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efalken's avatar

You are correct that there are supply and demand effects from lowering the cost of bankruptcy. Clearly the optimum is somewhere between Hammurabi's code (debtor's prisons, selling offspring into slavery to pay debts), and simple no-recourse/no-consequences lending. In today's equilibrium, however, all the costs are passed on to future borrowers, and so changing terms simply is a one-time redistribution, and to work subsequently has to be perceived as 'one time' (thus the attractiveness of those 'year of jubilee refutations').

If you think passing on costs to banks is absorbed by the banks, a free way to help consumers, consider that the return on equity for banks has been pretty stable over the past 100 years in the US, in spite of all those changes in laws and institutions (fico scores, etc.). It's like a payroll tax on 'employers': it's paid by the employee, really.

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Overcoming Bias Commenter's avatar

"It's also efficient to buy a house, take on a less than optimal job, and watch the value of the house rise. You could easily end up a winner by the time your retire."

Yes, and that's what I meant with the public's penchant for seeing for seeing real estate as an investment. Everyone counts on the price of their house rising faster in than overall economic growth and you end up with bubbles and older generations that are rent-seeking money from the younger generations.

"I don't see much sign of this happening in the many countries with public health care systems. Perhaps rationing-by-waiting damps it down."

Also poor people aren't savages... Hypochondria is a disorder that has nothing to do with income level.

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