[phil21]

I'm convinced that a great majority of problems in the US these days fundamentally boils down to principal agent problems. The 2008 financial crisis is a great example. Once banks no longer kept mortgages on their own books, it just became a matter of time until that was going to blow up. The incentives change.

[doctorpangloss]

Your personal life is abundant with meaningful human activity that cannot at all be explained by money incentives. The principal agent problem has this same problem: once we stop talking about money, “interests” can be vague and overlapping, making the problem disappear with scrutiny.

To me, a great majority of problems in the US fundamentally boils down to people looking for markets and money where there aren’t any. Great examples include rising healthcare costs (what is the right price to pay for saving a child’s life, for example? Culturally, it’s basically unlimited!) whereas rising legal costs are NOT seen as a crisis (suing other people over BS grievances, unlike saving lives, is not compulsory); infrastructure investment (cars don’t make financial sense everywhere and everything all the time, but they’re REALLY cozy, so we will spend exorbitant amounts of money on infrastructure for them compared to everything else); the obesity crisis (eating feels GOOD, even if it costs EXORBITANT amounts of money); worsening education outcomes; lack of growth of alternatives to single family homes…

[AnthonyMouse]

> To me, a great majority of problems in the US fundamentally boils down to people looking for markets and money where there aren’t any.

Your examples are mostly things where there are, though, e.g.:

> rising healthcare costs (what is the right price to pay for saving a child’s life, for example? Culturally, it’s basically unlimited!)

This is confusing value with cost. If you had to pay a million dollars to save a child's life, maybe that's worth it, but that's not the problem. The problem is that so often we could have saved the child's life for $100 but for various bad reasons it ends up being $100,000 instead, and the people getting the other $99,900 want to keep it that way.

> whereas rising legal costs are NOT seen as a crisis (suing other people over BS grievances, unlike saving lives, is not compulsory)

Isn't the problem with the rising legal costs mostly on the defense side? You can't prevent someone from filing an unmeritorious lawsuit against you, or avoid hiring compliance lawyers to tell you what to do to prevent that from happening, so it matters when those things get more expensive. But then the compliance lawyers and their lobbyists like it to get more expensive because they're the ones getting the money.

> infrastructure investment (cars don’t make financial sense everywhere and everything all the time, but they’re REALLY cozy, so we will spend exorbitant amounts of money on infrastructure for them compared to everything else)

People who hate cars say this but we mostly spend money on cars because everything is too spread out for mass transit, which brings us to this one:

> lack of growth of alternatives to single family homes

Markets are great at solving this. If it wasn't literally banned in most of the relevant places, developers would be replacing single family homes with higher density housing all over and people would be buying it.

> the obesity crisis (eating feels GOOD, even if it costs EXORBITANT amounts of money)

Government subsidizes the production of high fructose corn syrup, which does this:

https://www.princeton.edu/news/2010/03/22/sweet-problem-prin...

> worsening education outcomes

And then people make school choice arguments.

Which one of these isn't a situation where we would benefit from a competitive market but the existing laws prevent us from having one?

[airstrike]

I think you have the cars issue backwards

[AnthonyMouse]

I don't think I do. Are you going to run a bus every 15 minutes down a road that would have one passenger an hour? Mass transit isn't viable at the density of the suburbs but building higher density there is banned.

[airstrike]

We've incentivized cities to develop around highways and the automobile infrastructure instead of building them for mass transit. You need cars because we build for cars.

[AnthonyMouse]

It's not that we've incentivized cities to develop around highways, it's that we've prohibited them from doing anything other than that.

Zoning boards put a tiny little strip of commercial and high density residential in the downtown and then require the whole rest of the map to be single-family homes. At that point it doesn't even matter what the downtown actually looks like, people are still going to be in cars because it's the only way to get there from the suburbs.

[simianwords]

You are right but in a roundabout way. It’s true that most problems in US can be explained by this but it’s also true that the west and US particularly are successful because they can bypass the principal agent problem to an extent.

You just have to look at India or Africa a bit to understand the severity to which this problem permeates day to day in these countries.

[mellow_observer]

That's an interesting line of thought. How would you say the US/west are able to bypass this problem more effectively?

[simianwords]

No matter how poorly one thinks of westerners and their leaders, it is clear that in general they can look beyond themselves and their immediate surroundings when optimising their impact.

The same cannot be said about Indians and other poor people from poor countries. Their optimisation lies solely on themselves or immediate family. This has consequences at every level and even at the political level.

[devsda]

It is just the case that the west and its leaders have had the luxury of choice and have only seen relative poverty but not absolute poverty for various reasons.

When your are poor and basic necessities are difficult to meet, its natural to optimize for self and not care about the big picture.

[zarathustreal]

This may explain the phenomenon but it certainly doesn’t excuse it - just because something is natural doesn’t mean it’s smart or morally correct

[anal_reactor]

This is not correct. First, in crisis situations people tend to cooperate more, even though naive model predicts that people would act in self-interest. Second, there have been cases of countries that collectively decided not to be poor, and they stopped being poor once external pressure has been removed. Case in point is a huge part of Eastern Europe after the fall of communism.

[JumpCrisscross]

“America’s sophistication is reflected in the depth of its financial markets. It is unusually good at creating tradeable claims on the profits and revenues that its economy generates. In a more primitive system, these spoils would mostly accrue to the state or tycoons; in America, they back a vast range of financial assets.”

http://www.economist.com/news/finance-and-economics/21598651...

[breatheoften]

It takes more than just misaligned incentives to get a banking crisis -- you have to have structural corruption preventing the transfer of the loss gradient back to the "misaligned" decision makers. It's somewhat disingenuous (or overly innocent) to reimagine the pathways which power structural corruption as "innocent ignorance in the face of bad incentives".

The real world has "actually bad" actors -- not just misaligned incentives.

[AnthonyMouse]

> It takes more than just misaligned incentives to get a banking crisis -- you have to have structural corruption preventing the transfer of the loss gradient back to the "misaligned" decision makers.

Nah, you can do it just on the basis of information asymmetries.

Banks can sell mortgages. People think buying mortgages is safe, because banks don't loan money to people they don't think can pay it back, and even if they did, the mortgage is backed by the house so in the worst case you can foreclose and get back your principal. So lots of people buy mortgages.

Then banks figure out that it's easy to sell mortgages, and that if they sell them it doesn't matter that much if the people they loan the money to can pay it back. Plus, the less creditworthy people pay higher interest rates, and you can still foreclose if they default. So banks make a lot of loans to people who can't afford them, and then sell the mortgages, and people still buy them.

Except that if this happens at scale, the people taking out mortgages they can't afford bid up the price of houses. And then when they start to default and you want to foreclose, you'd have to sell the house to get back the money, which at scale means that the prices would go back down to where they were before they got bid up, which means you wouldn't even recover your principal.

If everybody realizes that this is what's going to happen then people wouldn't buy bad mortgages from banks and then banks wouldn't issue them. But if enough people don't notice until after the bubble is inflated...

[Workaccount2]

Let me tell you something about people...

You can sit them down and explain precisely why buying something, like a new car, is a bad financial decision and that they cannot afford it anyway, and then watch them go buy it anyway. To the point where I have seen people laugh about how dumb of an idea it is, while in the act of doing it.

The "I wish someone explained to me..." that comes later when it all falls apart is largely just licking the wounds of their damaged ego.

[AnthonyMouse]

> You can sit them down and explain precisely why buying something, like a new car, is a bad financial decision and that they cannot afford it anyway, and then watch them go buy it anyway. To the point where I have seen people laugh about how dumb of an idea it is, while in the act of doing it.

And this is actually fine because it comes with its own integrated stupidity penalty. We only need the government to impose a penalty if the person who needs the disincentive when making a decision is different than the person being affected by it.

[bloomingeek]

This is a big "hell yes" for me! Some seem to think that mortgaging themselves up to their eyebrows with huge houses and the latest vehicles is a good idea. As an example: I needed a pickup truck back in 2021. I settled on a ram and purchased the base model. The only options were a towing package and the medium level smart audio/display system for a cost of $27K. I could have easily spent $50K and got a whole lot of other options, but determined the extra cost was too much and the options weren't needed. (The only reason I purchase a new one is people tend to drive like maniacs in trucks where I live, so I didn't trust a used one.)

I digress, the numbers alone are the reason for the base model, because I could use the extra money somewhere else. And yes, new vehicles do depreciate too much. However, if you keep the vehicle for it's entire lifespan, the hit isn't so bad.

[BobbyTables2]

I’m always amazed at the number of 20-30 year olds driving luxury SUVs and souped up trucks.

Feels like I’m in a bizarro world where logic and math no longer apply.

Even if I could easily afford it, it seems crazy between the purchase cost and the yearly insurance cost.

They could still have a new car and use the money saved to pay down mortgage or invest it.

[adabyron]

Most humans have to learn the hard way no matter the age.

[aloha2436]

> and people still buy them

You skip over a very important step here, where people keep buying the MBSes because the ratings agencies are knowingly rating the securities incorrectly. If that didn't happen, the market would be too small to blow up in the way that it did, all of the safe money can't invest if the MBSes aren't AAA.

It's not that no-one noticed in time, it's that the people responsible for noticing were paid to pretend they hadn't. That is the corrupt part.

[AnthonyMouse]

It's not obvious that this was corruption though.

What they were doing was, they'd take a bucket of high risk mortgages and apply a contract to them to retroactively sort them. So, if you bought the 30th percentile of the bucket and then anything more than 70% of the people in the bucket paid their mortgages you would get paid, and if fewer than that did then you wouldn't.

Then they were rating the highest percentiles in the bucket as AAA because even for borrowers with bad credit, the probability that such a high percentage of them would default was considered very low. Even for people with bad credit, default rates are usually only something like 10%.

But that doesn't work out if you haven't noticed that banks have stopped caring about the default rate when issuing mortgages.

[hotstickyballs]

I disagree with the characterization of structural corruption. Every rationale actor will seek to capture all the benefits and pass on the risks. The real corruption is when decision makers know that they can’t be held responsible through corporate or political structures. See also [moral hazard](https://en.m.wikipedia.org/wiki/Moral_hazard)

[csomar]

Try to think of corruption as inefficiency to get the desired effect instead of some dude accepting some money under the table.

Sometimes a dude getting some money does not yield the worst outcome which is why some countries still run despite the corruption.