Refuting liberal talking point (risk vs danger)

Economics Political Theory
1

I just wanted to quickly respond to an argument that is becoming more and more popular amongst the pseudo-intellectual left. Specifically, the claim is that poor individuals face a much higher degree of risk by simply being poor (which tends to mean living in lower quality areas with higher crime rates, eating fattier, less healthy food, etc).

The ‘risk’ that businessmen and economists refer to is not the same thing as danger. Risk, for the economist at least, refers to a set of known outcomes for which the probability distribution amongst those outcomes are unknown. In other words, there are various potential outcomes, all of which have varying rates of return that an entrepreneur must incorporate into his calculations. He will only engage in said risky endeavor if the expected average rate of return is greater than the cost. So, to put it simply, risk is something that individuals knowingly accept or take upon themselves in an attempt to better their own condition. Risk is a sort of resource that entrepreneurs yield. It’s out there, and they embrace it out of their own ambition.

A poor family, on the other hand, does not choose to live in a gang infested neighborhood because they want to better their lives. They live in that neighborhood because they are too poor to live elsewhere (the social product that they yield at the margin is not high enough to warrant better living conditions). There’s a lot more uncertainty associated with danger; it’s not something that an individual yields, it’s not something that bears fruit (it is avoided by any rational individual).

A few other things that should be understood:

  1. Not only is the rate of return unknown for the entrepreneur, but the entrepreneur, unlike the laborer who will receive his/her wage periodically (every week or two weeks) no matter what (insofar as the labor contract is intact), can go for extended periods of time without earning a rate of return at all (could even earn a negative rate of return).
  2. Saving and investing is risky because you know that a potential outcome is that the firm/nation (in the case of sovereign debt) can go bankrupt and that you will lose all that you have invested (your savings and consumption will simultaneously fall). If you find this risk too great, you will be more likely to consume your income (the sure thing), which isn’t technically productive for the economy.

So, in short, we see that poor people (more often than wealthy people) do not employ risk as a resource, but rather do everything in their power to avoid it (accept fixed, periodic wage payments and consume their incomes) and in doing so, keep themselves trapped in poverty with all the dangers that are associated with it.

2

Great post Esuric

and just after I posted this in the low content thread

[view: http://www.youtube.com/watch?feature=player_embedded&v=hN6GuZ9m79w]

3

I’m comparing Esuric’s explanation to the shreiking sophistry in that video.

Esuric’s argument, while good, has zero soundbite power and emotive resonance.

Compare the two. The shreiking will win. Every time.

4

Risk is the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome)

http://en.wikipedia.org/wiki/Risk finance and health are both defined as risks.

perhaps differentiate the financial risk and investment from the risk of being gangraped or shot at random in the hood.

i’m not sure there is a difference between risk and danger

it seems you mean the difference between financial and physical danger.

a person might have limited access to financial risk due to high physical risk. people with lower physical risk can take higher financial risks, especily when they have a surplus of finances. sometimes there is a combination of physical and financial risk, and poor people will sometimes really take a lot of physical risk for the finacial chance should it pan out.

i think what needs to be talked about is how laws create danger and physical risk for poor people and keep them back from being able to make financial risk decisions.

risking 20% of ones wealth is not the danger of risking 20% of ones family should one lose.

5

However unfortunate people who live in daily danger, however deserving of our pity and charity, their being in danger is of no benefit to anyone. If they were all safe and sound, happy in their beds, it would not change anything as far as the rest of the world is concerned. Hence, though they may be candidates for charity, they are not deserving of any reward for the dangers they are in, because their dangerous situation brings no benefits to the rest of us.

Contrast this with the entrepreneuer, or the fireman, who risks his fortune or his life, for the benefit of someone else. The entrepeneur risks his money to provide a good or service people want, the fireman risks his life for others as well.

Maybe the woman in that video wants all poor homeless drunks, who are exposed to constant danger, to get the same salary as police or firemen or the military, with the same pensions and benefits.

At halftime of nationally televised football games, instead of military bands performing, we should have bands of drug addicts [who are in constant danger of dying of infected needles] and the homeless marching and twirling their batons, to raise public awareness of their plight.

Of course, prison life is pretty dangerous as well, and all prisoners shold leave prison with a full pension, just like the cops who got them locked up in the first place.

While we are at it, foot ball players and other professional athletes are almost certain to, at some point in their career, be badly injuured. They live more dangerously than the poor, who escape serious injury in most cases. They too, should feed from the pulic trough.

6

Yeah Dave, that’s the key point. They don’t differentiate between two distinct phenomena, of which only one is actually productive. They believe that both ‘deserve’ a rate of return even though being exposed to a relatively high degree of danger (living in poverty) is often the result of inefficient, counter-productive action.

Solid examples.