Is the anecdotal evidence that Europeans are more risk adverse in starting business ventures empirically incorrect or are there other reasons that they are more risk averse other than safety net issues?

Also, some people may be too risk averse but given the size of the gaming industry clearly some are not risk averse enough.

Furthermore the skill isn’t so much knowing exactly what to do at any given moment (highly specialized skill under the Iversen and Soskice model) but a much more generalizable skill of where to look for the answers and what to with them when you find them. (I normally say that law is really just advanced Cut-N-Paste, the only trick is knowing where to find material to cut and where to paste it.)

I’m not sure that there’s a difference here – knowing where to look for the answers is a highly specialized skill (otherwise lawyers wouldn’t earn their substantial salaries). Nor does law seem to me to be all cut and paste – but then I’m married to a litigator, whose job is to come up with creative arguments melding together precedents etc etc.

The reason that I brought up your law training was more straightforward though – just to say that you probably wouldn’t have invested in those skills if you hadn’t been reasonably certain of decent returns from them. And this point applies in spades to a variety of forms of specialized, and increasingly non-specialized training – if the rewards for doing x are increasingly uncertain in the modern economy, you’re less likely to do x. Furthermore, you’re not likely to be economically rational about this – the evidence from behavioural economics is that people are far more risk averse than they should be. Creating a safety net allows them to venture out onto the tightrope with a bit more optimism than otherwise. Nowm as you say, at the extreme an overly extensive safety net can discourage you from wanting to take risks in the first place – but to put it mildly, I don’t think that is a clear and present danger, given where the US welfare state is now, and where even the most wild eyed of reformers would like to take it.

And I do hope you were joking when you said that I’d be surprised that you have a strong sense of justice – I’ve surely given you plenty of grief when I thought that you were being overly lawyerly in comments threads – but I’d be rather surprised if you didn’t have a pretty clear sense of right and wrong. Now I’d obviously prefer it if that sense conformed better to my own, but I imagine that you’re quite happy with it the way it is.

This strikes me as a rose-colored glasses look at the past. There rarely ever was a time with the safe and sure thing. What time are you looking back to? The 1920s? The Great Depression? World War II? It seems to me that this golden age of full pensions and lifetime jobs as some sort of expectation lasted maybe 10 or 15 years starting in 1955. The modern mobile economy was in full swing by the late 1970s and certainly by the early 1980s. And even in the 1950s the full pension, lifetime jobs were clustered around a very narrow portion of the auto industry.

I agree. On the one hand, people shouldn’t be free to, say, abuse their kids over and over again without some kind of consequence. On the other – ordinary mistake-making people deserve second chances. People grow up and wise up. Redemption is a concept that seems to have been forgotten in our society.

Henry: they suggest that people are less likely to invest large amounts of money and time in acquiring skills when they think that it’s a risky bet. A decent welfare state helps give them a cushion, which allows them to take riskier decisions without flushing their futures down the toilet. Now obviously, people will sometimes make bad decisions, and train in skills that don’t have much demand on the market.

Exactly. Especially when one considers that what makes a “marketable skill” can vary in the space of five years. Remember the dot-com boom when computer science was an oh-so-marketable skill? Now thanks to the dot-com bust and offshoring, it’s almost at the buggy-whip level. And on the other hand, I’ve known people who majored in “worthless” subjects like English, or anthropology, or what have you who have managed to parlay those majors into six-figure jobs, thanks to smarts, charm, and luck. So you never know.

There really is no safe and sure thing anymore. Back in the recession of the early 90’s, I knew a couple of lawyers who were working as legal secretaries because they just could not find work. Was their expensive legal training a mistake, then? Or did they just have a run of bad luck? I assume the latter. Bad luck happens to good people and they shouldn’t be punished for it. Nor should people be punished for training in a subject they later found they couldn’t stand or had no aptitude for.

Of course, I’m a real estate appraiser and my job is also well protected by a myrid of regulations that keep almost everybody out of my field….

Correct, but I’m not sure what you think follows from that—especially since it seems to suggest that lawyering is useful. ;)

The good financial return isn’t guaranteed by the government (except perhaps in the sense that the government passes byzantine regulation schemes that require specialists to navigate). Furthermore the skill isn’t so much knowing exactly what to do at any given moment (highly specialized skill under the Iversen and Soskice model) but a much more generalizable skill of where to look for the answers and what to with them when you find them. (I normally say that law is really just advanced Cut-N-Paste, the only trick is knowing where to find material to cut and where to paste it.)

The reason I’m (theoretically) willing to invest in education is indeed that there is a strong probability of the market repaying my education investment when I go to work. But that strong prospect doesn’t come because the government has mitigated my risk. It came about because there really are strong prospects for employment. There may be some level of legal-field renumeration where the prospect of government health, welfare and retirement insurance would tip me into going to law school, but we aren’t at such a place now—or if we are it doesn’t need further encouragement since there are plenty of lawyers.

Now an interesting area would be to investigate what happens when you get an education and then find that you don’t like most of the field. It took me years to find a place where I could both use my education and not feel like the attorney-client relationship was causing huge ethical problems between doing right and protecting the client’s interests. (It may surprise you but I have a very strong sense of justice that I didn’t like feeling I was working against).

But the feeling of being trapped because of a mistake in education path is mostly an illusion—you can get other jobs, you just have to be creative.

People respond to negative incentives and they respond to positive incentives. But if my college psychology class was right, they really respond best to mixed portions of both.

I think much of the “character” objection (Frum) is that the nanny-state tries to cripple positive incentives (by strongly redistributive policies) and almost completely stop negative incentives (by making a safety net so strong that you can leave the work market without much risk). That—like the trust-fund baby analogy—isn’t likely to lead to growth in the long run because you have reduced the incentive to work. And it may very well be self-destructive, because many functions of the nanny state absolutely require high levels of long term growth to be sustainable in the face of aging populations.

The wealthy take it for granted that they can both plan for a life and deal with contigencies if and when they come along. The poor deserve that same security it comes to the basics of shelter, health, education, and so on. And if they are denied these things too long, the history of the last century and a half or so suggests that they will end up giving their allegiance to someone who promises these things and ends up only making it worse.

If you invest years learning an unuseful “specialized skill” and the government insures that you do nearly as well as the person who invested years learning a useful skill, you won’t have as many people learning the useful skill—especially if the unuseful skill doesn’t take as much work. (And yes, I was an English major).

But Sebastian, you then went on to law school, not so? And would you have spent whatever large amount of money I imagine you spent on your legal education if you didn’t think that there was a strong prospect of good financial returns at the end of it, that would allow you to pay off any loans and have a decent standard of life? Nor does Hacker, or anyone else, propose the incentivization of useless skills. Instead, they suggest that people are less likely to invest large amounts of money and time in acquiring skills when they think that it’s a risky bet. A decent welfare state helps give them a cushion, which allows them to take riskier decisions without flushing their futures down the toilet. Now obviously, people will sometimes make bad decisions, and train in skills that don’t have much demand on the market. But I don’t think that anyone is going to be going into horse buggy manufacture. If Hacker is correct that the transfer of risk to individuals means that they have more reason to be risk averse today than ten or twenty years ago, then there is a pretty good case for collective cushioning mechanisms. Similar arguments have been made about the relationship between globalization and the welfare state – the more exposed an economy is to global forces, the more likely it is to have a strong welfare state as a cushion. See Geoffrey Garrett’s articles (in Comparative Political Studies and IO I think; I’m not in my office) for stats on this.

Doctors are starting to grumble now, so I think that MBA managed-care execs should be your comparison.

The way I see it, there are two kinds of incentives: greed and fear. Gingrich&Co seem to feel that greed is good enough incentive for their ilk, but not for the ordinary people – these need to be whipped into line. Well, fuck Gingrich and fuck Norquist. And fuck you too.

Having read the Iversen and Soskice paper you cite, I’m unimpressed. First the income variable is much more dispositive than the “specialized skills” variable (income 11-51%, skills 26-38%). Second the definition of “specialized skills” is such that it isn’t at all obvious we ought to encourage them over general skills.

The problem with training in “specialized skills” as defined by Iversen and Soskice is that if the market no longer needs them “horse buggy craftsman or people replaced by more efficient technology—telephone operators perhaps) it is not in the society’s best interest to incentivize their acquisition. And unless one would propose a “Ministry Cataloging Which Skills Are Currently Useful”, the way you measure that is by the availability and renumeration available within a particular job.

The incentive and moral hazard problems are very difficult as well. If English majors regularly got first-post-college-job salaries at similar rates to doctors fewer people would bother going through all that training. If you invest years learning an unuseful “specialized skill” and the government insures that you do nearly as well as the person who invested years learning a useful skill, you won’t have as many people learning the useful skill—especially if the unuseful skill doesn’t take as much work. (And yes, I was an English major).

On the skill-training issue I would go further than Brandon and say: so maybe the empirical data do show that a larger welfare state gives you more specialized skill training; who cares? It doesn’t follow that this is a Good Thing overall. Specialized skill training is good ceteris paribus, sure, but if people are less-incentivized to do it they’ll spend their time and resources doing other things instead. It is not at all clear that, at the margin, those other things are less beneficial than the training.