Friday, March 14, 2003
Miracle Whipped
I was all set to post a long, snarky commentary on the frequent use of the word “miracle” to describe the rescue of Elizabeth Smart. But then I thought better of it. Religion is such an easy target that I feel almost bad taking potshots. So instead, I’ll just point out a couple of obvious facts and let readers draw their own conclusions. (1) Elizabeth Smart is just one among far too many children abducted every year. Many – most? – of them either turn up dead or never turn up at all. (2) People pray for all of these children, especially the ones who get media coverage.Thursday, March 13, 2003
The Peter Pile-On
The Peter Principle posits that in a hierarchical organization, employees will tend to be promoted to their level of incompetence. When you're performing your job well, you will be recognized as competent and be rewarded with a promotion. You will continue getting promotions until you reach a point where you are incompetent, at which point the promotions stop. But because it's often difficult to demote or fire people (especially in bureaucracies), that's where you'll remain.I wish to propose a cousin to the Peter Principle that may apply even in non-hierarchical organizations. I'm not good at the naming thing, but until I hear a better label, I'll dub it the "Peter Pile-On." The idea is that an employee will tend to acquire additional duties until he performs none of his duties competently. As long as you're performing well, others will consider it a wise decision to burden you with more responsibilities. The process will not stop until you're performing your current duties poorly.
Tuesday, March 11, 2003
Menu Correctness
When we fought the Germans during the world wars, patriotic Americans dubbed sauerkraut “liberty cabbage.” Well, now you don’t actually have to be at war with America to lose your menu privileges -- failure to back us 100% in the lead-up to a potential war with someone else is sufficient. The U.S. House of Representatives cafeteria has replaced “French fries” with “freedom fries.”Monday, March 10, 2003
Investing in Death
Amitai Etzioni is troubled by so-called “dead peasant insurance,” meaning insurance policies that companies take out on their low-wage employees. If the employee dies, the employer collects money, and Etzioni considers this to be an instance of “screaming unethical conduct.” Mark Kleiman agrees.This strikes me as a classic example of placing blame on behaviors when it properly belongs on incentives. Etzioni and Kleiman -- I mean, Amitai and Mark -- dang, how do I handle the fact that I know Mark Kleiman personally but I’ve never met Etzioni? Anyway, as both these fellows observe, dead-peasant policies are desirable for the companies because life-insurance payouts are tax-free. If they were not tax-free, there would be very little reason to buy the policies in the first place, because insurance is typically not a great investment. As Julian correctly points out, the total revenues of an insurance company (premiums plus any interest earned) must be greater than total payments, or else the company won’t make any money. For the buyer, that means the expected return on a life insurance policy should be lower than the return on other investments of similar risk. That doesn’t mean nobody should ever buy life insurance. If you’re a risk-averse person looking to hedge against risks, a life insurance policy can make sense. But buying life insurance *purely* for investment purposes is typically a poor idea.
I say “typically” because tax policy can change things substantially. Imagine you’re a firm choosing between two different investments: (a) a regular investment with a higher rate of return, but the returns get taxed, and (b) life insurance for your employees with a lower rate of return, but the payouts are tax-free. Obviously, for a high enough tax rate and/or small enough difference between rates of return, option (b) can become more attractive. A sensible tax policy would treat all forms of investment equally (note: I realize that’s more difficult than it sounds), so that firms’ investment choices would be driven by real risk-and-return differences instead of tax biases.
There’s another possible objection to “dead peasant insurance”: it may encourage a form of moral hazard in which firms deliberately increase their employees’ risk of death. But as Jane Galt argues, this couldn’t be a good long-term strategy, because firms with elevated death rates would just face higher insurance premiums, not to mention legal ramifications. Still, given the (very limited) likelihood of moral hazard, it probably would not be a bad idea to require employers to inform their employees that they are taking out life insurance policies on them.
But the moral hazard issue is not Etzioni and Kleiman’s real objection. Kleiman admits that he objects to “dead peasant insurance policies” on ethical, not economic, grounds. Now, policies like these are certainly morbid, simply because they exploit a tax loophole connected to death, but that’s not sufficient to condemn them. (Funeral parlors also profit on death.) Nor is the fact that the employees and their relatives might become irate about the policies if they knew about them; people get angry about all kinds of things, especially when death is involved, and their anger is not necessarily based on reason.
But let’s suppose, for the sake of argument, that dead-peasant policies are ethically suspect. Is our displeasure properly directed at the firms that are, not surprisingly, trying to reduce their tax burden, or at the tax policies that created this bizarre tax loophole? Every now and then, someone will ask me whether I think “People are fundamentally good” or “people are fundamentally evil.” I always reply, “People fundamentally respond to incentives.” Give people an incentive to do bad things, and more people will do bad things. In this case, the incentive is a financial one, and it is aimed directly at those entities (firms) that we *expect* to respond most readily to financial inducements. Should we be shocked and appalled when they take the bait?
I’m not trying to say that firms (and people in general) don’t have an ethical responsibility to do the right thing, regardless of how leniently they are punished. I wouldn’t excuse murderers on grounds that prison terms are too short to deter them. But in a case like this, where there is no good financial reason for firms to engage in the supposedly unethical activity other than to game the incredibly arcane federal tax code, let’s put the blame (if any need be apportioned) where it belongs: on the tax code, not the firms.
Band Names
My brother sent me the link to this fun linguistic taxonomy of band names. For instance, which bands have names that are declarative sentences? The author lists three: They Might Be Giants, Gene Loves Jezebel, and And You Will Know Us by the Trail of Dead. I'd never heard of the latter two, but I notice that he missed Frankie Goes to Hollywood and Johnny Hates Jazz.
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