Separation and Dr. Pangloss
A widely-quoted bit from Louie CK:
Divorce is always good news. I know that sounds weird, but it’s true because no good marriage has ever ended in divorce … That would be sad. If two people were married and they… just had a great thing and then they got divorced, that would be really sad. But that has happened zero times.
You could dismiss this as mere clowning, but I suspect that many listeners find this an airtight argument for the optimality of divorce.
Now imagine how we’d react if an economist said:
Firing is always good news. I know that sounds weird, but it’s true because no good worker has ever gotten fired … That would be sad. If a firm employed a worker and they… just had a great thing and then the worker got fired, that would be really sad. But that has happened zero times.
Sounds awfully dogmatic, does it not? There’s a kernel of truth in both statements, but both Panglossian claims have a long list of potential flaws. Namely:
1. What’s good for one side need not be good for both sides. There are mutual break-ups and mutual job separations, but plenty are one-sided.
2. The summed effect for both sides doesn’t have to be good either. With zero transactions costs, we could at least say that the economic gain to the winner must exceed the economic loss to the loser. Otherwise, the loser would bribe the winner not to separate. But transactions costs aren’t zero – and net economic effect is distinct from net hedonic effect.
3. A good effect for “both sides” doesn’t have to be a good effect for society. Even if both parties are better off – or at least better off in sum – separation can be bad because outside parties lose even more than the gainers gain. For divorce, the obvious sufferers are the kids. Your parents’ divorce won’t ruin your life, but it’s still usually sad for children to experience. The same goes on the job.
4. People make mistakes. One of the main motives for separation is the perception that you can do better. Since people overrate themselves, this perception is often wrong. And don’t forget focusing illusion – the all-too-human tendency to overrate whatever’s on our minds.
If you think these are strange points for a free-market economist to make, please read my short essay on the grave evil of unemployment. More generally: If you can admit that divorce is sad without favoring government programs to curtail divorce, you can admit that firing is sad without favoring government programs to curtail firing. Either way, the Panglossian take on separation – in the family or in the firm – is blind to obvious facts.
The post appeared first on Econlib.
