven Hill discusses some of the most glaring problems with an economy based on precarious work. And Tim Harford rightly asks whether a shift away from steady employment will necessitate more public d… . . . → Read More: Accidental Deliberations: Wednesday Morning Links

Accidental Deliberations: Saturday Morning Links

Assorted content for your weekend reading.

– Lana Payne discusses the need to address inequality through our political system. But that will require significant pressure from exactly the citizens who have decided they’re not well served by today’s political options – and Trish Hennessy’s look at Canadian voter turnout reminds us of the desperate need . . . → Read More: Accidental Deliberations: Saturday Morning Links

Accidental Deliberations: Thursday Morning Links

This and that for your Thursday reading.

– Paul Krugman’s review of Thomas Piketty’s Capital in the Twenty-First Century includes his commentary on our new gilded age: Still, today’s economic elite is very different from that of the nineteenth century, isn’t it? Back then, great wealth tended to be inherited; aren’t today’s economic elite people . . . → Read More: Accidental Deliberations: Thursday Morning Links

Accidental Deliberations: Sunday Morning Links

This and that for your Sunday reading.

– Dean Starkman writes about the media’s failure to see and report on the culture of corruption and manipulation that led to the 2008 economic meltdown: Was the brewing crisis really such a secret? Was it all so complex as to be beyond the capacity of conventional journalism . . . → Read More: Accidental Deliberations: Sunday Morning Links

Accidental Deliberations: Wednesday Morning Links

Miscellaneous material for your mid-week reading.

– Joe Fiorito discusses the spread of income inequality in Canada. And Doug Henwood reviews Thomas Piketty’s Capital in the 21st Century, while wondering what will follow from the empirical observation that accumulated wealth tends to perpetuate itself to the detriment of most of the population: The core message . . . → Read More: Accidental Deliberations: Wednesday Morning Links

Accidental Deliberations: Saturday Morning Links

Assorted content for your weekend reading.

– Tim Harford proposes four first steps to start combatting income inequality. And the Star’s editorial board makes clear that there’s tax room available for Ontario (among other jurisdictions) to pursue in order to serve the public good: Sousa promises to protect the “middle class” — whatever that is. . . . → Read More: Accidental Deliberations: Saturday Morning Links

Accidental Deliberations: Tuesday Morning Links

This and that for your Tuesday reading.

– Andrew Jackson writes that increases in Canadian inequality have been the result of deliberate policy choices: In an important recent book, Inequality and the Fading of Redistributive Politics, Keith Banting and John Myles argue that, while rooted in the market, politics has also been a major force . . . → Read More: Accidental Deliberations: Tuesday Morning Links

Accidental Deliberations: Friday Morning Links

Assorted content to end your week.

– Stuart Trew fleshes out the Cons’ new(-ly explicit) Corporate Cronies Action Plan – and it goes even further in entrenching corporate control over policy than one might have expected at first glance: – The makeup of the advisory panel that consulted with Trade Minister Fast skews the new . . . → Read More: Accidental Deliberations: Friday Morning Links

Accidental Deliberations: Tuesday Morning Links

This and that for your Tuesday reading…

– Joseph Stiglitz discusses the abuse of intellectual property law to turn publicly-funded research into privately-held profit centres (no matter how many people die as a result): (A) Utah-based company, Myriad Genetics, claims more than that. It claims to own the rights to any test for the presence . . . → Read More: Accidental Deliberations: Tuesday Morning Links

Accidental Deliberations: On adaptation

Murray Mandryk’s Wednesday column serves as a downright painful example of Monday morning quarterbacking – cherry-picking examples from seven decades of Saskatchewan governments to criticize “rash decisions” without recognizing the difference between reasonable experimentation and blatant cronyism. And under Mandryk’s implicit standard for public-sector risk aversion (that if something could possibly prove to be anything . . . → Read More: Accidental Deliberations: On adaptation

Accidental Deliberations: Sunday Morning Links

This and that to occupy your Canada Day.

– Tim Harford discusses why randomized trials as part of a genuine evidence-gathering process are a must in developing public policy.

– Mike de Souza reports that the federal Department of Fisheries and Oceans was already short on resources to do its job even before the Harper . . . → Read More: Accidental Deliberations: Sunday Morning Links