I was listening to NPR the other day and heard a discussion concerning the taxpayer bailout of mortagees who were in trouble. The argument against this is, of course, why should taxpayers bail out those who were fiscally inept, who got into trouble by their own greed and bad judgment. The person on NPR defended the bailout against this objection with the following analogy (my paraphrase):

Suppose there is a person in your neighborhood who smokes in bed, and one day his house catches on fire. You could punish him by letting his house burn down, but suppose you live in a crowded neighborhood where the fire will easily spread to other homes as well. In such a case you should put your urge to punish aside to accomplish the greater good.

I thought at first this one of those instances where an analogy makes a really good point, but later I began to wonder. The analogy is complex. First, there are two hypotheticals: if the neighbor smokes in bed and if you live in a crowded subdivision. In the first, the bedsmoker is analogous to the mortgagee in relevant ways, i.e., both get into trouble due to their own questionable actions, the consequences of which should have been foreseen. The analogy is faulty by itself, though, because this alone won't sway us to accept the bailout. Calling the fire department is cheap, while bailing out the mortgagee is not. If we knew that by calling the fire department we were going to be billed for their firefighting efforts, we would probably think twice about calling. Thus, the second hypothetical is necessary in order to make the damage broad enough to insure we will call the fire department. 

But the second hypothetical is also problematic. If we live in a crowded subdivision, then the bedsmoker's house fire threatens all of our houses, so we must call it in to protect ourselves if not our fellow neighbors. So what exactly is the analogy? The other houses in the subdivision are analogous to the entire economy, which means the claim is that allowing homes to be foreclosed will further damage the economy, and this justifies the bailout (calling the fire department). Since this analogy depends on the prior one in which calling the fire department is cheap, it is resting on a shaky foundation. When we factor in the cost of the bailout, maybe it's not such a good idea. The analogy is also shaky because it assumes that the fire threatens MY house and the houses of other homeowners who are not in financial difficulty. But this isn't obvious. Granted, if we end up in a full-fledged depression then we may also be hurt, but it isn't obvious that bailing out mortagees who are in trouble will prevent this, or that there isn't a better way to spend taxpayer money in order to prevent this. 

I wouldn't mind agreeing to call the fire department, even if it was charged to me, if I was guaranteed repayment by the bedsmoker in the future for having performed this service. If we're going to make this analogy work, then maybe we should have some similar guarantees from mortgagees. After all, we're not giving money to banks and auto-makers, we're taking stock in their company or demanding future repayment. Thus making the cases more analogous demands a policy change.