29 September 2008

Not Exactly a Lot of Money These Days

Is it just me, or does the current "financial crisis" resemble Dr Evil's ransom demand?

   Well, given that the House just narrowly rejected the bailout bill in its current form, maybe it's just the news cycle being held hostage. But then, nobody is looking at the linguistic irony involved in this nonsense. In formal economics, the term for excessive compensation obtained by a monopolist or oligopolist (leaving aside, for the moment, the distinction between monopoly and monopsony) is a "rent." In this instance, we've got rents related to mortgage liquidity. And so on. To only slightly mangle Shakespeare, "what a tangled web we weave | when first we venture to receive".

   I'd like to remind the financial industry of the "principle of diminishing marginal returns", and suggest that paying compensation to employees (etc.) without considering that principle is itself both a rent and a classic example of free-ridership. OTOH, why should I expect the operators of the world's biggest casino to acknowledge that?