Bryan Caplan  

Separation and Dr. Pangloss

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A widely-quoted bit from Louie CK:
Divorce is always good news. I know that sounds weird, but it's true because no good marriage has ever ended in divorce ... That would be sad. If two people were married and they... just had a great thing and then they got divorced, that would be really sad. But that has happened zero times.
You could dismiss this as mere clowning, but I suspect that many listeners find this an airtight argument for the optimality of divorce.

Now imagine how we'd react if an economist said:
Firing is always good news. I know that sounds weird, but it's true because no good worker has ever gotten fired ... That would be sad. If a firm employed a worker and they... just had a great thing and then the worker got fired, that would be really sad. But that has happened zero times.
Sounds awfully dogmatic, does it not?  There's a kernel of truth in both statements, but both Panglossian claims have a long list of potential flaws.  Namely:

1. What's good for one side need not be good for both sides.  There are mutual break-ups and mutual job separations, but plenty are one-sided.

2. The summed effect for both sides doesn't have to be good either.  With zero transactions costs, we could at least say that the economic gain to the winner must exceed the economic loss to the loser.  Otherwise, the loser would bribe the winner not to separate.  But transactions costs aren't zero - and net economic effect is distinct from net hedonic effect.

3. A good effect for "both sides" doesn't have to be a good effect for society.  Even if both parties are better off - or at least better off in sum - separation can be bad because outside parties lose even more than the gainers gain.  For divorce, the obvious sufferers are the kids.  Your parents' divorce won't ruin your life, but it's still usually sad for children to experience.  The same goes on the job.

4. People make mistakes.  One of the main motives for separation is the perception that you can do better.  Since people overrate themselves, this perception is often wrong.  And don't forget focusing illusion - the all-too-human tendency to overrate whatever's on our minds.

If you think these are strange points for a free-market economist to make, please read my short essay on the grave evil of unemployment.  More generally: If you can admit that divorce is sad without favoring government programs to curtail divorce, you can admit that firing is sad without favoring government programs to curtail firing.  Either way, the Panglossian take on separation - in the family or in the firm - is blind to obvious facts.

COMMENTS (12 to date)
Khodge writes:

Kind of a subsection of people make mistakes: incomplete knowledge (in marriage it would be described as the grass being greener on the other side of the fence); also: men and women mature at different rates and some period of adjustment is called for (like, for instance, after the birth of a child).

In short, an economist should always be nervous in the presence of absolutes (zero, never, 100%, always).

E. Harding writes:

"If a firm employed a worker and they... just had a great thing and then the worker got fired, that would be really sad."
-But this happens all the time. The correct equivalency would be quits are always good.

Thomas writes:

1. So what?

2. The "summed effect" is meaningless; you can't sum individual "utilities."

3. "Bad for society" is meaningless for the same reason.

4. But you're in no position to judge when people are right or wrong. This point is just another utilitarian argument, like your first 3 points.

Greg G writes:

Yes, it's true that despite the Louis CK joke, people sometimes make mistakes in decisions about divorce.

When my cousin and his wife remarried after divorcing they always explained it by saying, "We tried, but the divorce just didn't work out."

RPLong writes:

Companies don't hire and fire employees - managers do. Losing a job at a good company because you had a lousy manager is a lose-lose-lose situation for the microeconomy because, first, the employee loses out on a situation in which she could have excelled; second, the company loses out on the work that the good employee could have produced; and third, the company is stuck with a lousy manager who will likely be a repeat offender.

That has happened non-zero, non-negative times.

Glen W Smith writes:

I've rarely seen a firing that was optimal for both sides in the short term and have seen only a few that were optimal for both sides in the long-term. Never have witnessed a divorce that was not optimal for both parties over the long term and know of few that were sub-optimal over the short term for both parties.

Hazel Meade writes:

I think the takeaway is that divorces aren't always happy and may decrease net utility. But banning divorce would likely decrease utility even further.

In order for it to increase utility, you would have to have some government agency that would know better than the individuals themselves if their marriage would work out - not to mention in some cases forcing an unhappy partner to stay in a marriage for the other partner's sake (because the other partner benefits more than they lose).

So, both technically impossible and immoral from a human rights standpoint. Nevermind the potential for abuse.

Sounds like communism.

AS writes:

Having worked at firms, people don't usually get fired for no reason. It's usually legitimate: the employee's wage is above their marginal productivity, so the employer has to let them go. Why don't they just slash wages? They might be bad for morale and create a fractious culture.

yarbel writes:

In marriage, there is a first level preference regarding the other individual (I really like her!) and there is a second level preference (I want to be with someone who genuinely loves me).

While divorce may be crushing on the first level (she left me but I still love her!), it is consistent with the second level. Hence, on a deeper level, divorce can be really a good thing even if one the parties feels pain.

I do not think that most individuals feel the same way about their place of employment. I want to work in a place where I like the job and I am well compensated, but maybe I don't care as much if, say, Walmart likes me or thinks I am productive.

Matt writes:

A good list, but I'm surprised to see that it's missing a classic economic idea: time inconsistency.

Even if divorce is optimal ex post, and unambiguously so (say that both parties actively want divorce), it could be suboptimal ex ante. Part of the point of marriage is the idea that it represents a persistent commitment; knowing that this commitment is likely to hold intensifies affection and makes marriage more meaningful.

Put it this way: when getting married, if you could somehow jointly commit not to divorce in all future situations where the ex post benefits of divorce are below a certain threshold, would you? "Hey, if we're ever on the edge about divorce, let's not do it?" I know I would. But saying that means that a purely ex post view of divorce is indeed ex ante inefficient.

(In fact, if I remember correctly, I'm pretty sure that my wife and I did tell each other something to this effect, though it was a lot more poetic than the economics jargon I'm using here!)

David J. Balan writes:

Even when a divorce is a good thing for all concerned, the news of a divorce can still be sad, depending on what what you already knew about the marriage. If you knew that both people were miserable, then the news will sound like good news to you, just like it does to everybody else. But if you thought they were both happy before, then the news will be sad news to you, because they're still worse off than you had thought they were; "divorced" is still worse than "happily married," even if it's better than "unhappily married." So it's not irrational to hear about a divorce and still be sad.

Anonymous writes:

I don't think it makes any sense to see divorce as a freedom issue, with being able to divorce at no cost as being free, while being unable to divorce without incurring significant cost as being unfree. Neither option is free, really. They are two alternative options for allowable contract terms. Both are extremely restrictive. Freedom would be the ability to set whatever terms you and the other party mutually agree on. I don't think there's any intrinsic reason to assume a world where the only permitted marriage contract has hard divorce is less economically efficient than a world where the only permitted marriage contract has easy divorce.

To put it another way, imagine a world where any purchase can be undone by either party at any point in the future. Buy a car, decide you don't want it any more two years later? Take it back to the dealer for a mandatory exchange at the original sale price! Or he can do the same if he decides he doesn't want to have sold it anymore. Would this world be more economically efficient? But, but, look at how free it is!

I think the idea that having the ability to profit at someone else's expense, and not being able to contract away this ability to them, means more economic efficiency rather than less, is ludicrous. It totally stops dead any mutually beneficial interaction as each party has to constantly ensure that what they have that the other can take is less than what they can take from the other.

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