Self-study
P1
In many Western societies, modern bankruptcy laws have undergone a shift away from a focus on punishment and toward a focus on bankruptcy as a remedy for individuals and corporations in financial trouble—and, .
Intro to Topic ·
Modern bankruptcy laws
No longer about punishment. About remedying the financial situation for the debtor and creditor.
Increased Bankruptcies Declared ·
This has been criticized
Main Point ·
Do not abandon modern bankruptcy laws
Their increased use is not a reason to abandon them. They serve a useful economic purpose.
P2
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Old Solution ·
Imprisonment and dissolution
Punishment was thought to be the right solution to insolvency because debtors were violating "sacrosanct" social contracts.
Critique ·
This benefits no one
Creditors can't get paid if the debtor is in jail. A dissolution of a company would cause unemployment.
P3
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New Solution ·
Modern bankruptcy law
Two Rationales ·
(1) Public good is paramount and (2) that's better served by allowing the debtor to continue to operate
Mechanism ·
Court-directed reorganization of debt
Some debts forgiven; some assets transferred to creditors.
Punishment ·
Bad credit score
A bit of punishment is still there, but the point is to benefit society
Goal ·
Restoration of healthy economic activity
Passage Style
Critique or debate
Problem-analysis
13.
Which one of the following, ██ █████ █████ ████ ██████ ███ ████████ ████████ ███████ █████ ██████████ ███ ████████
a
Extensive study of ███ ████████ ███ █████ ███████ ██ ████ █████████ ███ █████ ████ ████ ███████████ ███ ██████ ██████ ████ ███ ██████████ ████████████ █████████ ███████ ████████ ███████████████
This doesn’t weaken, because the author’s argument isn’t based on the idea that punishment doesn’t have any deterrent effect for the individuals who are punished. What matters is whether the overall public is better off because of punishment. The author believes it’s not, because creditors can’t get paid when debtors are shut down or put in prison. Even if individuals show greater economic responsibility after they get out of prison, this doesn’t suggest that creditors are more likely to get their money back or that the overall public might be better off.
b
The bankruptcy of █ ███████ █████ ███████ ███ ███ █ ███████████ ████████ ██████ ██ ███ █████ ███████ ████ ██████ █████████ ███ ██ ███ ████████ █████████ ████ ████ ██ ██████ ███████ ████ ██████ ███ ██████████
If the bankruptcy has a negative impact on the local economy, this doesn’t constitute a reason that harsh punishment might be better for the public good than the author thinks. If anything, (B) is simply telling us something negative about bankruptcy.
c
Once imprisonment was ██ ██████ █ ███████████ ██ ███████████ ██████████ ███████ █████████ █████████████ ████ ███████ ███ ██████ ██████████ █████ ██████ ███ ██████
This tells us some historical data about the rate of bankruptcy filings. But it doesn’t say anything about the effect of these bankruptcies on public good.
d
The court-ordered liquidation ██ █ █████ ███ █████████ █████████ ██████ █████ ████████ ██ ██████ ███ ██ █████ ███ ███ █████ ███████ ████████████ ████████████ ██████ ██████ ██ ███ █████████ ██████████
This indicates that, in one case, shutting down a company resulted in growth to the local economy in the immediate aftermath. This is too narrow in scope compared to (E), and provides significantly weaker evidence compared to (E). What the author cares about is the public good. Even if we have a single example of the local economy improving shortly after the company was shut down, this single data point about benefit during a limited timeframe only barely suggests that the bankruptcies might be good for the public. The overall impact of the bankruptcy in this example might take longer to be seen; after the immediate aftermath, it’s possible we’ll begin to see harm from the bankruptcy. In addition, the effect in this one case might not be representative of the typical effect of bankruptcies on the economy.
e
Countries that continue ██ ████████ ███████ █████ ███████ ████████ ██████ ████ ██ ██████████ █████████ ████ ████ ██████ ██ ██ ███
This is the best answer, because it provides strong evidence that imprisoning debtors does not have a harmful effect on the overall economy. It’s important to notice that (E) tells us we are comparing “comparable” countries. That means we’re looking at countries that are generally similar to each other, except some continue to imprison debtors and others don’t. The fact we’re looking at “comparable” countries helps isolate the variable of imprisonment and make the correlation observed in (E) strong evidence that imprisonment isn’t harming overall economic health, and in fact may even be helping it.