Sunday, June 22, 2008

Sadly, The Name 'Moral Hazard' Is Already Taken

Lindsay Beyerstein and Amanda Marcotte introduce me to a kind of market failure I hadn't heard of before. Compucredit VISA "cut credit lines if consumers used their cards at certain places. Among them: tire and retreading shops, massage parlors, bars, billiard halls, and marriage counseling offices."

As Amanda says, the idea is that these things correlate with future credit problems. If you're getting your tires retreaded, it's probably because you don't have enough money to buy new tires, which is a sign that you may have financial problems down the road. If you're going for marriage counseling, you're more likely than average to have a messy and financially difficult divorce in your future. Never mind that marriage counseling may help you keep your marriage together and avoid these problems. Useful attempts to remedy a problem correlate with problems, so the bean counters will regard you as a problem if they see you taking them.

Taken to an extreme, this sort of thing can prevent you from taking useful steps to get your life in order. If you're having marital problems that require some counseling, don't get counseling or the credit card company will get antsy and take away your credit! So now we're in a situation where the forces of the market give people reasons to avoid helping themselves.

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