Re: I'm Going To Create A $1000 Gym Bag

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First! Rome!


Posted by: ogged | Link to this comment | 11- 1-07 8:49 AM
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If you had one of those, Ben would tell you how stylish it is.


Posted by: slolernr | Link to this comment | 11- 1-07 8:52 AM
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In unrelated news, last night at the gym (yes, on Halloween; leave me be), almost alone among the free weights, I found myself muttering "Arioch!" as a motivating device. Michael Moorcock has a lot to answer for.


Posted by: Flippanter | Link to this comment | 11- 1-07 8:56 AM
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I chaperoned a school dance last night. It was surreal and incredibly boring.


Posted by: heebie-geebie | Link to this comment | 11- 1-07 8:57 AM
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3: As long as you stop short of the full "Blood and souls for my lord Arioch!" recovery is probably still possible.


Posted by: LizardBreath | Link to this comment | 11- 1-07 9:02 AM
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5: It's a lost cause, then, like my beloved Cymoril.


Posted by: Flippanter | Link to this comment | 11- 1-07 9:04 AM
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I chaperoned a school dance last night.

Seriously? You can't possibly have heebie-ettes old enough for that, can you?


Posted by: slolernr | Link to this comment | 11- 1-07 9:09 AM
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Duh, she's chaperoning from the faculty side.


Posted by: redfoxtailshrub | Link to this comment | 11- 1-07 9:11 AM
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Yeah, what 8 said. Part of the reason it felt so surreal was that these were college kids, so they needed a chaperone to use school facilities. It was totally like a middle school dance. There was a security guard who was on the prowl for any alcohol and I kept thinking, "If you find any can you please bring me a beer? I'm very bored."


Posted by: heebie-geebie | Link to this comment | 11- 1-07 9:14 AM
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Sadly, my first thought on seeing 3 was to make some sort of joke about my cock stealing life-essence. My worst traits rolled into one.


Posted by: FL | Link to this comment | 11- 1-07 9:19 AM
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HBGB that is bizarre. I can't really imagine it.


Posted by: soup biscuit | Link to this comment | 11- 1-07 9:25 AM
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I kept thinking, "How are these kids possibly having any fun without drinking?"


Posted by: heebie-geebie | Link to this comment | 11- 1-07 9:27 AM
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Meth.


Posted by: Flippanter | Link to this comment | 11- 1-07 9:28 AM
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I kept thinking, "How are these kids possibly having any fun without drinking?"

Pinochle?


Posted by: Gonerill | Link to this comment | 11- 1-07 9:28 AM
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Meth. Pinochle?

Sure, I'm game. Anything to stave off the boredom.


Posted by: heebie-geebie | Link to this comment | 11- 1-07 9:30 AM
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Actually I kept thinking how much fun I'd have if I were LIVE-BLOGGING from the halloween dance, but I didn't have my laptop with me.


Posted by: heebie-geebie | Link to this comment | 11- 1-07 9:31 AM
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I knew Heebie was not one of the kids, dude, I just was boggling at the idea that college dances have chaperones. Clearly I live a sheltered life.


Posted by: slolernr | Link to this comment | 11- 1-07 9:40 AM
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All unmarried people should have chaperones 24/7, just as god intended.


Posted by: bitchphd | Link to this comment | 11- 1-07 9:45 AM
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But back to the post:

Recently, she arrived a little late and was forced to sit on another bike. The experience unnerved her. "The wheel didn't spin the way my wheel spins, the seat didn't tilt the way my seat tilts," she said. "The whole time I kept thinking, 'I wish I was on bike 28.'"

Or! You could *buy your own bike* and ride it around and actually, you know, go places!

God, I hate gyms.


Posted by: bitchphd | Link to this comment | 11- 1-07 9:46 AM
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Not all of us live in Southern California, B. It's cold outside.


Posted by: m. leblanc | Link to this comment | 11- 1-07 9:48 AM
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20 that's why god invented rollers for your bike. and x-country ski's.


Posted by: soup biscuit | Link to this comment | 11- 1-07 9:50 AM
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19: Oh, come on.


Posted by: Flippanter | Link to this comment | 11- 1-07 9:52 AM
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20: Oh, right. So soon I forget.


Posted by: bitchphd | Link to this comment | 11- 1-07 9:52 AM
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22: You're traumatizing me by being rude and dismissive! TROOOOLL.

Also, I'm going to sue you for IIED.


Posted by: bitchphd | Link to this comment | 11- 1-07 9:55 AM
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It's cold outside. Keeps yippy little dogs off the bike path. With good gloves and underwear, -8 C is OK for biking as long there's no ice.


Posted by: lw | Link to this comment | 11- 1-07 9:57 AM
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Arioch!


Posted by: Flippanter | Link to this comment | 11- 1-07 10:00 AM
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25: Meh, not everyone wants to Don Professional Gear just to get to work or whatever. I will allow people to join the gym in places where it snows.


Posted by: bitchphd | Link to this comment | 11- 1-07 10:02 AM
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in high-toned WASPy households it's traditional to shout "blood and souls for my lord Arioch" before meals or a jolly round of tableaux vivants; just saying "Arioch" like that speaks volumes about Flippanter's social class.


Posted by: alameida | Link to this comment | 11- 1-07 10:05 AM
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It does?


Posted by: Flippanter | Link to this comment | 11- 1-07 10:10 AM
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On the Veldt, knowing how to speak volumes about Flippanter's social class was highly adaptive.


Posted by: Gonerill | Link to this comment | 11- 1-07 10:12 AM
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Becks, if you do, you will have people arguing that they need that $1000 gym bag, because it's so much more durable than their other options.


Posted by: Cala | Link to this comment | 11- 1-07 10:15 AM
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I don't go for bikey costumes. For women, warm undies are not nearly as important, I think. Decent gloves are maybe $20.


Posted by: lw | Link to this comment | 11- 1-07 10:18 AM
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For women, warm undies are not nearly as important

???

True, gloves are acceptable. But even I am not going to get pissy about someone not wanting to hop on their bike when it starts to get under 50 degrees.

Then again, I'm lazy and hate the cold.


Posted by: bitchphd | Link to this comment | 11- 1-07 10:21 AM
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Becks, if you do, you will have people arguing that they need that $1000 gym bag, because it's so much more durable than their other options.

Exactly. "This is a perfectly reasonable purchase, not motivated by status considerations."


Posted by: Gonerill | Link to this comment | 11- 1-07 10:22 AM
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Bitch, check your email already!


Posted by: m. leblanc | Link to this comment | 11- 1-07 10:26 AM
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Bitch, check your email already! You better have my money!

Fixed.


Posted by: Flippanter | Link to this comment | 11- 1-07 10:28 AM
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36 - If you're going to ask for money, you have to do it right.


Posted by: Becks | Link to this comment | 11- 1-07 10:42 AM
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He paid up. I won't say which way.


Posted by: Becks | Link to this comment | 11- 1-07 10:42 AM
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So I'm a huge SF nerd, but have never read any Moorcock. Where should I start?


Posted by: Chopper | Link to this comment | 11- 1-07 10:54 AM
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So racist, Becks.


Posted by: ogged | Link to this comment | 11- 1-07 10:56 AM
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You probably shouldn't; it's all pretty ridiculous. But the Elric books are probably the best, and reading all six? should take a weekend or so. You can probably get them used off AbeBooks for a buck apiece.

Once you get past those, you have to read everything else he's ever written, because it's all reincarnationy-intertwined-one-big-incoherent-plotline.


Posted by: LizardBreath | Link to this comment | 11- 1-07 10:58 AM
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35: Sorry. Sometimes the POP forwarding to my email program takes a few minutes.


Posted by: bitchphd | Link to this comment | 11- 1-07 11:02 AM
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Since this thread is related to disconcerting levels of wealth...

Demotivating realization of the day: My boss's boss has pulled down $5 million, $6 million, and now $7 million from company stock sales in each of the past three months. Meanwhile, her boss is currently cashing in over $2 million a WEEK in his regularly stock sales.

And this isn't even them bailing out. They just have that big of a damn stockpile.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 11:06 AM
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Whoops, sorry, added a zero to my boss's boss's numbers. She's only pulled in $1.8 million over the past three months of sales on top of her salary.

Well, that makes me feel so much better.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 11:09 AM
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39, 41: The basic Elric books are the best, but the many, many interconnections among them and the others are easy to enjoy or overlook as the spirit move. I am blushingly fond of a couple of the Von Bek books, like The War Hound and the World's Pain, The City in the Autumn Stars and The Brothel in Rosenstrasse.


Posted by: Flippanter | Link to this comment | 11- 1-07 11:09 AM
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re: 45

I dearly loved the Von Bek books when I was in my teens. More than the Elric ones, I think.


Posted by: nattarGcM ttaM | Link to this comment | 11- 1-07 11:12 AM
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If you're looking specifically for blood, souls and Arioch, though, it's all Elric, all the time.

I might recommend Moorcock's "Epic Pooh" for the reader who thinks Cory Doctorow and China Mieville are too easy on Tolkien.


Posted by: Flippanter | Link to this comment | 11- 1-07 11:12 AM
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43, 44: That's fucking gross.


Posted by: bitchphd | Link to this comment | 11- 1-07 11:13 AM
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Hey, the three directors of this tiny company are sharing £550k in the next twelve months.


Posted by: Banastre Tarleton | Link to this comment | 11- 1-07 11:14 AM
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43, 44: That's fucking gross.

I wish my life was gross like that.


Posted by: apostropher | Link to this comment | 11- 1-07 11:14 AM
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50: I honestly don't. I wish my life were gross enough that I were, say, making 100k/year for not doing much, but several million in stock sales over a few months? I'd feel like an asshole.


Posted by: bitchphd | Link to this comment | 11- 1-07 11:17 AM
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Iwis that you meant that you wish your life were gross like that.


Posted by: ben w-lfs-n | Link to this comment | 11- 1-07 11:18 AM
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Iwis that you weren't such a little bitch, Ben.


Posted by: bitchphd | Link to this comment | 11- 1-07 11:20 AM
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I'd feel like an asshole.

I'd feel like a happy, pampered asshole living in a big damn house. Which doesn't sound so bad to me.


Posted by: apostropher | Link to this comment | 11- 1-07 11:23 AM
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B. how is exercising stock options gross? The money is not coming from the company, it's coming from some dumbass who thinks the company will continue to be profitable in the future. Where's the harm?


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 11:31 AM
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55: Because then B would go out and buy that juicer, and she'd be the very thing she hates.


Posted by: apostropher | Link to this comment | 11- 1-07 11:34 AM
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Well, I'm already a happy pampered asshole living in a big damn house. Dump an extra few million on me, and my tolerance for my own happy pamperedness would start to wear thin.


Posted by: bitchphd | Link to this comment | 11- 1-07 11:34 AM
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I'd feel like an asshole.

Depends on what you did or didn't do to get the stock in the first place, surely?


Posted by: Jake | Link to this comment | 11- 1-07 11:35 AM
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The money is not coming from the company

Ahem. Where did the stock options come from? And what, precisely, is the point of giving stock options to management types other than to encourage them to focus on stock prices to the detriment of other things like, oh, say perhaps employee salaries and benefits, or whatever?


Posted by: bitchphd | Link to this comment | 11- 1-07 11:37 AM
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Well you could buy Beck's $1000 gym bag for starters. Heck buy one for everyone!


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 11:37 AM
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57: Feel free to send whatever money makes you unhappy my way. I offer because I love you entirely too much to see you feel bad.


Posted by: apostropher | Link to this comment | 11- 1-07 11:37 AM
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58: Sure. And if the stock were fairly distributed. Like why doesn't Po-Mo have stocks to option, hmm?

I seriously would feel like an asshole if I had that much money, though, and didn't give most of it away. Fuck, I feel like kind of an asshole for not giving more of my money away as is.


Posted by: bitchphd | Link to this comment | 11- 1-07 11:38 AM
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Big damn houses are hugely, hugely overrated. Also dogs.


Posted by: teofilo | Link to this comment | 11- 1-07 11:38 AM
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61: Mkay. As soon as we get our fucking finances in order I'll put you on the list o' charities.


Posted by: bitchphd | Link to this comment | 11- 1-07 11:39 AM
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55 makes no sense whatsoever. If he's selling shares on the open market for FMV--the situation you describe--he's not making any money. People make money off stock options because they are below cost.


Posted by: Brock Landers | Link to this comment | 11- 1-07 11:40 AM
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But B. salaries and benefits are paid for from the company's current cash flow. Options are bits of ownership in the company and do not affect cash flow one bit. Yes, options are awarded to allign management and owners.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 11:40 AM
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Big damn houses are hugely, hugely overrated.

You know what's not hugely, hugely overrated? The five members of my family living in a house that's just about right for two adults and a baby.


Posted by: apostropher | Link to this comment | 11- 1-07 11:41 AM
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Depends on the vesting, Brock.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 11:43 AM
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67: But I thought you lived in cheapoville!!

66: Cash flow affects the value of stocks, dummy. So if you're worried about your stock value, you have a financial interest in keeping salaries and benefits low. Even I know this.


Posted by: bitchphd | Link to this comment | 11- 1-07 11:43 AM
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62: Sure. And if the stock were fairly distributed. Like why doesn't Po-Mo have stocks to option, hmm?

Who knows? Without knowing the company and the positions involved and such, no one can say. My boss's boss will probably be selling something like half a million dollars worth of stock a month for the next four years, which is a hell of a lot more than me, but as near as I can tell he completely and totally deserves it.


Posted by: Jake | Link to this comment | 11- 1-07 11:43 AM
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Dump an extra few million on me, and my tolerance for my own happy pamperedness would start to wear thin.

I bet you would learn to live with yourself.


Posted by: ben w-lfs-n | Link to this comment | 11- 1-07 11:44 AM
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67: True, I suppose. My current antipathy to big damn houses (and dogs) comes largely from spending the past month or so living in (and caring for) one all by myself. Too much damn work for one person.


Posted by: teofilo | Link to this comment | 11- 1-07 11:45 AM
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as near as I can tell he completely and totally deserves it.

Oh, barf. I'm not saying "the rich are evil" here, or that people who are making good salaries are all free riders, but no one on earth "completely and totally deserves" half a million bucks. Not in a world where plenty of people live on less than a dollar a day.

/Leftier-than-thou humorlessness


Posted by: bitchphd | Link to this comment | 11- 1-07 11:46 AM
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But I thought you lived in cheapoville!!

Cheap enough that I own instead of renting. I also bought when I only had one kid. My back-of-the-envelope calculations say that I'll be able to afford a place big enough to comfortably fit us only once the kids are out of daycare. Or when you people start sending money.


Posted by: apostropher | Link to this comment | 11- 1-07 11:46 AM
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71: Probably by buying meals for undeserving graduate students, for starters.


Posted by: bitchphd | Link to this comment | 11- 1-07 11:47 AM
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68: wtf does that mean? How does it depend on the vesting? If an option isn't below cost when exercised you don't make money on it, plain and simple. In fact, you don't even exercise it.


Posted by: Brock Landers | Link to this comment | 11- 1-07 11:53 AM
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if you're worried about your stock value, you have a financial interest in keeping salaries and benefits low

Exactly right. Alligning the interest of management and owners. Companies don't exsist to employ people and give them benefits, they exsist to make money for the owners. Of course, in order to attract workers to do the things you need them to do you must pay them and give them benefits. Stock options as a part of a compensation package take some of this burden off of current cash flow and put it on the open market.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 11:55 AM
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Like why doesn't Po-Mo have stocks to option, hmm?

Actually, I suppose I do. But I was awarded them fairly recently, after the initial pop following the IPO (I've only been working for two years, after all), and to describe the amount as token would be an overstatement. I believe when I found out the number of options and the exercise price and ran a quick calculation of their fair value, my total grant worked out to a couple nice pairs of men's shoes.

I think with our company's incredible stock price run of the past couple years, they have since appreciated to the value of a laptop. While a nice little extra, it still strikes me as a laughable motivational tool.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 11:56 AM
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Dude, management is *already* plenty invested in the owner's interest, and aligning their interests even further really fucks over workers.

Sure, companies exist to make money for the owners. But there's such a thing as *enough* money, and there are also such things as decent working conditions and interests that aren't purely profit-motivated.


Posted by: bitchphd | Link to this comment | 11- 1-07 11:58 AM
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Stock options as a part of a compensation package take some of this burden off of current cash flow and put it on the open market.

ARGH. Again, these are sales below cost. They're not putting the "burden" on the open market, they're putting it on current stockholders (whose shares are proportionately diluted). Admittedly, it doesn't come out of cash flows.


Posted by: Brock Landers | Link to this comment | 11- 1-07 11:59 AM
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Oh, barf. I'm not saying "the rich are evil" here, or that people who are making good salaries are all free riders, but no one on earth "completely and totally deserves" half a million bucks. Not in a world where plenty of people live on less than a dollar a day.

Maybe I should have said that his net contribution to human happiness seems to be worth a lot more than half a million dollars. I don't know what the ramifications for leftiness are of the way computers let small numbers of people have vastly outsized influence, but I don't see that it's grossly unfair.


Posted by: Jake | Link to this comment | 11- 1-07 12:00 PM
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Probably by buying meals for undeserving graduate students, for starters.

When I ponder that dreamy "If I won the lottery" scenario of dealing with dozens of millions of dollars, I always have two things I would immediately blow money on. The first one would be a fund established to pay off the undergraduate debt of my 10-20 closest friends from high school, undergrad, etc. and to pay for their graduate school expenses now and in the future.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 12:00 PM
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81: I'm not begruding the man his money. I'm just being pissy about the whole "so-and-so *deserves* to be rich" thing. No one deserves wealth, any more than someone else deserves poverty. We luck into where we're born and what options we have. Kudos to those who use them well, but even so, come on.


Posted by: bitchphd | Link to this comment | 11- 1-07 12:02 PM
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I'm talking about the difference between being awarded options, which give you the right to buy shares at a certain price, and grants of stock which can be sold at any price to realize a profit. And there are times when options aren't exercised, as you point out. Still doesn't come from current cash flow. And what do you mean below cost? Stock doesn't "cost" the company anything. It is a division of ownership, and dilutes the ownership of the other stockholders.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 12:03 PM
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Brock is right - instead of granting the option to the employee, the company could sell the option on the open market instead. And many of these companies use stock buyback programs to replenish the options pool, which make the cost even more explicit.


Posted by: Jake | Link to this comment | 11- 1-07 12:05 PM
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I'm talking about the difference between being awarded options, which give you the right to buy shares at a certain price, and grants of stock which can be sold at any price to realize a profit.

And in either case the executive is being awarded an ownership stake in the company, which in your example he immediately monetizes (or as soon as it's vested). These two things don't have a practical difference from the company's perspective, so I'm not sure what "difference" you are talking about.


Posted by: Brock Landers | Link to this comment | 11- 1-07 12:14 PM
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Brock you and I are saying the same thing.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 12:18 PM
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79, 83: Go back to Russia, commie.


Posted by: Flippanter | Link to this comment | 11- 1-07 12:18 PM
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We are both saying that we're not sure what difference you are talking about?


Posted by: Brock Landers | Link to this comment | 11- 1-07 12:20 PM
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B in 79:

Dude, management is *already* plenty invested in the owner's interest, and aligning their interests even further really fucks over workers.

I disagree. There's a real agency problem. Management tends to work on behalf of its own interests rather than those of the stockholders. Short-term run ups in stock don't benefit people who plan to hold their stock and own a business. Cue Warren Buffet about the importance of expensing stock options, because they do dilute the value of the company.

Shareholders aren't just rich fatcats. They're pension funds too.


Posted by: | Link to this comment | 11- 1-07 12:20 PM
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90 was I.


Posted by: Bostoniangirl | Link to this comment | 11- 1-07 12:21 PM
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73: but so wait, why does the line start there and not, say, somewhere south of your family income?


Posted by: Sifu Tweety | Link to this comment | 11- 1-07 12:21 PM
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90: And stock options in reality don't actually do a good job of aligning management's interests with the long-term health of the company. They're an incentive for trying to create short-term spikes in prices so that the options can be dumped. (I think this is what you were saying, I just wanted to make it explicit that stock options don't necessarily help.)


Posted by: LizardBreath | Link to this comment | 11- 1-07 12:22 PM
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There is a difference, in that the value of the option is based on the increase in stock price, rather than it's absolute value.


Posted by: Jake | Link to this comment | 11- 1-07 12:24 PM
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89. When I originally stated that the money for the stock option doesn't come from the company, I mean paid out of cash flow that would otherwise presumably go either to workers salaries or dividends. The money is coming from the owners in the form of diluted ownwership. We don't disagree at all. Whether you think this is a good policy is up to you.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 12:25 PM
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93: and by "don't necessarily help", you mean "as commonly (poorly) structured, actually disalign incentives even more."


Posted by: Brock Landers | Link to this comment | 11- 1-07 12:25 PM
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Not to mention that, good management being worth a premium, but every manager believing himself (or, I suppose, herself) worth that premium, the connection between competence and compensation has become so attenuated that Michael Eisner now owns Andorra.


Posted by: Flippanter | Link to this comment | 11- 1-07 12:25 PM
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If 94 was to 86, I understand that but don't think it's a difference relevant to TLL and my disagreement. Which apparantly doesn't even exist.


Posted by: Brock Landers | Link to this comment | 11- 1-07 12:26 PM
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Management tends to work on behalf of its own interests rather than those of the stockholders.

And everything should work for the interests of the almighty stockholders? Come on. Stockholders have a lot of power already, at least if they hold stock in any appreciable amounts.

Short-term run ups in stock don't benefit people who plan to hold their stock and own a business.

And guess what? Not all stockowners are like that; many of them are playing the market, and what you're talking about is putting more focus on "the market" and less on the long-term interests of the business. Which include things like employee morale and other things that, *because* they don't accrue value for a while--and because that value can be difficult to directly translate into dollars--get fucked over by a system that encourages management to take a job, wait for the options to vest, sell 'em, and retire (or hop to another job and repeat).


Posted by: bitchphd | Link to this comment | 11- 1-07 12:30 PM
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Yes, LB and Brock, in 93 and 96 respectively, that is what I meant. Did I ever tell you all that I first learned what the word cryptic meant when my 8th grade English teacher used it on my report card to describe my comments.? I have to work hard to be explicit and not say everything rather obliquely.


Posted by: Bostoniangirl | Link to this comment | 11- 1-07 12:31 PM
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99: Stockholders have a lot of power already...

Ha ha ha ha ha ha ha ha ha.


Posted by: Flippanter | Link to this comment | 11- 1-07 12:32 PM
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93. Right again LB. Management wants the money to go to them, not the owners or workers. Options were an attempt to align interest to the former, but pump and dump is the result because management really does not care about the long term, just their tenure.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 12:35 PM
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92: It doesn't; I said somewhere upthread that I'm kind of a rich asshole already.

That said, I can't quite afford to buy a middle-class house where I live yet, so I think that qualifies me as "not entirely assholish". If I were fretting over not being able to buy a house with a *view*, that would be gross.

Of course, you're welcome to argue that my fretting over not being able to buy a detached house with an extra bedroom is already gross enough, which is probably true (though not out of line with American contemporary standards).


Posted by: bitchphd | Link to this comment | 11- 1-07 12:37 PM
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get fucked over by a system that encourages management to take a job, wait for the options to vest, sell 'em, and retire (or hop to another job and repeat).

Yeah, sure, I agree, B. I just think that this hurts both workers and shareholders. It's actually pretty hard for shareholders to get something passed at an annual meeting over the objections of management, unless those shareholders are really concentrated. So, usually we're talking about private equity firms or corporate raiders. These are not the mass of people who own stock or shares in a mutual fund.

CalPers has done a lot of heroic work in this area, because it's the single largest pension fund in the country. (The Feds have 401(k) -style benefits, and the old defined benefit funds are broken up into pieces, I think, rather than run as a single entity.)


Posted by: Bostoniangirl | Link to this comment | 11- 1-07 12:37 PM
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100: But it's flattering to the people you're talking to, because it credits them with understanding the issues. So, cryptic, overly explicit, six of one, half a dozen of the other.


Posted by: LizardBreath | Link to this comment | 11- 1-07 12:40 PM
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103: Condemning others for what they happen to want is a terrific way to make friends and influence people. That's why the guy in the "Music I Used to Like" t-shirt is president now.


Posted by: Flippanter | Link to this comment | 11- 1-07 12:41 PM
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101: What, people who own large amounts of stock are disenfranchised? The poor, poor dears.


Posted by: bitchphd | Link to this comment | 11- 1-07 12:43 PM
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I can't quite afford to buy a middle-class house where I live yet

Nobody middle-class can afford to buy a house where you live.


Posted by: apostropher | Link to this comment | 11- 1-07 12:43 PM
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I think some of the disagreement between B and (maybe?) Jake is a function of different understandings of "deserve." I think Jake's is closer to what you typically see in libertarian discussions--formal or legal requirements met, and what happens, happens--and B's is probably based on broader notions of a what a just society should look like. (That's a guess.) I'm not sure that there's a way to bridge that.


Posted by: SomeCallMeTim | Link to this comment | 11- 1-07 12:44 PM
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The right way to bridge that, Tim, is to kill the libertarians.


Posted by: Brock Landers | Link to this comment | 11- 1-07 12:45 PM
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106: Eh, but there's plenty of room to be critical of people's desires without condemning them personally. Or there damn well should be.


Posted by: bitchphd | Link to this comment | 11- 1-07 12:46 PM
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everything should work for the interests of the almighty stockholders Here is a discussion of how employee stock ownership of a majority share of the company has worked for United. This has happened with quite a few companies, usually troubled ones. As others have said, there are agency problems, many coming from differing time horizons.
Large-scale options grants do encourage management attempts to increase stock price volatility. But are these more or less harmful than management dodges without options? Training and security have to come from this company, which my brother happens to be silent partner in, is an old one.
The standard answer to scorn about stockowners who play the market is that they add liquidity, they serve as buyers whenever anyone wants to sell.


Posted by: lw | Link to this comment | 11- 1-07 12:46 PM
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110: Papist.


Posted by: SomeCallMeTim | Link to this comment | 11- 1-07 12:47 PM
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108: I think we have to admit that the income limits of "middle-class" vary regionally.

110 gets it exactly right.


Posted by: bitchphd | Link to this comment | 11- 1-07 12:47 PM
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I think we have to admit that the income limits of "middle-class" vary regionally.

Obviously. I still stand by the statement.


Posted by: apostropher | Link to this comment | 11- 1-07 12:48 PM
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112: I'm cool with employee ownership; I'm differentiating between distributing options broadly and merely handing them out to the top-end management folks.

(Which, given Po-Mo's revelation that he too is a capitalist running dog, makes the specific example that started the discussion kind of irrelevant.)


Posted by: bitchphd | Link to this comment | 11- 1-07 12:49 PM
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109: I think my position is a little different than that; "put in a position to do something very difficult and valuable to lots of people partly through luck and partly through work and then actually does said difficult and valuable thing" equals "deserves" in my book, but I think I put more emphasis on the "actually doing" part than on the "put in a position to do so via luck" part.


Posted by: Jake | Link to this comment | 11- 1-07 12:50 PM
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115: Well, you might be right; we'll see how many foreclosures happen in the next couple years, and I suppose that most of the teachers and middle-management types that live around here and seem to have a lot of disposable income are living on credit. But even then I think most of them are doing so in order to live up to what passes as "middle-class" by American standards these days.

(Which I agree are way overinvested in how much crap you can buy and how nice your yard looks.)


Posted by: bitchphd | Link to this comment | 11- 1-07 12:53 PM
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107: What, people who own large amounts of stock are disenfranchised? The poor, poor dears.

The ownership of equities is not limited to the decadent few and has not been for some decades now. Even people with PhDs have been known to forget themselves from time to time and contribute money to TIAA funds against the day when teaching America's young imbeciles loses its luster.


Posted by: Flippanter | Link to this comment | 11- 1-07 12:54 PM
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are living on credit

And renting. I know it's going to totally fuck a lot of people in the short run, but puncturing the insane housing price bubble in California really needs to happen.


Posted by: apostropher | Link to this comment | 11- 1-07 12:56 PM
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I would prefer that property values undergo a massive decline nationwide (but not so much so as to cause an economic depression, at least not one that affects my employment prospects in any way), at least until I buy a house, at which time I'd like to see a swift recover.


Posted by: Brock Landers | Link to this comment | 11- 1-07 12:59 PM
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recovery


Posted by: Brock Landers | Link to this comment | 11- 1-07 12:59 PM
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119: I said upthread "significant amounts of stock". I'm not talking about people having IRAs and not actually making any decisions themselves about what stock they own.

120: A lot of people are renting, but the houses wouldn't cost this much if middle-class people weren't buying them *somehow* (i.e., by borrowing 100% of the cost of housing). The top 10-20%, income-wise, are not numerous enough to own *all* the houses.

Though I'm sure it's only a matter of time.


Posted by: bitchphd | Link to this comment | 11- 1-07 1:01 PM
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117: I suspect I think luck plays a bigger role than you do, but on the whole my beliefs probably track yours. (Really, I think, "I don't know what's going on here, but it seems to be working, so nobody touch anything.") I'm fine with some people having a lot more stuff than others, and if that makes those other people feel bad--caveat, caveat--oh well. But there should be a basic minimum set of promises that define the framework within which you're allowed to accumulate as much as you want and are able. (I don't think you disagree with that either.)


Posted by: SomeCallMeTim | Link to this comment | 11- 1-07 1:02 PM
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http://www.nakedcapitalism.com/
You may have to wait a long time for recovery


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 1:03 PM
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125: which may well be a good thing. I'm starting to think the only real options are a sort of slip-sliding decline for ages, followed by very slow recovery, or an out and out rout and the dollar drops off a cliff.


Posted by: soup biscuit | Link to this comment | 11- 1-07 1:07 PM
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Will there be peace only when the last leftist has been strung up by the guts of the last libertarian, with the last lobbyist's new job being to clean up after the onlookers, who only eat organic hand-cooked food and read virtuous substantive news? The wait will be long.

I think that the management compensation debate has to do with risk-- from the perspective of the manager, stepping into a top job is risky, so people need to be paid to accept the extra responsibility. The managers exaggerate the risk, and those who never see how fucked up the management work environment is and how steeply penalized people are for failure underestimate it. GINI seems pretty high, though, and I'm not sure I buy the argument that postwar America was an aberration.


Posted by: lw | Link to this comment | 11- 1-07 1:08 PM
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123: ...not actually making any decisions themselves about what stock they own...

Some mutual funds are traded like equities, but even the ownership of individual equities is relatively common, and with such ownership come decisions to buy, to sell, to hold and even to write options from time to time. What sort of decisions may one make about one's finances and still avoid your deathstare?


Posted by: Flippanter | Link to this comment | 11- 1-07 1:08 PM
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You can't make sense of post-war america globally as anything *but* an aberration, but it is questionable what the real implications of that are.


Posted by: soup biscuit | Link to this comment | 11- 1-07 1:09 PM
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128: The way to avoid the deathstare is to admit that if you are lucky enough to be managing stock options rather than, say, picking crops or doing data-entry, the least you can do is be gracious about it if someone argues that perhaps your financial prospects and the almighty importance of Profit-Making Businesses aren't the only thing that should matter when we talk about money.


Posted by: bitchphd | Link to this comment | 11- 1-07 1:13 PM
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130 continued: Which is to say, I'm not (and never was) criticizing *anyone's* decisions about their personal finances--look back over the thread. If you want to shove your decisions into a discussion about the interests of capital, you can't get *too* upset about statements you decide apply to you, can you?


Posted by: bitchphd | Link to this comment | 11- 1-07 1:16 PM
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Greed and avarice are powerful motivators but there is a reason they are two of the seven deadly sins.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 1:16 PM
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132: Just one, no? Unless you mean 'Gluttony' by 'Greed'.


Posted by: LizardBreath | Link to this comment | 11- 1-07 1:23 PM
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139: You can buy and sell options without having them granted by a company. My uncle used to sell put options. I thought he was crazy to do it, but it was from95 to 97 or so.

Mutual Fund management stuff is a real mess too. The managers of mutual funds want good numbers to get good business, but they got a lot of weird incentives to place their trades with specific brokerage firms. They were also timing their own fund share purposes, so that they all occurred at a particular time of day which was beneficial to them but detrimental to the fund. I don't remember how this worked.


Posted by: Bostoniangirl | Link to this comment | 11- 1-07 1:23 PM
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stock options in reality don't actually do a good job of aligning management's interests with the long-term health of the company. They're an incentive for trying to create short-term spikes in prices so that the options can be dumped.

LB is onto something here, and corporate boards that are serious about tying pay to performance have started to rethink the role of stock options in favor of other compensation mechanisms in recent years.

For one thing, options can create a perverse incentive to take risks. The most commonly used method for valuing options of any sort is the Black-Scholes method, which basically says that the value of an option, all other things being equal, is a function of the volatility of the underlying asset price. The more volatile the performance of the company, the more valuable the incentive stock option. Restricted stock grants, by contrast, put option holders on equal footing with ordinary shareholders.

Secondly, many employee stock option plans were transparently designed to take advantage of tax and accounting rules rather than to reward performance. Until 2005, employee option awards in the U.S. did not have to be accounted for as an expense on the income statement when they were awarded, which kept apparent compensation costs down and artificially inflated profits. It is no coincidence that the enthusiasm for stock options declined after corporations were forced to explicitly account (to be fair, the sluggish stock market undoubtedly played a role as well).


Posted by: Knecht Ruprecht | Link to this comment | 11- 1-07 1:23 PM
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130, 131: I was never upset, except at the very old-school ignorance on display. From "you're an asshole if you want a house with a view" to "you ought to be gracious about not having to be a migrant worker" is a bit of a retreat, not to mention throwing out the "not the only thing" chaff.


Posted by: Flippanter | Link to this comment | 11- 1-07 1:24 PM
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OK, gluttony. Which is after all B's real complaint.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 1:26 PM
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They were also timing their own fund share purposes, so that they all occurred at a particular time of day which was beneficial to them but detrimental to the fund. I don't remember how this worked.

I think you're referencing the scheme in which certain preferred customers were allowed to redeem shares in the mutual fund more frequently than advertised in the fund prospectus (the "Market Timing Scandal"). This allowed them to obvserve the movements in the underlying securities throughout the day, and then buy or sell shares of the fund (based on whether those movements were net positive or negative) before the Fund's net asset value adjusted (which usually happens once per day -- at the close of business and immediately prior to the processing of the day's redemption requests). Easy money, free.


Posted by: Brock Landers | Link to this comment | 11- 1-07 1:31 PM
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I wonder what the tipping point is for employee stock holdings and caring about the stock price. My company gives everyone stock so that we'll "think like owners of the company instead of employees" but I know it doesn't affect the way I feel about company policies. When they do something to help the share price at the expense of employee salaries or benefits, I still get pissed. The tradeoff of 3% of my salary (which I get in stock) vs. 97% of my salary (which I get in cash) isn't nearly enough to make me say "Oh! You're doing X because it will help the stock price! Carry on."


Posted by: Becks | Link to this comment | 11- 1-07 1:50 PM
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136: Wasn't it the migrant worker thing where I appended the "/humorlessness" thing? I realize that that's kind of a cheap shot; I was trying to illustrate what I meant by the way the luck of the draw is a big part of whether one "deserves" ones wealth or not.

137: It isn't gluttony I'm griping about; I don't even assume that Mr. 5mil in stock options Guy is necessarily a glutton. He's probably just doing the thing any half-intelligent person in his position would do, and negotiating a good contract in the context of contemporary employment negotiations, then cashing in what he has at a good time. More power to him. What's gross is that it's possible for folks to "earn" 5mil in a matter of weeks as a matter of course, and that people will defend the situation that leads to doing that as being perfectly okay.


Posted by: bitchphd | Link to this comment | 11- 1-07 1:55 PM
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140: It is perfectly okay for Captain Incentive Compensation to receive $5 million from the sale of options over whatever period; what is not okay is for other people to go hungry or homeless because they have no money whatsoever.


Posted by: Flippanter | Link to this comment | 11- 1-07 1:59 PM
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What's gross is that it's possible for folks to "earn" 5mil in a matter of weeks as a matter of course, and that people will defend the situation that leads to doing that as being perfectly okay.

The people making this much money are an aberration, to be sure. But when a company like Google turns $400k in profit for every employee they have, a lot of people are going to make a lot of money.


Posted by: Jake | Link to this comment | 11- 1-07 2:09 PM
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141: It's not okay to pretend that those two things are completely unrelated, or that the *only* thing that's not okay is to have no money whatsoever, as opposed to being laid off in a fit of downsizing or the increasing divide between people making millions in stock options and people who are keeping their fingers crossed that they can manage to stay employed and save enough to be able to retire.


Posted by: bitchphd | Link to this comment | 11- 1-07 2:10 PM
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142: Right, and then the rest of us aren't going to be able to afford to buy a place to live. This doesn't bother you?


Posted by: bitchphd | Link to this comment | 11- 1-07 2:12 PM
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So what about the system that lets Google make $400k in profit per employee can or should we change? Excise tax on context-sensitive text ads? Declare all search engines to be public utilities?

This is an extreme case of the increasing-returns-to-education-and-skill problem, and I don't see how to solve it.


Posted by: Jake | Link to this comment | 11- 1-07 2:18 PM
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145: Eh, I can't come up with the end-all be-all solution, especially to things I don't fully understand myself, but I stand by my right to say on blog comment threads that it's "gross" when someone makes millions off stock options.


Posted by: bitchphd | Link to this comment | 11- 1-07 2:21 PM
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145 is right. The confounding factor is that the returns on a particular education can be very high for a short time, and then pretty bad for the rest of a life; economically, the career with a skill-in-demand can look like a pro sports career, rather than a lifetime building up skills and relationships, with predictable ups and downs. It's a downside of a dynamic economy that rewards newcomers with interesting work.


Posted by: lw | Link to this comment | 11- 1-07 2:26 PM
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This is an extreme case of the increasing-returns-to-education-and-skill problem, and I don't see how to solve it.

I don't think that's the heart of the matter. The two founders of google are not more educated or skilled than the next two or three layers of employees in any meaningful sense. They were phenomenally successful in a form of winner-takes-all competition. This is not to begrudge them their success; they have created enormous value and are being rewarded for it by the marketplace. But to call it a function of differential education and skills is a misdiagnosis.

Indeed, the fastest growing equality gap is not between the top 10% and the bottom 90%, or even the top 1% and the bottom 99%, but between the top .01% and the bottom 99.99%.

The answer, I think, is at least fourfold:

- Some measure of redistribution, such that folks on the bottom have a secured minimum existence, funded by higher tax rates at the top.

- Socialization of some currently individualized risks, particularly the risk of health problems

- Strengthening of the "countervailing forces" (to use Galbraith's phrase), particularly by facilitating unionization of lower skill service employees.

- Strengthening of the institutions of "social equality" (Kaus is not all wrong about this), such that inequality of income and wealth does not result in the total segregation of everyday life along class lines.


Posted by: Knecht Ruprecht | Link to this comment | 11- 1-07 2:31 PM
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148: What Ruprecht said.


Posted by: LizardBreath | Link to this comment | 11- 1-07 2:33 PM
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143: Did Captain Incentive Compensation cash in his options in BeatingUpPoorPeopleTube.com?

146: What ways to make millions are not gross?


Posted by: Flippanter | Link to this comment | 11- 1-07 2:35 PM
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What LB said.


Posted by: bitchphd | Link to this comment | 11- 1-07 2:36 PM
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What ways to make millions are not gross?

*Making* money is not gross. The *system* in which a few lucky people make millions, fewer lucky people inherit them, a sizable minority of people manage to live comfortable lives, and a majority of people don't, is gross. The entire *point* is that individuals don't have control over their own fates as much as we would like to think they do.


Posted by: bitchphd | Link to this comment | 11- 1-07 2:40 PM
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I wonder if this is going to be more or less difficult to turn into a political issue. There have always been the arguments that even the poor vote for low tax rates for people making more than them instead of higher tax rates to fund programs in their own interests because of the dream of mobility that they, too, could strike it rich some day. I wonder if this feeling will be more or less pronounced as the gap goes from the top 30 and the bottom 70 to 10/90 or 1/99.


Posted by: Becks | Link to this comment | 11- 1-07 2:42 PM
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The system is gross, sure. But as long as I'm living in it, I know which end of the stick I'd rather get.


Posted by: apostropher | Link to this comment | 11- 1-07 2:43 PM
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154: Well duh.


Posted by: bitchphd | Link to this comment | 11- 1-07 2:45 PM
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152: Then "gross" may not be the word you're looking for.


Posted by: Flippanter | Link to this comment | 11- 1-07 2:47 PM
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You know who's going to be in a lot of trouble? This kid.


Posted by: apostropher | Link to this comment | 11- 1-07 2:49 PM
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The *system* in which a few lucky people make millions, fewer lucky people inherit them, a sizable minority of people manage to live comfortable lives, and a majority of people don't, is gross.

Errr... Much as I dislike the extremity of inequality at the top end, and push for a better tax code that would produce more consistant and probably higher taxes on the rich, I'd say this is probably a bit untrue if you're talking about America. The number of people below the poverty line is only around 12% of the population, and the median household income is $44,000+ a year. Plus all the standard right-wing stats on how many people own cars, live in homes with air conditioning or central heating, possess nice TVs, etc.

I'd say that the number of people unable to live comfortably is certainly too many (and also almost certainly higher than the official poverty line), but it's also a long shot from a majority.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 2:49 PM
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Bah, when I want editing I'll ask for it.

In any case, I never said that a given individual was gross, so all this assuming that I'm talking about individuals is WRONG. Nyah.


Posted by: bitchphd | Link to this comment | 11- 1-07 2:50 PM
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The number of people below the poverty line is only around 12% of the population, and the median household income is $44,000+ a year. Plus all the standard right-wing stats on how many people own cars, live in homes with air conditioning or central heating, possess nice TVs, etc.

The poverty line is ridiculously low. $44k/year is not enough to raise children on, and certainly not enough to own cars, houses with a/c, and nice tvs. Most Americans are carrying a lot of debt.

IN other words, you can argue that we have nice possessions, or you can argue that we're financially comfortable, but not both.


Posted by: bitchphd | Link to this comment | 11- 1-07 2:52 PM
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153. It is going to be very difficult to make income inequality a political issue as long as there is some chance of upward mobility. And there are fewer artificial barriers to that mobility. Changing the structures that are the true barriers to mobility may not be possible.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 2:53 PM
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I'd say that the number of people unable to live comfortably is certainly too many

Channeling Jacob Hacker here for a minute, the big issue with not being able to "live comfortably" is an issue of economic insecurity, which goes much further up the income ladder than the poverty line. The risks of illness, loss of employment income, poverty in old age, etc. are being borne to a much greater degree today than a generation ago. Part of that is a function of globalization, but part of it is the result of deliberate political choices. The liberal (i.e. social democratic) agenda has to put this front and center, because it's the issue where the middle 60% are in the same boat as the bottom 15%.


Posted by: Knecht Ruprecht | Link to this comment | 11- 1-07 2:55 PM
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And there are fewer artificial barriers to that mobility

Depends what you mean by "artificial". Statistically speaking, class mobility is declining in the U.S., and is actually lower than in many parts of Europe. Income inequality is cemented by the near perfect segregation of housing (and hence public schooling) by income/wealth in this country.


Posted by: Knecht Ruprecht | Link to this comment | 11- 1-07 2:57 PM
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161: Income inequality isn't the only thing going on though. If I have to pay the same marginal tax rate on a 2million dollar compensation that some other guy has to pay on his 55,000 it hasn't equalized our incomes in any sense, but it's probably a big net win.


Posted by: soup biscuit | Link to this comment | 11- 1-07 2:58 PM
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$44k/year is not enough to raise children on, and certainly not enough to own cars, houses with a/c, and nice tvs

I make less then this own a three bedroom house with central air, have a car, a decent TV, and max out a roth IRA every year. I don't have kids, but I don't think you can say that 44K a year is chump change.


Posted by: CJB | Link to this comment | 11- 1-07 3:00 PM
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163. I'm speaking of race, gender etc. Being born into poverty in a one parent household and going to an urban jungle school with a high drop out rate would be more to my second point.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 3:00 PM
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165: I'm quite willing to agree that American standards of living are far too consumerist, but $44k/year for one single person living--presumably--in a place with modest housing costs is adamantly *not* the same as $44k/year for a family of three, even, especially if you don't have health insurance.

It's not chump change, definitely--blah blah people live on less than a dollar a day blah blah--but it is not enough to support a family on in many, perhaps most parts of the US these days.


Posted by: bitchphd | Link to this comment | 11- 1-07 3:08 PM
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The poverty line is ridiculously low. $44k/year is not enough to raise children on, and certainly not enough to own cars, houses with a/c, and nice tvs.

B, remember that you've only lived in some of the most gut-wrenchingly expensive places on this planet. I don't make much more than that, but I could certainly own a car, and a lot of my coworkers who started in the same job as me are already making payments on a home. They'd certainly own cars, too, if we weren't in one of the few cities with solid mass transit and parking fees that run in the hundreds per month.

But also note that I admitted the poverty rate is probably too low, due to the poorer folks who do live in areas like NYC and parts of California who try to struggle by where all the essentials like food and rent cost a damn fortune.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 3:09 PM
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Here in Lake Wobegon the median family income is 38,864.


Posted by: John Emerson | Link to this comment | 11- 1-07 3:12 PM
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Are there no workhouses? No prisons?


Posted by: Flippanter | Link to this comment | 11- 1-07 3:14 PM
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Yes there are. I'm commenting from a workhouse/prison right now.


Posted by: Walt Someguy | Link to this comment | 11- 1-07 3:16 PM
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$44k/year is not enough to raise children on, and certainly not enough to own cars, houses with a/c, and nice tvs

I see it has already been said, but you can raise a family on 44K, if you don't live someplace with an absurd cost of living.


Posted by: apostropher | Link to this comment | 11- 1-07 3:17 PM
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Also, it should be noted that the average person does have health insurance. Estimates for the number of uninsured in America usually run from 40 million to 60 million. While a huge number, this is less than 20% of our population.

I'm just saying that you shouldn't sell America's growth and economic power short. The average person here has a pretty kick-ass life in the scheme of things. We have no excuses for not harnessing the downright obscene wealth of the top-end to improve the lives of the bottom end to a comfortable, humane level, hence the liberal agenda that KR talks about in 162, but claiming that the majority of American's can't live a comfortable life is fairly divorced from reality as even the Americans themselves see it (look at happiness research about how many people are content with their lives and their income).

We can't severely overstate our already strong case for reforms when pushing for the support of the majority, or else we weaken the case through apparent lies.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 3:18 PM
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There's comfortable, and then there's secure. Lots of people below the very top percentages of income in the country have fixed costs they can't do much about (housing, debt), that take most of their income -- that can be perfectly comfortable, but if the income isn't secure, the life is insecure. That's a huge issue.


Posted by: LizardBreath | Link to this comment | 11- 1-07 3:21 PM
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173: The numbers are harder to compute if you restrict it to `decent health insurance' or `health insurance that won't completely screw you if something major happens'.


Posted by: soup biscuit | Link to this comment | 11- 1-07 3:22 PM
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174: I'd guess that an awfull lot of americans aren't secure, and it's only partly due to buying a bunch of crap they don't need on credit. That latter one is also an issue too.


Posted by: soup biscuit | Link to this comment | 11- 1-07 3:23 PM
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you've only lived in some of the most gut-wrenchingly expensive places on this planet.

Um, for the last 3-4 years I lived in a city of 100,000 in southern Ontario that no one's ever heard of, and I made slightly over $44k/year and paid a mortgage on it and had to rely on relatives to provide PK with winter clothing while driving a 15-year old car and hoping it wouldn't break down. Sure, there's nothing terribly wrong with that way of life, if you've got public transit and health care and some kind of family support, but if you don't, you're fucked, and given that I have a PhD and have only one child I'm going to presume that I was doing better financially than a lot of people would have done in a similar location.

I grew up in a small city that had a huge, huge underclass, was one of the few (only?) non-majority-white cities in the country at that time, and where my parents, who were both school teachers, used credit to maintain a standard of middle-class life that looked quite a bit lower than that of our neighbors (partly this no doubt had to do with my folks' own money issues, but the point is we were okay, but by no stretch of the imagination well off). I've also lived in Omaha, NE and St. Louis, MO.

I've also lived in a couple of expensive places, yes. But I'm not basing my assessment of what is and isn't reasonable to live on on my own situation, where frankly $100+k/year is about enough to break even. Which I think is fucking ridiculous, by the way.

According to the National Center for Children in Poverty, here is a chart of what people need to meet their "basic needs" in a few places. Few people, I think, feel that meeting their "basic needs"--which does not include saving for college or retirement, mind, or having a cushion in case you lose your job--constitutes a "comfortable" middle class standard of living these days.


Posted by: bitchphd | Link to this comment | 11- 1-07 3:26 PM
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174. While I agree with the diagnosis I don't see how to cure this particular disease. Risk is everywhere, death and taxes blah blah.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 3:27 PM
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I think this is why it's hard to address income inequality: everybody's sure they're in the "getting harmed" boat, whatever their income. I've heard "keeping up with the Joneses" arguments about hardship from people pulling in seven figures. And they're being genuine, and are the decent sort who know it sounds crazy to make such complaints.


Posted by: SomeCallMeTim | Link to this comment | 11- 1-07 3:28 PM
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What LB said in 174. And this problem has gotten worse in a lot of ways in the last 25 years
- international competition puts formerly "safe" job categories at risk
- technological innovation shortens the useful life of acquired skills
- decline of defined benefit pensions, increased reliance on 401Ks and the like for retirement income
- larger proportion of health care costs on the individual (even if you have insurance)
- increase in consumer indebtedness due to housing costs and innovations in consumer credit (including aggressive marketing), aggravated by the new bankruptcy law
- changing norms raise the baseline for what a "comfortable" life demands (e.g. high speed internet, cable tv), making the fall that much harder for someone who falls off the ladder


Posted by: Knecht Ruprecht | Link to this comment | 11- 1-07 3:29 PM
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178: Social democratic policies, anyone? Universal health insurance that isn't going to go away if you're too sick to work? More generous unemployment benefits? and so on, and so on. Life in the US is riskier, from a middle-low income point of view, than in more social-democratic countries.

More taxes, less death, that's what I say.


Posted by: LizardBreath | Link to this comment | 11- 1-07 3:30 PM
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178: Sure, but there are systemic reasons why wealth in america is both more uneven, and accelleratingly so, than most (all?) `western democracies'. Some of the policy effects can be understood, surely, and perhaps modified without just deciding to become France (or whatever a good example will be). Particularly on the issue of lobbying effect, it's pretty clear that there has been some successful construction of bills that benefit a tiny, tiny minority of individuals at the expense of everyone else, and there really isn't any good reason for this.


Posted by: soup biscuit | Link to this comment | 11- 1-07 3:32 PM
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The average person here has a pretty kick-ass life in the scheme of things.

Agreed; I said that a few days ago. But as LB's saying, the scheme of things is crappy, man; fuck yes I'm doing great because I can serve my kid more than he can eat and throw away what he leaves on the plate. But that doesn't mean that I have any retirement savings, that I'll be able to pay for him to go to college, or that we could replace this car if it broke down without going into debt.

175: I've read a lot of stories about people who had supposedly good health insurance that found, when something godawful happened, that that "lifetime cap" kicked in faster than they expected.


Posted by: bitchphd | Link to this comment | 11- 1-07 3:32 PM
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179: yeah, but that's bullshit. At a system wide level, it's ok to decide you don't care about hurting their feelings by pointing out that keeping up with the joneses is moronic. It's ok if they lose small.


Posted by: soup biscuit | Link to this comment | 11- 1-07 3:33 PM
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Social democratic policies, anyone?

Word. I consider myself a moderate social democrat--moderate in the sense that I think, for example, that certain aspects of certain European welfare states should be rolled back in the name of efficiency. I'm speaking here, for example, of labor market practices that retard innovation and flexibility where a more efficient intervention could accomplish the same goal at less dead weight cost. The Netherlands and Denmark are both pretty good examples of how to do social democracy right.


Posted by: Knecht Ruprecht | Link to this comment | 11- 1-07 3:35 PM
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183 b) Yup. Health care in this country is a mess. We should just co-opt Canada's system lock, stock, and barrel --- then tweak it a bit and infuse a bit of cash.


Posted by: soup biscuit | Link to this comment | 11- 1-07 3:36 PM
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Particularly on the issue of lobbying effect, it's pretty clear that there has been some successful construction of bills that benefit a tiny, tiny minority of individuals at the expense of everyone else

This is where the concept of social democracy as promoted by LB in 181 scares the shit out of me. a certain amount of rent seeking is to be expected, by why must our Congresscritters sell themselves so cheap? The moral hazard, not of the user, but of the dispenser of funds is what scares me about more redistributive schemes.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 3:38 PM
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I don't see how to cure this particular disease

Universal health benefits would make an enormous difference. It's a lot easier to be poor if you can send your kids to school (check; we've got that), get around town (most places have at least *some* kind of public transit, even if it's shitty), feed/house them (we have bare bones plans for this stuff but need to do much better), and take them to the doctor (right now, nope, can't do that). We've got social security.

I'd say, second to health care, improving public transit and addressing the cost of college education would be the other adjustments that would make the biggest difference. In that order, because being able to see the doctor and get around town would make a huge difference in people's ability to live frugally, hold on to jobs, and get by on social security payments alone once they retire.


Posted by: bitchphd | Link to this comment | 11- 1-07 3:40 PM
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According to the National Center for Children in Poverty, here is a chart of what people need to meet their "basic needs" in a few places.

Huh, that's funny. I grew up in their example suburb, and I really don't know how they got that kind of expense from the place, unless they focused on the rich side of town that really should belong to our neighboring suburb (which constantly wins "Where you should raise your child!" type awards and is quite, quite loaded). I should look up what they consider "basic needs" as well, because those numbers just look high in general for the places they picked, apart from NYC, about which I'll believe nearly anything relating to cost.

Anyway, LB and soup address my main point, which is that the majority of Americans are comfortable, or at least feel that way. And for the purposes of convincing voters, the latter may as well be the former. The important thing is that even people in the middle class could get severely screwed by (rare, quite quite rare) life events that suck up massive amounts of cash (i.e. lack of security), and that's what we need to convince people of in order to gain support for an agenda of risk-mitigating legislation such as universal health care, solid and more nationally uniform education, and decent means-tested pensions.

Trying to convince the average American, who believes his or her self to be doing quite well, that they are actually uncomfortable and almost certainly on the perch of doom is not exactly a vote-getter, especially when it turns out to frequently be incorrect.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 3:41 PM
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187: because obviously nobody has figured out how to do this in a way that doesn't avoid such moral hazard, for the most part? The US is far worse about this now than some countries with social democratic policies. Are you suggesting that this is a problem with national character, and more socially democratic policies will amplify it? Or can we learn from countries where it is working (and hopefully address shortfalls along the way)


Posted by: soup biscuit | Link to this comment | 11- 1-07 3:43 PM
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184: But several people have mentioned that standards of living evolve, vary by location, etc. "Keeping up with Joneses" is not so different from "reasonable expectations." It's not so much a problem of hurting feelings as getting people to sign off.

B talking about 44K reminded me that at one point some Dem-associated fink tank noted that a subset of middle class people worried about Dems coming after their income b/c (a) at around 66K, they were doing OK, (b) they felt they needed it all and couldn't afford new taxes, and (c) recognized themselves as middle-class (or maybe better). And, as I remember, this remains true as you go up the HHI scale. That's why you see a series of tax plans aimed at (IIRC) taxes on incomes greater than 500K. I'm not sure how populist defining the little guy as 500K sounds--and I'm really not the guy to check with on economic populism--but I wonder how stable such an economic coalition is.

I think this is a pretty hard problem.


Posted by: SomeCallMeTim | Link to this comment | 11- 1-07 3:44 PM
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I don't think that's the heart of the matter. The two founders of google are not more educated or skilled than the next two or three layers of employees in any meaningful sense. They were phenomenally successful in a form of winner-takes-all competition. This is not to begrudge them their success; they have created enormous value and are being rewarded for it by the marketplace. But to call it a function of differential education and skills is a misdiagnosis.

Indeed, the fastest growing equality gap is not between the top 10% and the bottom 90%, or even the top 1% and the bottom 99%, but between the top .01% and the bottom 99.99%.

If you're talking about people with $5M in stock options, or indeed the richest .01% of Americans, you aren't talking about the two founders of google. They're probably in the richest .00000001% of Americans. If you expand it a few levels down, you end up with at least a couple thousand millionaires, a large majority of whom are highly educated software engineers. And it's these highly skilled and educated engineers that drive the excessive profit/employee ratios that keep the salaries and stock price high, and that drive up the price of housing in the Bay Area, and so on.


Posted by: Jake | Link to this comment | 11- 1-07 3:44 PM
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Trying to convince the average American, who believes his or her self to be doing quite well, that they are actually uncomfortable and almost certainly on the perch of doom is not exactly a vote-getter,

You're a kid, right? (I'm not meaning to be snotty, just checking life-stages). IME, people with kids to support and aging parents are very ready to see themselves as on the perch of doom, even when they're making decent coin, for exactly the security-related reasons we're talking about. I don't think people need to be convinced they're insecure, I think they feel it.


Posted by: LizardBreath | Link to this comment | 11- 1-07 3:46 PM
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I think 189.3 nails it in a political sense.


Posted by: Jake | Link to this comment | 11- 1-07 3:48 PM
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191: Sort of. The problem with basing an entire economy on overconsumption is that you have to get most people to buy into a percieved need that is, in fact, false. I'm fine with reasonable expectations, but for some chunk of americans, that means a downward adjustment. Such is life.

Yes, it's a hard problem. Thing is though, part of it is due to flawed assumptions. So if you don't solve the problem one way, eventually it will solve itself (and you probably won't like it when it does)


Posted by: soup biscuit | Link to this comment | 11- 1-07 3:48 PM
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Universal health benefits would indeed be great, but as long as health care in the US is largely fee-for-service, the cost will be unspeakable. There are other factors which make healthcare here expensive (high drug costs caused by IMO too-stringent FDA thresholds for efficacy, litigation), but I think that's the biggest. Reforming fee-for-service, then making the now cheaper care available to many more or to all would make sense to me.


Posted by: lw | Link to this comment | 11- 1-07 3:50 PM
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196: see 186. Globally speaking, it's a much better system. The things that are wrong with it are easier to fix, too. Which doesn't mean they are easy.


Posted by: soup biscuit | Link to this comment | 11- 1-07 3:54 PM
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High drug costs are caused by market-will-bear considerations and drug company control of government policy. The same drugs are cheaper elsewhere.


Posted by: John Emerson | Link to this comment | 11- 1-07 3:55 PM
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They're probably in the richest .00000001% of Americans

Which would make them, collectively, about 0.03 persons.


Posted by: Brock Landers | Link to this comment | 11- 1-07 3:56 PM
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They're very small.


Posted by: LizardBreath | Link to this comment | 11- 1-07 3:57 PM
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soup, I'm probably down with you on adopting single-payer health care, though every now and again I think that a multi-payer model like the one in the Netherlands wouldn't be bad.

I will say that I'm not quite ready to sign up for medicare yet, because its mental health coverage is really bad. The reimbursement rates for psychiatrists are ridiculously low and the copay rate is 50%. The standard copay is 20%. I think that this may apply to inpatient hospitalization too.

Pete Stark is trying to change this and to lift the lifetime cap on inpatient services.


Posted by: Bostoniangirl | Link to this comment | 11- 1-07 3:58 PM
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Every man whose ox is gored is a social democrat. Universal healthcare is this year's "a chicken in every pot, two cars in every garage, hot and cold running ice cream in every treehouse," but it seems unlikely to come about without exceptions to its "universal" scope to exclude the despised minorities and undeserving poor that the European social democracies did not have in substantial numbers during the post-war establishing years.

Not an observation made with an approving nod, please note.


Posted by: Flippanter | Link to this comment | 11- 1-07 4:01 PM
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Identifying a compound that might work is cheap, can be done anywhere. Proving it to the FDA's satisfaction costs ~ 1B dollars per compound, must be done here to sell the drugs here. Drug company profits are ~ 20%, marketing costs another slice, but order-of-magnitude gains come only by changing the regulatory regime.


Posted by: lw | Link to this comment | 11- 1-07 4:01 PM
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Which would make them, collectively, about 0.03 persons.

Damn, forgot the implicit 1/100th due to the %. OK, richest .0000013% of Americans. Still not as significant of a social impact as the rest of the company.


Posted by: Jake | Link to this comment | 11- 1-07 4:02 PM
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You're a kid, right?

Yeah, pretty much. Only two years out of school and ages from anything resembling responsibility.

But the research that I'm referring to is mostly stuff like this. Whenever they ask Americans to assess "So, how's life going all in all?", well over half the individuals say "pretty good!". From eyeballing these results, typically being less than satisfied with your life puts you in the bottom 15% of those surveyed. The evidence is very strong that we're overall an optimistic and happy folk. We just also have the compassion to help those in that bottom 15-20% and the understanding that we could end up there ourselves one day (though the chances may be low), and I think that's where the support for progressivism arises.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 4:03 PM
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205: Polling like that is wildly sensitive to precise questioning -- saying that your life is pretty good is far from saying that you aren't afraid of what's going to happen next week.


Posted by: LizardBreath | Link to this comment | 11- 1-07 4:06 PM
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Estimates for the number of uninsured in America usually run from 40 million to 60 million. While a huge number, this is less than 20% of our population.

Recall that on most calculations, someone who is (say) self-employed and has catastrophic-only insurance counts as insured. Such a person is nominally insured, but in a very, very precarious position.


Posted by: Cala | Link to this comment | 11- 1-07 4:08 PM
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206: Dunno. This is the same thing that happened in '93/'94. People really were worried about HC then, but it turned out to be relatively easy to convince them that letting the govt. play around with it would make it worse, not better. And I think that ends up holding for the larger set of social democratic institutions.


Posted by: SomeCallMeTim | Link to this comment | 11- 1-07 4:10 PM
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207: But a significant number of those people are not "long term uninsured," as I recall.


Posted by: SomeCallMeTim | Link to this comment | 11- 1-07 4:10 PM
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And while the self-employed aren't a huge demographic, the number of people with truly shit-ty insurance is pretty big. A lot of plans are shot through with caps and holes.


Posted by: Brock Landers | Link to this comment | 11- 1-07 4:12 PM
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210 to 207.


Posted by: Brock Landers | Link to this comment | 11- 1-07 4:12 PM
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209, 210: It's not a big demographic, but thinking 'the other 80% all have comprehensive HMOs through their jobs' is not the right way to think about 20% being uninsured. What happens when you retire as a self-insured (forget the self-employed) person?

At least one thing that will help is all these boomers getting older. We can rely on that generation to be self-interested, and some of them will surely get cancer.


Posted by: Cala | Link to this comment | 11- 1-07 4:14 PM
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203: There are reasons for the testing, however.

As I understand, the cheap drugs in Mexico and Canada are the same ones, tested the same way, that we buy here.


Posted by: John Emerson | Link to this comment | 11- 1-07 4:17 PM
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Further to 205: Which one of us is right on this is a terribly important issue politically. Republicans have been very successful framing it your way (not calling you a Republican, at all, just pointing out what I think the implications are): "You, the voter, are doing okay, taking care of yourself. You're not one of those poor people who's ever going to get a benefit from the goverment. Which means that every dime the government takes from you goes to someone else -- you lose, and you don't get anything back. Now, you work hard, and you need every penny you earn, so social programs and taxes are the enemy. Vote for me and I won't give your hard earned money to other people."

If you talk to someone who feels economically insecure, and tell them that they're doing fine, and that they have the compassion to help the really poor people who actually need the money, they aren't going to.

I think what works better is telling the same economically insecure people that we're all in this together. You pay taxes when you have the money, you get benefits when you don't (roughly), and no one knows which side of the line they're going to be on in the future. Social democracy isn't charity to people in a different situation than your own, it's solidarity with people like yourself.


Posted by: LizardBreath | Link to this comment | 11- 1-07 4:18 PM
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Cala, But then they'll be eligible for medicare and won't need to worry about other people.


Posted by: Bostoniangirl | Link to this comment | 11- 1-07 4:19 PM
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I don't know what catastrophic insurance would technically mean, but if it means a high-deductible insurance with no cap, I'd consider that to be alright (though a pain in the ass) for most people. What I think truly defines shitty insurance is caps on coverage.

A crappy high deductible plan with a cap combined with a nasty accident or horrible illness could leave you with $10,000 in medical bills, which is steeper than I'd like to pay, but will not cripple you for life. A crappy plan with a coverage cap combined with a super nasty accident or horrible illness and some bad luck can result in hundreds of thousands in medical bills above the cap, and then you're fucked for life.

Mind you, this is mostly meant to be a matter of degree of shittiness. Deductibles this high and terrible co-pays almost certainly result in suboptimal amounts of medical care and still dick over the people unlucky enough to end up with thousands in medical bills, which are not great results. I'm just saying that selling medical insurance coverage with caps should damn near be a crime, since it's fundamentally useless in the situation where everyone needs insurance the most.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 4:22 PM
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I'm just saying that selling medical insurance coverage with caps should damn near be a crime

Fixed. The truly rare catastrophic liabilities are when insurance makes the most sense, and when the moral and economic case for risk spreading is at its strongest.


Posted by: Brock Landers | Link to this comment | 11- 1-07 4:26 PM
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Isn't effectively all car insurance sold with coverage caps? I don't find that particularly horrendous...


Posted by: Jake | Link to this comment | 11- 1-07 4:27 PM
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Why not?

(And yes, effectively all insurance on anything is sold with coverage caps. It shouldn't be.)


Posted by: Brock Landers | Link to this comment | 11- 1-07 4:29 PM
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Prohibitively expensive insurance, and poor insurance, especially insurance that cancels you when you get sick are part of the problem.

I really hate this argument. You're always having to knock down phony horror stories and phony stats, the worst of socialized medicine is compared to the best American care, and somehow their anecdotes are real but ours aren't. And so on. Almost always there's a competitive-individualist / Social Darwinist / anti-government ideology on the opposing side, and you can't really argue someone out of that, so I usually just fling insults at the motherfuckers.

I realize that there really are real questions in play, but the big issue is really just pushing past the bitter-end ideological / interest-group opposition. The technical points aren't my concern, much less my competence.

Related, I just found a definition of "moral hazard":

Moral hazard is related to asymmetric information, a situation in which one party in a transaction has more information than another.

The moral hazard you always hear about is ordinary people presuming on government benefits or insurance companies, but when a company releases what it knows to be an unsafe or defective product but conceals and suppresses the truth, that's moral hazard too, in a big way. But somehow consumer watchdogs are never touted by economists as crusaders against moral hazard, because they increase business costs, and economists work for business, not for consumers. I'm sure I've heard of moral hazard a hundred times without that kind of example being mentioned.


Posted by: John Emerson | Link to this comment | 11- 1-07 4:32 PM
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If you happen to be involved in some catastrophic accident (that may or may not be your fault), and the damages are $1m, and your auto insurance has a $250k limit, you can easily be bankrupt.


Posted by: Brock Landers | Link to this comment | 11- 1-07 4:32 PM
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Further to 205: Which one of us is right on this is a terribly important issue politically.

I agree entirely. That's why I'm being a little bitch about what would otherwise be just another rhetorical exaggeration by B. I'll explain a little more of my side once I get home, since I have a convenient chance to slip out of the office right now, but we're pretty close to the same on this issue. I just feel that people are pretty happy and fairly sure that they're not super likely to end up screwed, plus they'll always have the Republican side pushing the "you're fine!" narrative, so it requires a slightly different approach to selling our risk-sharing package of togetherness.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 4:32 PM
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Because insurance policies with huge coverage amounts cost a lot of money, there's no reason to suspect this would change, and I think it makes more sense to allow the "cover the more plausible cases with the understanding that sometimes the bear , well, he eats you" policies to exist rather than forcing people into a gold-plated-insurance-or-none-at-all situation.


Posted by: Jake | Link to this comment | 11- 1-07 4:34 PM
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That's not moral hazard, Emerson, that's asymmetric information (which moral hazard depends no but is distinct from)


Posted by: Brock Landers | Link to this comment | 11- 1-07 4:34 PM
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This is our difference:

I just feel that people are pretty happy

Absolutely.

and fairly sure that they're not super likely to end up screwed.

I don't think they're sure of that at all.


Posted by: LizardBreath | Link to this comment | 11- 1-07 4:35 PM
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what would otherwise be just another rhetorical exaggeration by B

And sorry, I don't mean this to be snotty. I just mean... well... you do kinda do this a lot, and have admitted such. And typically it's a fine, often effective move. I just feel this particular issue doesn't work well with it.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 4:35 PM
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They seem fairly symmetrical, but highly symmetrical in terms of how much you hear economists ranting about them.


Posted by: John Emerson | Link to this comment | 11- 1-07 4:37 PM
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"highly asymmetrical in terms of how much you hear economists ranting about them."


Posted by: John Emerson | Link to this comment | 11- 1-07 4:39 PM
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Choice of the term "moral hazard" is creepy too. Economists seem to be proud of their value-freedom, except when they see some poor asshole getting more than he deserves.


Posted by: John Emerson | Link to this comment | 11- 1-07 4:41 PM
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223: no, they shouldn't. They do now, but that's because they're priced based on "what the market will support", not on a actuarily correct basis. We're talking about truly rare catastrophies--which, while expense, are isolated enough that over a large population that are nearly nothing. The issue is that it is very hard to get someone to voluntarily enter a contract with you in which they assume literally unlimited risk--in which they could truly lose everything in a worst case scenario. But for fuck's sake, *you're* in that position right now, and the whole point is that it's efficient and fair to spread that risk around. If insurers were *required* to accept this sort of risk (perhaps with adequate reinsurance to prevent insurance bankrupties), the pricing would become much more competitive--and much closer to actuarial pricing.


Posted by: Brock Landers | Link to this comment | 11- 1-07 4:42 PM
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229: Not that anyone around here would ever judge what others deserve.


Posted by: Flippanter | Link to this comment | 11- 1-07 4:48 PM
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231: non-responsive, Flippanter. I am not value-free.


Posted by: John Emerson | Link to this comment | 11- 1-07 4:49 PM
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There's no end of economists arguing against bailouts of mortgage lenders on moral hazard grounds these days. As well they should.


Posted by: Jake | Link to this comment | 11- 1-07 4:52 PM
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221: Brock, when I lived in California I had either the minimum level or just above the minimum level of liability insurance. My civ pro who ages ago had worked in tort stuff mostly said that the first thing that we should do once we gaduated and had real incomes and assets was to up our car insurance coverage.


Posted by: Bostoniangirl | Link to this comment | 11- 1-07 4:54 PM
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As I understand, the cheap drugs in Mexico and Canada are the same ones, tested the same way, that we buy here.

Free riders


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 5:20 PM
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Are you suggesting that this is a problem with national character, and more socially democratic policies will amplify it?

Yep. For the most part, we are talking about numbers that are double or triple any individual European country. Tiny percentages of the US economy would yield an individual untold wealth, thus moral hazard.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 5:25 PM
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77

"Exactly right. Alligning the interest of management and owners. Companies don't exsist to employ people and give them benefits, they exsist to make money for the owners. Of course, in order to attract workers to do the things you need them to do you must pay them and give them benefits. Stock options as a part of a compensation package take some of this burden off of current cash flow and put it on the open market."

Actually the main purpose of stock options in most cases is to allow management to pay itself exorbitant salaries without it being as obvious as it would be if they were paid in cash. The "aligning interests" stuff is just propaganda.


Posted by: James B. Shearer | Link to this comment | 11- 1-07 5:28 PM
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You know, Shearer, it's not that I agree with you often, but when I do I like the way you put things.


Posted by: LizardBreath | Link to this comment | 11- 1-07 5:32 PM
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What LB says in 214.

The "charity to poor people" concept works wonderfully for the politics of resentment.


Posted by: Invisible Adjunct | Link to this comment | 11- 1-07 5:34 PM
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220

"Moral hazard" has a specific technical meaning. If you have insurance against a certain risk you are apt to be less diligent about avoiding that risk. For example if you have fire insurance you may be less careful about clearing brush from around your house. This is of concern to insurance companies for obvious reasons. I believe asymmetric information is different.


Posted by: James B. Shearer | Link to this comment | 11- 1-07 5:34 PM
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They're not exactly the same thing, but they're related. The classic asymmetrical information situation is used cars -- the seller knows much more about what the car is worth than the buyer. Moral hazard, in the insurance context, refers to the actions the insured might take to that make themselves 'worth less' as a customer after they're insured, like not clearing brush. If the insurance company had all the information you do about your brush status, and could adjust your insurance costs on that basis (if information were symmetrical, that is), then moral hazard wouldn't be a problem.


Posted by: LizardBreath | Link to this comment | 11- 1-07 5:40 PM
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221

"If you happen to be involved in some catastrophic accident (that may or may not be your fault), and the damages are $1m, and your auto insurance has a $250k limit, you can easily be bankrupt."

I believe in practice this is unlikely. As long as your insurance coverage is reasonable compared to your assets most plaintiffs will settle for the insurance. Similarly even if you have no insurance most plaintiffs would settle for 90% of your assets. Painful to be sure but not bankruptcy. Disclaimer: I am not a lawyer and have no practical experience in such cases.


Posted by: James B. Shearer | Link to this comment | 11- 1-07 5:46 PM
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"... If the insurance company had all the information you do about your brush status, and could adjust your insurance costs on that basis (if information were symmetrical, that is), then moral hazard wouldn't be a problem."

I don't think this is correct. Information can be perfectly symmetric and the insurance company can charge an actuarially sound rate (knowing you are going to be less diligent about avoiding the hazard than you would be without insurance) but moral hazard is still a problem because the brush doesn't get cleared.


Posted by: James B. Shearer | Link to this comment | 11- 1-07 5:59 PM
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Po-Mo, no offense taken. I happen to think LB's right--though whether people say, in a given moment, "yeah, we're doing great" or "fuck, I don't know how we get by" depends a *lot* on how you frame the question. I keep thinking of the convo I had with my dentist--a 33yo woman who owns her house and business, for chrissakes--who was saying, as Tim pointed out above, that she can't afford more taxes. If you tell her she's not doing okay, she'll get her back up--she's working her ass off, she owns her own business and home, she's doing great, thankyouverymuch--but if you approach it from the "practically everyone has trouble making ends meet sometimes" angle, I bet you'd get her attention.

The key is to convince people like her that universal health care isn't going to cost *them* more. No one really objects to the idea of making sure that poor people can see doctors (except for some assholes, and it's fairly easy to demonize them), but no one wants to pay money for it.


Posted by: bitchphd | Link to this comment | 11- 1-07 6:04 PM
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No, under those circumstances there isn't a moral hazard problem. If the insurance company is charging me a fair rate for my true risk including my non-brush-clearing behavior, I don't have an incentive to clear less brush than if uninsured.

(Well, that's not exactly true. If I'm risk averse, I'll engage in riskier behavior when insured than when uninsured even if it's properly priced. But that's not moral hazard, that's just insurance working properly.)


Posted by: LizardBreath | Link to this comment | 11- 1-07 6:07 PM
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I'll explain a little more of my side once I get home, since I have a convenient chance to slip out of the office right now, but we're pretty close to the same on this issue.

Now that I'm home and have finally convinced myself to go workout, I'll admit that I lied about explaining myself further.

I guess I feel that there's a softer narrative, which explains that people in America are generally doing well, but there is a large number who are screwed. When we help them, we're also helping the middle class and fairly wealthy people who sometimes end up with catastrophes befalling their family. We help employers and fellow employees, who have healthier, more productive coworkers and employees while ditching the wage vs. benefit distortions caused by the current tax system. Middle class citizens who want to visit the doctor because their back has been aching, or their cough isn't clearing up after a couple weeks, or they need a prescription written, can do so without great expense so they don't have to risk a potential bad condition becoming terrible. In other words, most people aren't screwed now, but most people's lives could be made better.

Of course, to do this argument justice, I'd also have to delve into the tax-side modifications that answer a lot of the middle-class "What? And pay for other people? Fuck those freeloaders!" arguments. And, well, that's a different issue from the one in this thread, and I finally convinced myself to go work out instead.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 6:11 PM
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After seeing 244, it seems that B has just made extremely arguments. So I will now clap my hands together in a satisfied way and consider this comity.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 6:14 PM
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245

I am assuming the insurance contract is for a fixed term at a fixed price. Then even with symmetric information moral hazard is a problem.


Posted by: James B. Shearer | Link to this comment | 11- 1-07 6:21 PM
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235:
free riders

You hear this all the time, but it's pretty much bullshit.


Posted by: soup biscuit | Link to this comment | 11- 1-07 6:48 PM
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it seems that B has just made extremely arguments.

That's nothing new.


Posted by: Cryptic Ned | Link to this comment | 11- 1-07 6:51 PM
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You hear this all the time, but it's pretty much bullshit.

I do not work for Pharma, so I may be buying their BS, but as I understand it drugs are priced to make a return on the US market alone, since there is no guarantee that a foreign govt will allow the sale. The durn furners then negotiate a marginal cost price, i.e. paying for the cost of the additional pills, but not including the sunk costs paid by the domestic market. Thus, the foreign unit cost is much lower, and more profit for the drug manufacturer for the addt'l sales.


Posted by: Tassled Loafered Leech | Link to this comment | 11- 1-07 6:58 PM
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it seems that B has just made extremely arguments.

That's nothing new.

There was supposed to be a "similar" in there for the adverb to modify. Crap.


Posted by: Po-Mo Polymath | Link to this comment | 11- 1-07 7:17 PM
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251: drugs are priced to make a return on the US market alone

The problem with this rationale for resenting drug prices elsewhere, leech, is that it assumes that only cost of supply affects pricing. Pricing is also driven by demand. When that is the case, more people will actually get the drugs when pharma is allowed to charge different prices in different markets. At one global price, more Americans would get the drug but so would many fewer people in other countries.

Other objections to drug pricing may hold, but your line of reasoning doesn't really work.

237: The "aligning interests" stuff is just propaganda.

Shearer completely nails it here.

245: If I'm risk averse, I'll engage in riskier behavior when insured than when uninsured

Umm, LB... this is the textbook definition of moral hazard, no?


Posted by: cw | Link to this comment | 11- 1-07 7:59 PM
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cw, I think that you agree with Leach. If we lowered the price to what the poorest people could pay worldwide, then Pharma wouldn't be able to pay off its sunk costs. The idea that we could all negotiate down to what all other countries pay might not work, in practice, without some other countries having to pay more. Brazil might get the fairly cheap price, but France and Canada might find their prices going up. This may be big Pharma's BS, but the basic point is that we can't expect to pay the low, low prices that some people pay due to the magical power of bargaining.


Posted by: Bostoniangirl | Link to this comment | 11- 1-07 8:20 PM
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The moral hazard kind of asymmetric information seems to draw enormously much more attention form high-minded economists than the consumer fraud kind of asymmetric information, above all when the defrauder is big-time (Big Pharma) and not small time (used car salesman). Economists really tend to be shits (present company excepted on a case-by-case basis).

Same with the vigilance about the problems of socialized medicine and indifference to the problems with the present system, including spotlighting British anecdotes and pooh-poohing American anecdotes.

Same for the snark about free riders. If what was said is true, the US is serving as the workhorse for the rest of the world and paying for drug development, and should quit doing that. But I don't believe it. Big pharma milks everyone as much as they can, and they can milk the US a lot because the US governmental system has failed.


Posted by: John Emerson | Link to this comment | 11- 1-07 8:56 PM
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Sorry, my handle change has not been consistent across computers.

cw, I think that you agree with Leach.

Maybe I missed that his sarcasm indicated he thinks the opposite. BG, I think you and I agree on outcomes but everyone is arguing like price is determined on some cost plus basis. It also has to do with the demand in a country, which is shaped by local institutions. Like John said: "Big pharma milks everyone as much as they can, and they can milk the US a lot because the US governmental system has failed."


Posted by: spaz (formerly cw) | Link to this comment | 11- 1-07 9:25 PM
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256: It's probably a bit of both.


Posted by: Bostoniangirl | Link to this comment | 11- 1-07 9:30 PM
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253

"245: If I'm risk averse, I'll engage in riskier behavior when insured than when uninsured

Umm, LB... this is the textbook definition of moral hazard, no?"

No, this is a different effect. Suppose I am thinking about starting up a gold mine but I am worried that in the time it takes to bring the mine into operation the price of gold will plummet causing me to go bust. I can insure against this possibility by selling the gold I expect to mine on the futures market. Any moral hazard here is insignificant but the availability of insurance (in the form of a futures market) makes me more likely to proceed.


Posted by: James B. Shearer | Link to this comment | 11- 1-07 9:31 PM
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258: No, this is a different effect.

Well, not according to these definitions of moral hazard:
Wikipedia
& a game theory text:

"The term moral hazar darises in insurance and refers to the fact that a person who has insurance coverage wil lhave less incentive to take proper care of an insured object than a person who does not."

Unobservable behavior plus conflicting interests = potential for moral hazard


Posted by: spaz | Link to this comment | 11- 1-07 10:09 PM
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Oho, Shearer! You're taking riskier to be a positive attribute of behavior. Clever. Dollars to donuts that's not what LB meant. Interesting example, but that's also not what moral hazard refers to.


Posted by: spaz | Link to this comment | 11- 1-07 10:16 PM
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One of the arguments for the welfare state and socialized medicine is just that, though: people will not stay on at unstimulating jobs for the benefits, but will take chances.

The problem economists see is that some of these chances will be primarily personal adventures and not contributory to the economy, but this is because for economists people exists only to work, buy and sell, and individual freedom to work less and engage in non-work activities is a detriment. Sandwichman at Maxspeak has made this point his theme.

The market has helped people escape from feudalism, serfdom, and to a degree from The State, but economists and libertarians do not want people to escape from the economy by any method other than becoming wealthy by work and investment. This is one of the most fundamental critiques of libertarianism -- they're almost all market-worshippers.


Posted by: John Emerson | Link to this comment | 11- 2-07 8:07 AM
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cw/spaz: No, insuring against risk and so allowing yourself to engage in riskier behavior than you would without insurance is the proper purpose of insurance. (Say, you have theft insurance for your jewelry, so you can wear it to parties rather than keeping it in a safety deposit box.) Moral hazard comes into play when you engage in riskier behavior than the insurer knows about, and so your insurance is cheaper than it should be actuarially. (And Shearer -- if the insurer and the insured have literally the same information including what the insured is likely to do in the future, then the fixed-term fixed-price thing doesn't get in the way of proper pricing.)


Posted by: LizardBreath | Link to this comment | 11- 2-07 8:13 AM
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TLL in 251, I think JE is correct in 255.

Clearly there are markets in which drugs are heavily subsidized (they get a lot of expired or near expired stuff, and much of it is donated/tax write off, too). But we were talking about Canada and Mexico. I don't know much about Mexico's market at all, but Canada has a regulatory and pharmacy system that is completely seperate from FDA approval etc. (and probably more efficient) and the information I have suggest the single major factor in price difference between Canada and the US is bargaining position, *not* sunk costs Basically, Canada negotiates very large purchases and insists on a discount for it. Clearly Canada couldn't support the same sort of development on 1/10th of the population, but that's a separate issue. I've heard all the pharma arguments too, but they don't hold together for me. The amount of money they spend on lobbying (both politicians, and physicians) is huge, and appears to be effective at maximizing their profit margin, as JE notes.


Posted by: soup biscuit | Link to this comment | 11- 2-07 8:24 AM
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When I worked at a medical bookstore, one day a single drug rep came in and bought an essential $200 medical reference book for around 20 MDs.


Posted by: John Emerson | Link to this comment | 11- 2-07 8:34 AM
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262

"... (And Shearer -- if the insurer and the insured have literally the same information including what the insured is likely to do in the future, then the fixed-term fixed-price thing doesn't get in the way of proper pricing.)"

The pricing is ok but there still is a problem. Suppose by clearing brush you can reduce your annual fire hazard risk from $2000 to $1000. Suppose the effort involved represents an annual cost to you of $500. Then you will clear the brush which is the socially optimal thing. Now suppose you buy insurance. The company knows you will blow off clearing the brush if you have insurance so it charges $2000 a year. And in fact with insurance you have no incentive to clear the brush. So the annual cost to society of the fire hazard has increased from $1500 to $2000.

Perhaps in this case in some frictionless Econ 101 world the insurance company would charge $1500 and clear the brush itself leaving the anuual fire hazard cost to society unchanged but in the real world this is often impractical.


Posted by: James B. Shearer | Link to this comment | 11- 2-07 10:20 AM
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265: I don't think that works. You said that the cost to me of clearing the brush is $500, but for some reason I'm willing to accept a $1000 increase in the cost of my insurance so that I can avoid clearing the brush. That doesn't make any sense -- if I'm willing to pay $1000 to avoid clearing brush, then the cost to me of clearing the brush (including everything, distaste for the work, and so on, not just cash outlay) has to be more than $1000 by definition, no? At which point there's no loss to society.

If the real cost of clearing the brush was $500, I'd clear it, take the cheap insurance, and pocket the difference happily.


Posted by: LizardBreath | Link to this comment | 11- 2-07 10:27 AM
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266

"If the real cost of clearing the brush was $500, I'd clear it, take the cheap insurance, and pocket the difference happily."

But the cheap insurance is unavailable because both you and the company know you will blow off clearing the brush if you have insurance and there is no practical way of enforcing a requirement that you clear the brush. You have the choice between expensive insurance or no insurance and buy the expensive insurance because you are risk adverse.


Posted by: James B. Shearer | Link to this comment | 11- 2-07 10:36 AM
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OK, so we agree that insurance can enable efficient risk-taking, but that it might reduce incentives to take reasonable precautions, right? The latter, when the insurer cannot observe or guarantee the behavior, is what is typically referred to as moral hazard.


Posted by: spaz | Link to this comment | 11- 2-07 10:50 AM
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268

That seems right.


Posted by: James B. Shearer | Link to this comment | 11- 2-07 11:02 AM
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267-269: That's still an asymmetrical information problem. Given the facts described, I, the insured, want to clear brush and get cheap insurance for it. That's my best outcome. The insurance company won't sell me the cheap insurance, though, because it doesn't trust me to actually clear the brush if I say I will, and doesn't have the information about my future actions that would give it that trust. If I could truthfully say to the insurance company "I will clear brush if you sell me cheap insurance" and the insurance company could know I was telling the truth, then they would sell me the cheap insurance.

Moral hazard exists, but it really is closely linked to asymmetrical information problems. But everyone here's agreeing on the facts, we're just talking about names.


Posted by: LizardBreath | Link to this comment | 11- 2-07 11:26 AM
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Moral hazard exists, but it really is closely linked to asymmetrical information problems.

I think part of the difference might be what you, the purchaser, are assumed to know at the time of product purchase. I think you don't need to believe you'll behave crazily at the time of purchase for there to be a moral hazard. For the asymmetrical information problem, I think you are assumed to know something the other side does not at the time of purchase.


Posted by: SomeCallMeTim | Link to this comment | 11- 2-07 11:33 AM
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271: For the asymmetrical information problem, I think you are assumed to know something the other side does not at the time of purchase.

Yeah. Moral hazard is better described as connected to the ability to make binding commitments; if you can't commit to clearing your brush, no one will sell you insurance on that basis. But if insurers had full information about your intent at the time of contracting, they'd take your word about the brush-clearing.


Posted by: LizardBreath | Link to this comment | 11- 2-07 11:43 AM
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If "inability to make binding commitments" includes your inability as a result of not knowing how your future self will behave, I agree.


Posted by: SomeCallMeTim | Link to this comment | 11- 2-07 11:48 AM
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270

Knowledge that they are insured may cause people to fail to exercise reasonable care. That is moral hazard.

People are subject to moral hazard to different degrees. They may know more about the extent to which they are subject to moral hazard than the insurance company does in which case they will be charged an actuarially incorrect rate. That is a result of asymmetric information.


Posted by: James B. Shearer | Link to this comment | 11- 2-07 12:16 PM
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Barring some quibbling about what 'reasonable' means (is it unreasonable not to clear the brush if I'd prefer to pay the higher insurance costs? I don't see why.) that's about right. The two concepts are distinct, but closely related.


Posted by: LizardBreath | Link to this comment | 11- 2-07 12:20 PM
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270

"... If I could truthfully say to the insurance company "I will clear brush if you sell me cheap insurance" and the insurance company could know I was telling the truth, then they would sell me the cheap insurance."

But because of moral hazard most people can't truthfully say that even though it would be to their advantage in this case to be able to make a binding commitment.

272

"... But if insurers had full information about your intent at the time of contracting, they'd take your word about the brush-clearing."

Your intent at the contract signing doesn't matter, what matters is whether you actually follow through once you have the insurance. Note much moral hazard involves actions that are less clear cut and obvious than whether you clear brush or don't. The insured may be completely unaware that their behavior has changed as a result of having insurance.


Posted by: James B. Shearer | Link to this comment | 11- 2-07 12:29 PM
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Behaviour changes are explicit allowed, though, and should be actuarially accounted for.

Example, your great grandmother gives you an heirloom necklace worth as much as your house. You can't sell it for family reasons, but you are really uncomfortable with the idea of wearing it. You can take a policy out on it that only covers theft/fire/etc from a `secure' location, or you can take a policy out on it assuming you'll wear it now and again. The insurance company can offer you different rates. Moral hazard doesn't come into the fact that you might never have worn it in public without the policy.

Moral hazard may come into it if you don't tell the insurance company that after a gala party at a fancy ballroom, you are very likely to drink too much, black out, and end up in some dive bar on the waterfront.


Posted by: soup biscuit | Link to this comment | 11- 2-07 12:37 PM
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277 ---continued. Note the first scenario is a change in behaviour without moral hazard, the second is no change in behaviour and moral hazard.


Posted by: soup biscuit | Link to this comment | 11- 2-07 12:39 PM
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