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

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.

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

Wolves of Wall Street

Michael Lewis has a new book out called Flash Boys. Imagine yourself looking over some clothes, say, at a large departmental store. You check the price tags and select the jacket that you want. You take it up to the counter only to discover that the price has been jacked up after you showed interest in it! The store clerk tells you that someone else watching on a camera saw your interest and bought it just before you got up to the counter.  That person is willing to sell it on to you for $5.00 extra. This is essentially the story that Lewis tells. Continue reading

Political economy

What we know as “economics” today used to be called, much more appropriately, “political economy.” Gregory Mankiw, Harvard economics professor, reminds us in his article in The New York Times (http://nyti.ms/1fOSiNz) that in giving policy advice, economists are also making their own political judgments.” Sadly, despite being one of those economics professors himself, he seems to exclude himself from this judgment. He ends his essay by commenting that “they” are the ones whose policy prescriptions reflect “their” political philosophy. The general point that he makes is an excellent one. Economics is politics disguised with a few figures to give it the veneer of respectability. But this applies as much to his views as to those of his foils.

Zero marginal costs

I taught managerial accounting for many years and complained for all those years that economists simply did not understand fixed costs. I also complained that we accountants liked talking about variable costs even though there were none. Now comes Jeremy Rifkin, talking in a NY Times article about what happens to capitalism, as we know it, when all costs become fixed and variable costs (marginal costs in economic lingo) tend to zero. Continue reading

Was Marx right?

Thomas Piketty in Capital shows that the rate of return on capital tends to exceed the rate of growth with the inevitable result that inequality is going to increase, possibly sharply. This tends to confirm Marx’s fears about capitalism. This inequality can be curbed by political means but the political will to do anything about it seems to be lacking, particularly as elites appear to control the levers of political power. I am rather intrigued by the role of the church in all this. Their focus on sexual issues to the exclusion of economic issues has led many to vote for a party that does not act in their economic interest. Others, such as Thomas Frank, have long since noticed this.

Retirement woes

This morning’s newspaper reminds one how new and how precarious the pension system is. Essentially, the company defined benefit pension was a product of the postwar years. As American manufacturing moved abroad, those pensions were turned into defined contribution schemes. Their management and their risk was turned over to the individual. Not surprisingly, with no training in pension management and a planning perspective limited to tomorrow, individuals have failed to take care of their futures. With fewer children and those that we do have living far away, the elderly will have to fend for themselves and with precious little in hand. Some talk of working forever but this fantasy suggests a booming job market for octogenarians. This when the real rate of unemployment is probably over ten percent. The next few decades promise to be interesting ones for my generation.

Budget Blues

I have written at length over the years about how government does not distinguish between expense and asset i.e., whether money spent is for today or for tomorrow. It is pleasing to see the House actually vote in favor of a budget — any budget. Unfortunately, this one seems to continue to slash the investment side while leaving the expense side intact. The opposition to the bill would be more credible if it were not in favor of simply slashing both investment and expense.