Where America’s safety net shines

Megan McArdle has a nice piece in The Atlantic pointing out that our bankruptcy process is more generous to firms and individuals than its counterpart in much of Europe. It provides a more effective cushion against a particular type of risk.

That generosity breeds frustration among the public, who tend to feel bankruptcy filers get off too easy. But McArdle notes that the system actually reduces the overall cost to taxpayers and enhances incentives for entrepreneurship. It both cushions and enables. Yes, some abuse it; yet as a society we nevertheless benefit.

Of course, similar considerations apply to other aspects of the safety net, such as unemployment insurance, and on those we tend to be less generous than Europe rather than more.

One thought on “Where America’s safety net shines

  1. This passage rubbed me the wrong way given McArdle’s argument:

    “With more “fairness,” heavy borrowers couldn’t just walk into a court, turn over their spare cash, and walk away free, as those who declare bankruptcy under Chapter 7 do today. (Granted, they take a big hit on their credit report.)”

    If that’s how bankruptcy actually worked, I don’t think people would be so mad. But the definition of “spare cash”, and the question of the actual identity of the “borrower”, are the crucial details that have people so angry. Bankers who are responsible for generating trillions in bad debts still own millions upon millions in personal assets, and they have not been asked to “turn over” any of it. This trick has been accomplished through sleazy and unfair financial chicanery unavailable to anyone who makes a mere five figure salary: the shell-game of corporate personhood and limited liability, an intricate system of offshore asset shelters, etc.

    McArdle is being disingenuous at best in ignoring this elephant in the room.

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