Thursday, September 13, 2007


"Vous êtes audacieux?" Sarkozy asked a group of CEOs assembled for the award of a prize for bold innovation. "Eh bien, très bonne nouvelle, je fais partie du club." The president appears to believe that audacity, like virtue, is its own reward, that if only the French, and in particular the French business class, could be persuaded to become less risk-averse, they would soon prosper beyond all dreams of avarice. Sometimes, indeed, it is good to forget the downside of risk. But actively to promote the belief that risk has no downside and that courting it as a matter of principle is the manly course is to encourage what economists like to call "moral hazard," which might more prosaically be described as haste to rush in where less greedy appetites would hesitate to tread.

Sarkaudace seems to have made Danton his model--De l'audace, encore de l'audace, toujours de l'audace, et la France est sauvée!--while forgetting that Danton found his way prematurely to un sarkophage--though of course he does also enjoy a pedestal on the island across the Boulevard St.-Germain from the UGC Danton, so there are perhaps posthumous rewards for those forts en gueule who make careers of urging risks on their compatriots. But the president might want to pause long enough to read Thomas Philippon, Le capitalisme d'héritiers, who tries to explain why French firms are so cautious and why they are likely to become less so whether presidentially exhorted or not. The government could do more to encourage risk-taking by revamping higher education than by exhorting CEOs.


Anonymous said...

Arthur - I would take "moral hazard" to have a different meaning. In transactions where information is asymmetrically held it arises from the incentive to take advantage of the other party's ignorance. In the case where I take out an insurance policy on your life, it means that I have an incentive to kill you.
I suppose if people are playing with the money of others, the assumption that risk is risk-free becomes a moral hazard to the extent that managers are free to play with stockholders' investments.
But it seems to me that the real problem with the notion that risk doesn't entail risk is that it is not exactly reality based. -- Bill

Unknown said...

You're absolutely right. I erred. Sarkozy is exhorting others to engage in risky behavior but is not promising to bail them out if snake eyes turn up, so the only incentive he's offering is his approval. I regret the error.