Why educate?

Why do we bother to educate our young? Or put alternatively, why do our young bother to get educated? The discussion revolving around the Supreme Court’s decision on affirmative action at the University of Michigan seems to muddle those two questions. Do we, as a society, have an interest in educating our young? Or is education a purely private affair? More sharply put, is education all about “me” or is it about “us.” Those who oppose affirmative action seem to be arguing that “I” am being denied an education because someone else was given preference over me; those who favor affirmative action seem to be suggesting that society has an interest in how people are educated. Continue reading

America falls behind

The New York Times has a fascinating article titled “The American Middle Class Is No Longer the World’s Richest.(http://nyti.ms/1juH6YE) It points out that average per capita income in the United States continues to lead the world but that average conceals the fact that the rich have become very much richer while the rest of the country has become poorer. Both the middle class and the poor have fallen behind compared to similar groups in other countries such as Canada.

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A moral economy

Arthur C. Brooks, President of the American Economic Institute, is catching my eye these days and speaking my kind of language. This morning’s Capitalism and the Dalai Lama (http://nyti.ms/1nt5ptR) captures my sentiments almost entirely. Quoting the Dalai Lama with approval, he writes: “Markets are instrumental, not intrinsic, for human flourishing. As with any tool, wielding capitalism for good requires deep moral awareness.” And again, “Advocates of free enterprise must remember that the system’s moral core is neither profits nor efficiency. It is creating opportunity for individuals who need it the most.” Bravo! Continue reading

It’s Hard

This week brought news of the collapse of pooled pension funds. One woman told how she had lost her husband’s pension, which was all of $432. So what you might ask? Well, when the only other income you have is a Social Security check of $900 a month then $432 is a lot of money. As she said painfully, “It’s hard.” The same week brought news of executive salaries and the fact that Larry Ellison had taken home $78 million. Ouch!!! And then came the news that a basketball team was up for sale. Our own Mark Cuban paid $275 million for the Dallas Mavericks. According to the paper he said “laughingly” that he bought it with “fun” money, from an uptick in a share. The contrast between the few who have and the many who don’t is quite mind-boggling.

Capital in the Twenty-First Century

There is a new book out, this one by a Professor Thomas Piketty of the University of Paris. Others more equipped than I am have written excellent reviews. See, for instance, Martin Wolf of the Financial Times at http://on.ft.com/1hIeobd. What emerges from the book is clear evidence that the rich are getting richer and that the process is accelerating. Wealth brings power and enables CEO’s to demand outrageous salaries that add to the pile. The wealthy are unable to spend their wealth and so it accumulates even further. The growing importance of robots doing the jobs that humans used to perform is tilting the balance even further in favor of a small group of very, very rich people. We are returning to the world of feudal kingdoms when the lord of the manor owned most all of it. Wolf suggests that this might not matter economically. After all, he says, the poor in developed countries enjoy lifestyles that the rich of a century ago would envy. On the other hand, he and others do worry that it does matter politically as wealth gives the rich an inordinate share of the vote.

Entity principle

One of the first things that we teach students in an accounting class is that the business is separate from its owners. This is true, we say, even if it is a Mom & Pop store. Joe Smith starts up Smith Inc and puts $10,000 into it. We record this as equity and show it as the company Smith Inc “owing” this money to Mr. Smith the person. Joe injects a further $5,000 into the business as a temporary matter. We show him lending this money to Smith Inc and the company owing the money to him. This despite the fact that Mr. Smith is the sole owner of Smith Inc. So, it comes as somewhat of a surprise to this old accounting professor to hear the Supreme Court even accepting a brief from a company that claims to have religious principles. Sure the owners do. But, in my mind, and the minds of generations of accounting professors and their students Hobby Lobby is an entity separate from its owners. It is not at all clear to me in this Holy Week that Jesus died to save Hobby Lobby.

Going home

Richard Cohen is an ex-South African correspondent for the New York Times who lives in New York these days. He had a column today (In Search of Home http://nyti.ms/1fzpn4v) that asked where you would go if you knew you only had a few weeks to live. This is his answer:
I would go to Cape Town, to my grandfather’s house, Duxbury, looking out over the railway line near Kalk Bay station to the ocean and the Cape of Good Hope. During my childhood, there was the scent of salt and pine and, in certain winds, a pungent waft from the fish processing plant in Fish Hoek. I would dangle a little net in rock pools and find myself hypnotized by the silky water and quivering life in it. The heat, not the dry high-veld heat of Johannesburg but something denser, pounded by the time we came back from the beach at lunchtime. It reverberated off the stone, angled into every recess. The lunch table was set and soon enough fried fish, usually firm-fleshed kingklip, would be served, so fresh it seemed to burst from its batter. At night the lights of Simon’s Town glittered, a lovely necklace strung along a promontory.
As an ex-South African myself who knows Kalk Bay well, I liked it.

Cost benefit analysis

This is NOT a defence of  GM but it does try to raise an issue that I have not heard discussed. Simply put: Life is uncertain and we all live with that fact. All kinds of things can happen to us when we walk out the door, including catching an airborne disease from someone else on the street. We could protect ourselves from all these risks  by wearing a hazmat suit and surrounding ourselves with a big rubber band. We choose not to because each of us does a cost-benefit analysis on an ongoing basis. Yes, we might catch flu and die but we offset that possibility with the inconvenience of wearing a mask. We figure that the benefits are not worth the costs. In short, there is nothing that is 100% safe — or, more correctly put, nothing is 100% safe unless we are willing to spend an awful lot of money. Continue reading

Zero marginal – not average

I listened to an interview with Jeremy Rifkin on the subject of zero marginal costs in which he steered dangerously close to saying that average costs were tending to zero. That latter is simply not true and quite misleading. The problem that newspapers have faced is that they have very high fixed costs but the actual cost of delivering a newspaper, especially in digital form, is essentially zero. People appear to be willing to pay for the marginal cost only. In other words, they treat news as a free good. The average cost of delivering good news is high; the marginal cost is negligible. They are not the same. Continue reading