Getting Angry While Reading the New York Times

In general, I try to be dispassionate when thinking about economics or reading people with whom I disagree.  However, I failed a couple of times over the weekend.  An opinon piece in Sunday's NY Times written by William Deresiewicz, "Capitalists and Other Psychopaths," began my anger.  He refers to a recent (unnamed) study that found that 10% of the people who work on Wall Street are "clinical psychopaths." He then goes on to say that he cannot understand why anyone would find this puzzling. He writes, "Wall Street is capitalism in its purest form, and capitalism is predicated on bad behavior." He cites Mandeville's, "The Fable of the Bees" to support his claim. He pokes fun at business colleges, asking if they have courses called "Robbing Widows and Orphans" and the like.

To this point I could have just ignored the piece, but he continues by denigrating entrepreneurship, and then to claim that ethics in capitalism is purely optional.  He states that capitalis values our antithetical to Christian ones and that capitalist values are antithetical to democratic ones.

Mr. Deresiewicz has a simplistic version of capitalism, Christianity and democracy.  It is worth noting that he begins with Mandeville rather than Adam Smith.  Smith did not like Mandeville's work.  Smith's first great work was The Theory of Moral Sentiments, in which he provided an examination of morality in a commercial society.  Most scholars today think the book underpins The Wealth of Nations.  Capitalism relies on people honoring contracts even when it isn't in their short-term interest.  Reputation is important for most firms, and people work hard and take losses rather than allow their reputation to be tarnished.  Of course examples can be found of people who fail to live up to these minimal standards, but such people can be found in any line of work, including politicians who lie, writers who plagarize, atheletes who cheat, and teachers who are lazy.

Since Mr. Deresiewicz believes that profit-seeking implies bad behavior, he sees capitalism as inconsistent with Christianity. Given his assumption, he would be correct. But capitalism does not imply or depend on bad behavior.  Self-interest is not selfishness.  People work together in teams, people are employed with jobs that can support their families, and goods and services are produced that have enriched many, as well as lead to longer and healthier lives.

It is also noteworthy that Mr. Deresiewicz offers no alternative model.  The socialist model of the Soviet Union failed.  Some kind of third way has been offered by many, but failed to be implemented or to succeed when an attempt at implementation has been made.

On another, though not totally unrelated, note--I was thinking about JP Morgan's $2 billion loss that came out before the weekend.  It is being used to increase demands for regulations on banking and a strong version of the Volker rule.  The idea is that people in some industries cannot be trusted to reduce risk and government regulators need to be involved to prevent systemic problems.  I thought also of Solyndra and the loss of taxpayer money it signified. I turns out I was not alone. So did Paul Krugman (in his blog), although we came to different conclusions. He argued that he loss at Solyndra is no big deal since such losses happen in the private sector also.  He also used his blog to denigrate Jamie Dimon in an ad hominum way as is his want.  The example of Solyndra is important in my view because of the presumption that mistakes that can be costly to the taxpayer should be monitored by the government in some way. But, who monitors the monitor?  Firms try to influence regulators, but when subsidies are offered by the government, it is likely that efforts to use personal relationships or other methods to win the subsidy will be used.  If banks need regulation, might not government agencies need regulation when awarding subsidies? But, how effective is one agency monitoring another? 

Finally, on a totally different note, the "news" that Mitt Romney may have bullied someone in high school.  Many have raised the question of how far back in a candidate's life can the press go to look for potentially damaging events.  As a Viet Nam veteran who lived through the tumult of the 60s and early 70s, I long ago decided that a candidate's behavior during those times is not relevant in my decision making about the candidate. They were difficult times and young men often made difficult choices.  I don't presume that the decision an 18-year-old makes is necessarily a good predictor of decisions he or she will make at 48.  This goes in spades for someone who is 16 years old.  Yet, two of the op-ed pieces in Saturday's NY Times discussed the story about Romney and tried to make him look bad while still making token statements about how we shouldn't look at cadidiates' lives at such a young age. How hypocritical.  (I don't think either writer claims to be a capitalist either.)

China's Growth Rate is Slowing

There are stories in the newspapers today about China's growth rate is slowing down and some other concerns about their economy are discussed.  When the U.S. and most of the West had the financial crisis in 2008, China tried to set itself up as a model of how to run a successful economy.  Now some say that it may not be such a great model.  I don't know why anyone thought it was. Yes, China has been  growing at rapid rates for some time. But, it is easier to grow when you are catching up with the advanced economies. Japan did so in the 50s and 60s, South Korea more recently and now China.  Like China, Japan used more government direction than we do in the U.S., and many here thought it would be better if we had an industrial policy.  But, Japan has not been the economy we want to copy for a couple of decades now.  China will not be in the future either.

Pieces from Today's Wall Street Journal

Several pieces in today's Wall Street Journal that are of interest.  The first is a long article on the Greek crisis.  I was in Germany two years ago to teach a short course on public policy. Greece was in the news so I included a part of the course on the Greek situation.  Last year I taught the course again and, once again, Greece was in the news so I discussed it again.  I will be there shortly and it appears Greece can be an illustratation again.  This article is likely to be one of the handouts for the class.

There are also two op-ed pieces.  The first looks at how President Roosevelt changed his policy in light of the war in Europe. He quit bashing big business and asked for help from big business to help gear up for the war effort.  The second is by economist Robert Barro concerning stimulus spending. He counters the claim by Keynesians such as Krugman that the problem in Europe is austerity and that massive fiscal stimulus is needed.  He argues that there is a short-run stimulative effect of an increase in government deficits but that it turns negative after a few quarters.  If he is correct, it could generate the same kind of problems the stop-go monetary policy we had in the 70s.  The stimulus in money supply would reduce unemployment shortly, but after awhile the unemployment went back up and was accompanied by ever higher inflation rates.  We could have bouts of stimulus that fails over time at everthing except generating higher debt levels.

The Dollar

An article in The American Interest by Barry Eichengreen is worth a read.  There has been talk about the decline of the dollar in prestige and that eventually the Chinese yuan may attain reserve currency status, but I have argued in the past that the yuan is a long way from achieving that kind of status.  Eichengreen offers some reasons why that is the case.

Elections in Europe

As expected, Hollande defeated Sarkozy in France.  This will change the status quo relationship between Germany and France, and may shake up the entire EU.  People are not voting for austerity.  I do not want to try and analyze the situation as yet since there may be other shake ups. But I am looking foreward to going to Germany to teach a course on public policy this summer.  Hearing the views of people there and reading European press provides insights hard to get here.  Especially is one gets his news from TV news. (I watched the first thirty minutes of the Today Show this morning, and the coverage of the European elections was minimal.)

I expected Paul Krugman's op-ed column this morning to argue that the elections show that the people do not want austerity and that it is time to promote growth through deficit spending.l  I was not disappointed.

Are the Rich Worth a Damn?

I take the title of the post from the title of an article in yesterdays New York Times Magazine.  Adam Davidson writes about Edward Conard, a former partner in Mitt Romney's Bain Capital, and author of a forthcoming book, Unintended Consequences: Why Everything You've Been Told About the Economy is Wrong. Conard argues that all the concerns about the 1% and income inequality are mistaken, and that the increasing wealth of the 1% is an indication that the situation of the 99% is improving. Davidson writes, "This could be the most hated book of the year."

According to Davidson's article, the argument is that the capitalist system encourages risk taking, and that risk taking leads to greater wealth for the successful entrepreneurs, but also improvement in the lives of everyone else as the entrepreneurs have created products and services that people value.  The investment in these projects by people seeking wealth have the unintended consequence of improving lives for everyone else.

This is not the way the term, "unintended consequences," is used by economists today.  Instead, it usually refers to the unintended negative consequences of legislation or actions that have good motives behind them.  But the term as unsed in Conard's title is in line with Adam Smith's notion of the invisible hand.  In The Wealth of Nations, Smith wrote:
   
"As every individual, therefore, endeavors as much as he can both to employ his capital in lthe support of domestic industry, and so to direct that industry that its produce may be of the greatest value, every individualo necessaily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention."

The unintended consequense is the result of the invisible hand, in Smith's statement.

I will read Conard's book when it comes out. Based on the interview, I suspect I will agree with much of it, but not all.  I consider crony capitalism to be a problem and am not convinced that some of the financial innovation actually generated great social gains. But the book and discussion of the book should be interesting.

For the article, see here.

Odds and Ends

Today's New York Times has a number of interesting pieces, although not all are economics. I will begin with economics and business though.  Tyler Cowen's column is about India, and how troublesome India's slowing growth rate may turn out to be. He argues that India's economy could surpass China this century because of the differences in population growth rates for the two countries.  But, he sees the growing segments of India's economy cut-off from the rest of the country.  There is also a long article on this year's college graduates and how many are turing to internships when they cannot find jobs.

On a different note--two articles in the sports section.  One on Joey Crawford, a NBA referee for many years.  I found it interesting,especially as it relates to many of the players who have been in the league since he began as a ref. The other is on Ron Guidry and Mariano Rivera. I am not a Yankees fan, but I remember when Guidry--Louisiana Lightening--was a Yank, and I consider Rivera to be the greatest closer even in the game.  With Rivera's injury, his career could be ending, but I hope not.  Although, according to the article, Guidry would often meet with Rivera during spring training and would tell him, "One of these days, your're going to be like I am--old."  Reminds of hearing Joe Garagiola say once while broadcasting a game--You know you're getting old when son's of players you played with are nearing retirement age.

Today is Hope's graduation. Perhaps I am recognizing the aging factor more as I see another group of young men and women graduate to start their lives.  The last article I will mention is from the Travel Section and is on China.  I accompanied the Baker Scholars at Hope to China over spring break. The article is about Beijing, Shanghai, and Hong Kong. We visited the first two of those cities, and also visited many businesses in the two cities.  It was the first time in many years that I thought how great it would be to by young and starting a career today because of the excitement and change I saw in China.  At this point, I would learn Chinese before any of India's languages.