I'M MISSING THE DOWNSIDE HERE:

Taking More Risks Because You Feel Safe (Shankar Vedantam, June 9, 2008, Washington Post)

The housing market is in free fall: Quick -- let's protect homeowners against foreclosure.

The country is in recession: Quick -- let's give Americans money to spend to restart the economy.

Big Wall Street firms are failing: Quick -- let's bail out businesses that are "too big to fail."

Trying to fix problems that affect vast numbers of people has an intuitive appeal that politicians and policymakers find irresistible, but several warehouses of research studies show that intuition is often a poor guide to fixing systemic problems. While it seems like common sense to pump money into an economy that is pulling the bedcovers over its head, the problem with most social interventions is that they target not robots and machines but human beings -- who regularly respond to interventions in contrarian, paradoxical and unpredictable ways.

"How well does government do in helping the market to improve what it does?" asked Clifford Winston, an economist at the Brookings Institution and the author of the 2006 book "Market Failure Versus Government Failure." "The research consistently finds that, in fact, government efforts to correct market failures have little effect, or actually make things worse."

"There is a tendency for people to say, 'If things are safer, then I will take more risk,' " he added.

Exactly. So, after 70 years of government guaranteeing the financial losses of average consumers we have the most risk-willing, heavily invested, affluent population in human history. $60 trillion in household net worth says government got this one right.

Posted by Orrin Judd at June 18, 2008 8:40 PM