Tag Archives: regulation

How Businesses Really Think

James Fallows posts a comment from a businessman on what really creates jobs:

“IT’S DEMAND, STUPID!…A few more customers and I’ll hire another worker. Look, guys, that’s what we do out here! Don’t worry about cutting my taxes, don’t concern yourself with over-regulating me, don’t fuss about the “death tax” depriving my progeny of the joy of running my business. That is all trivia! This is all about Demand Side Economics.”

Exactly. Businesses don’t base their hiring decisions on taxes or uncertainty. They invest (in people or machines) to meet demand.

Also in the economic vein, here is Joe Stiglitz on the failure of pure free market economics.

VA System: Best Healthcare, Lowest Cost

Check out this article, from 2007, on how the Veterans Health Administration has gone from scary run-down hospitals to the provider of the best care in the country, at the lowest cost. The VA secret: a large, single provider focused on quality. Duh.

Congress Becoming a Parliament?

Jack Balkin has a great post describing how Congress, particularly the Republicans, are acting like a European style parliament. His forecast: more gridlock, worse policy, and a decaying country.

How Wall Street Captured Main Street

If you have the time, read James Kwak‘s interview in The Straddler. He has some interesting things to say about how our culture is oddly enamored of the idea of the swashbuckling wall streeter, and yet intimidated by economics and finance, and how that has influenced policy decisions. He’s a smart cat.  Here is a small sample:

“And Wall Street’s argument that it has this mysterious power, that you have to trust it that it’s using it for good, and that if you take it away, the world will end, is obviously obnoxious—but it’s a hugely successful debating point.  Congressmen are afraid of it.  They’re afraid that they don’t understand what’s going on, and they’re hearing these lobbyists say that if you push too hard on the banking industry, the world will end.”

Are Businessmen Evil?

Jane Mayer’s article in the New Yorker about David Koch and his brother Charles and their massive funding of right wing political causes is an absolute must read. Regardless of political leaning, I think everyone should be disturbed by the ability of two incredibly wealthy men to so powerfully affect the political discourse in our society, and to do so anonymously.

But the article also made me think about how the Kochs and other businessmen are so determined to lobby government to support “free enterprise,” or at least to quash regulations that might hurt their business. The article discusses how the Kochs are using the same strategy on global warming – fund enough junk science to convince people that there is no scientific consensus – which the tobacco companies used so effectively to stall regulation of nicotine.

The issue I’m contemplating is not one of maximizing profits, but a broader moral issue. What makes a CEO who knows his product is harmful fight so hard against regulation? Does he take his fiduciary duty to maximize shareholder profits that seriously? Is he so focused on his own compensation that he doesn’t care what health problems he causes? The Kochs are nutjob John Birchers, so I expect them to screw over the world, but what about all the other CEOs? What about those who are fighting against environmental regulations even though they know that the global warming science is solid? Or Wall Street CEOs fighting against regulations when they know that their companies caused the financial meltdown? Or coal mining CEOs fighting safety regulation after an explosion in their mine killed 29 workers?

Look, I’m not anti-business. To the contrary, I am solidly pro-business. I’ve worked at companies, I’ve started companies, I consult to companies. My whole life is built on business. I understand the profit motive. What I don’t understand is the willingness to screw over the public in order to make more money. These CEOs would never in a million years think it was OK to stab a man and steal his wallet, but they have no problem poisoning him with industrial waste in order to save money. When do these people have enough? Where is their sense of human decency?

Wall Street: “Trust Us.” Me: “No!”

Last week the Wall Street Journal wrote an article on the SEC‘s efforts to ban “naked access,” which is a system whereby big stock traders are given direct access to brokers’ computers so that they can trade faster. The SEC fears that this could be destabilizing to markets. Wall Street says that naked access improves liquidity. They also say that “high-speed trading firms are sophisticated and have risk-management tools that limit the likelihood of destabilizing trades.”

Haven’t we heard that song before? Wall Street said that they were sophisticated traders of mortgage-backed securities, and that their risk-management models would keep them from getting in trouble. We know how that turned out. I’m no expert on naked access, but I know that when Wall Street says “trust us,” I make sure they haven’t just stolen my wallet.

Along the same lines, here is an article in Slate describing how Wall Street has always complained about regulations that ended up helping the industry.

Business Schools Adding Creative Thinking

The NY Times recently wrote a story about how business schools are, in the wake of the financial meltdown, realizing that they need to teach future business leaders to think in creative, flexible and interdisciplinary ways. This is news? I’m no captain of industry, but to me it seems incredibly obvious that in business, like in the rest of life, the right way to make decisions is to pull together disparate data points to draw a conclusion, and then be willing to change that decision as new data comes in. Maybe the fact that this is news is what has been wrong with business schools all along.

Anger at Wall Street Grows

Just a few links to articles showing how fed up folks are getting with Wall Street.

  • The NY Times with a column from a former corporate lawyer calling for a windfall profits tax on Goldman Sachs
  • Salon telling Wall Street to “just shut up” and advocating limits to lobbying by financial firms
  • A new regulatory manifesto by a fed up investment banker
  • And just for fun, an attack on private equity’s quest for capital gains tax treatment

It’s starting to look like enough people are fed up that something might happen. Of course, the financial industry has already spent $350 million this year on lobbying, setting a record, and we know that politicians listen to money more than they listen to voters.

The Government Does Not Want to Run Your Life

The Wall Street Journal recently ran an article on low-flow shower heads and all the cool ways that faucet makers are trying to make less water feel like more water (turbines, anyone?). The federal government first set rules on shower head throughput in 1992, due to various water shortages throughout the country. Of course, many people like their high-pressure showers, so these rules are not necessarily popular. Or, as Ft. Worth cardiologist Michael Vaughan put it, those who would limit water flow are “just more of the self-appointed police that are going to tell you what’s the right way to live.”

I’m afraid I have to disagree with Dr. Vaughn. If there are water shortages, then rules on water usage are not telling you how to live, but rather classic government intervention to make society work. Maybe Dr. Vaughn didn’t study the tragedy of the commons in medical school, but if he did he would know that sometimes a larger party needs to set rules to ensure that even rational-acting individuals don’t utterly deplete a common resource. And Ft. Worth is definitely a place that needs to be careful about water. The local water district notes that “drought conditions are a part of life here in North Texas” and a southwestern farm magazine says:

“The Texas Water Development Board reports that by 2050 the state’s population will double from its current 22 million. Even with fairly strict conservation efforts, demand for water will increase by 20 percent to 25 percent. But water supply likely will decrease by 17 percent.”

More broadly speaking, in this year of tea parties it seems like there are folks who want to call every form of government regulation a case of “the self-appointed police that are going to tell you what’s the right way to live.” But in fact, government regulation is an inherent part of living in society. Part of the social contract we all enter is that government will limit our ability to do things that harm society. Rousseau said that in the 1700’s, and it hasn’t changed. Even J.S. Mill, the father of liberty, said that you are not free to do things that harm other people. Using the last drop of water qualifies as harming other people.

I don’t claim that all government regulation is warranted. There are plenty of examples of overzealous bureaucrats or legislators pushing nanny-state sort of rules. But neither is every government rule an example of overreaching state control into the quotidian details of our daily life. Rules and regulations are part of civilization; in fact, one could argue that civilization is nothing BUT a web of rules and regulations. Part of the democratic process is the citizens using their vote to adjust the level of regulation, but they will never be able to vote away all regulation. Unless you want to retreat into the woods like Jeremiah Johnson, you’re going to face some government regulation.

As for Dr. Vaughn, I don’t hear him complaining about the government that built the pipes and pumps and keeps them going to send clean water to his faucet. He only wants to complain when government limits the water that IT PROVIDES. I would be willing to bet that he views himself as some sort of Howard Roark of medicine, a rugged individualist who makes big money because of his vast knowledge, ignoring that much of his income is from prescribing drugs that were likely developed with NIH funding. And as long as I’m piling on Dr. Vaughn, I should note that the government is not “the self-appointed police.” The government is the actual police, empowered by the people to act.

Niebuhr vs. The Free Market

The deeper I get into Moral Man and Immoral Society, the more I realize that Reinhold Niebuhr was tremendously prescient. Or, perhaps, the world just hasn’t changed in the 70 years since he wrote the book.

For example:

“Thus, for instance, a laissez faire economic theory is maintained in an industrial era through the ignorant believe that the general welfare is best served by placing the least possible political restraints upon economic activity. The history of the past hundred years is a refutation of the theory….The men in power in modern industry would not, of course, capitulate simply because the social philosophy by which they justify their policies had been discredited. “

And yet, since the Reagan presidency, we have seen nothing but deregulation and an emphasis on laissez faire economics. And even after the meltdown of the past two years, the Right is clinging more than ever to its free market mantra, following the siren song of Ayn Rand, letting the Howard Roarks of the world build their luxury highrises while the city crumbles around them (that was buildings as metaphors and as concrete examples (and THAT was using a word which is a component of buildings also as a descriptive (Thoughtbasket has layers, baby))).

Just yesterday the NY Times reported on how Congress is gutting the Sarbanes-Oxley bill, removing the post-Enron regulations that were meant to prevent corporate chicanery, succumbing to corporate and banking lobbyists at the expense of small investors. Were Niebuhr alive he would be knowingly, and sadly, shaking his head.