Monday, March 16, 2009


I've written before that one of our assumptions, that democracy goes hand in hand with free market capitalism, is flawed. They are two systems which really don't have all that much in common, given that one features "one person, one vote," while the other has as its centerpiece "one person, 40 billion votes" (if that person is Bill Gates). The tensions between the two systems become grossly apparent at various times in our history, and I believe one of those times is happening now.

However, there is one critical common factor of democracy and capitalism, and that factor is choice. Each of them gives a sense of choice that is not present in other systems; we can choose any from a number of candidates, and we can choose any from a number of toothpaste varieties. Of course, these are still constrained choice sets, as we see every presidential campaign when the voters of numerous states are presented with no choice at all, the decision already having been made. Even on the consumer side, choices are certainly not infinite. In general, though, we are usually satisfied that we are being given more rein for our selections than, say, people had in the old Soviet Union.

Naturally, choice requires knowledge, and, while we've made great strides toward making that kind of knowledge more available, it is still not clear that we want a gigantic number of choices for every single thing. Most people prefer Social Security to self-directed investments because there are too many options and the information is not 100% reliable (note that this is an inherent quality of anything that requires a forecast; information can never be complete, and has a cost that can exceed its marginal value).

Choice is also confounded by deliberate attempts to obfuscate and blur. We know this to be true in the political sphere and the economic. Misleading campaign ads, puffy advertising - these techniques have converged in modern marketing, which has become, essentially, the science of attempts to influence people's choices, even if the new selection contradicts their ultimate best interest.

What seems hard for people in these turbulent times is taking a consistent stand on one side or the other of the issue of choice. And it's not easy, especially as we each would like to have our own comfort level of choice (a lawyer who deals with health care issues might feel perfectly comfortable making a decision about a medical plan, and would find a national plan restrictive and unsuitable; the factory worker or software developer who is not immersed daily in these details would welcome the simplicity).

But that doesn't mean that we can't have individual clarity on these matters. If you believe that every home buyer made a free choice, that is, he or she was not defrauded, and you believe that choices have deserved consequences, then it's hard for you to support any kind of restructuring or bailout for homeowners.

And that attitude requires you to be consistent. As we see various companies using their federal money to pay bonuses to their employees (kudos for a job well done??), we hear an argument that is commonly made. Many of these employees are not the high-rolling decision makers who brought the world financial system down, they're clerks and secretaries and mailroom employees who happen to have large amounts of their compensation paid as a year-end bonus. Surely they don't deserve to be penalized for their innocent involvement in the scandals of overleverage.

But that argument ignores choice, the very real choice that each of these employees made when they decided to accept the job. Think of the secretary who is deciding between two jobs, one that pays $30K, the other $20K with a typical $20K bonus. We know that the hiring manager will tout that bonus as money in the bank, as something that has never failed to be paid. Choice, however, requires us to see through that argument to the very real possibility that conditions may not permit that bonus to be paid.

So I don't see how we, in effect, bail out that employee by looking the other way on his bonus simply because he doesn't make as big a base salary as someone who made the other choice. It still comes down to a matter of the choices people have made, and where an individual draws the line on how much we protect people from those choices.

Because then we get into a big argument as to which choices are protectable and which aren't, and I'm not real comfortable that we can reach an equitable conclusion. If there are larger considerations (we have to bail out the banks themselves because they are the blood of our global business system), then, fine, let's get that out on the table. If community stability is an argument for helping overextended homeowners, again, let's be upfront about that.

However, cherry-picking certain groups and their choices as being things we should shore up, and others we should not, runs a risk of being political pandering, and creates a very real possibility of social upheaval on a large scale. With everything else we've got on our plate, we sure don't need that.

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