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01/09/2005

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John Hall

"the four countries principally affected--Indonesia, Thailand, India, and Sri Lanka, have an aggregate GDP of hundreds of billions of dollars. A tsunami warning system might cost only a few million dollars a year."

So perhaps the US should have paid for it, since considering our probable eventual contribution to disaster relief, it might have been worthwhile from the American viewpoint alone.

But if we did THAT we get moral hazard issues galore in addition to encouraging even more free-rider behavior.

John T. Kennedy

"Obviously a person who can avoid starvation only by taking a risky job will demand less to assume the risk than a rich person would. That is rational behavior and if we forbid him to take the risk and force him to starve we won't be doing him any favor."

Do you do me a favor by compelling me to manage the risk of another?

http://www.no-treason.com/archives/2005/01/08/good-investment-for-whom/

Corey

"Obviously a person who can avoid starvation only by taking a risky job will demand less to assume the risk than a rich person would. That is rational behavior and if we forbid him to take the risk and force him to starve we won't be doing him any favor."

Wow, so I guess the reason we have hungry kids in America is because we were so shortsighted as to ban child labor!

Are there no workhouses? Are there no mines?

So I suppose you have no problem with the fact that our armed forces are almost entirely made up of poor young people and they are exclusively sent to die by rich folk who dodged the draft?

I guess next time a soldier dies you can tell her distraught mother that, "Well, if we hadn't sent her to Iraq, she would have had to work for $5.15 an hour at WalMart. Here is her last paycheck, don't spend it on beer."

The choice is not between letting the poor take risks or letting them starve. Desperation is NOT the only marketable quality a starving person has, and if it is, then we should all chip in to teach him/her some skills. Then if they still want to be a firefighter for the glory, everyone can sleep at night, not just economists.

Eric Rasmusen

I'm surprised that neither blogger highlights the crucial
difference between home mortgages and student loans: student loans are profitable for the borrower, but home mortgages are not. (Home mortgages are technically a form of investment, but only be prepaying future consumption.)

This strengthens Becker's point that people would be willing to take out large
student loans since they are willing to take out even larger mortgages. The
student loans, unlike the mortgages, actually increase the borrower's ability to
repay, by increasing his future income.

This weakens Posner's point that if lack of bankruptcy protection is
appropriate for student loans, it ought to be appropriate for mortgages too. One
reason it makes a difference is that we might think that because of consumer
ignorance or transaction costs the default rule should be bankruptcy protection
for consumption loans but no bankruptcy for investment loans. Why, then, would
education investment be different from, say, investment in apartment houses? --
Because the purchased capital can be used as security if it is an apartment
building instead of an improved brain.

Of course, not all student loans are for investment. Some do *not* increase
earning ability-- maybe. Loans to people getting B.A.'s in English come to
mind.

But, first, I'm not sure such a degree doesn't have a high material
return. If you looked at English majors 20 years down the line, I would not be
surprised if you found they had, on average higher incomes than business majors.
The reason is not necessarily that English is so useful in making money, but
that it may be that the kind of people who major in English are those with the
intellect and family background to be successful in business.

Second, I think it would be appropriate to deal separately with education that
does not have the high material return that most education does. The easy
justification for most government-aided student loans is that they are loans
that have positive return to the borrower, and are merely filling in for market
failure arising from bankruptcy. This is Becker's main point-- that this is
legitimate, but it doesn't need any government subsidy on top of special
repayment rules. The more difficult justification is that even non-income-
generating education has positive externalities. That may be true, but it surely
depends on the type of education. If so, we should target the subsidy to the
externality-generation kind of education. Training to become a research
scientist has positive externalities; training to become a diesel mechanic
probably doesn't.

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