Friday, February 06, 2009

The view from the top?

We tend to be a populist bunch around here, for the most part. I sense that we were a largely Obama-voting audience, and that in these recessionary times, our sympathies reside with the apocryphal "common man." Sometimes it's helpful to have a cogent argument from the other side. (And sometimes your host needs a little breather.) Hence this guest column, just the third or fourth such column I've run in the history of SHAMblog, which has now been in more-or-less continuous operation since June 2005. Just to be clear, this was not written/submitted by any of our by-name regulars. It was actually sent as a response to a question I'd posed: What did this individual think of Obama's plan to cap compensation for executives at bailed-out companies? I thought it was so well-put, touching at least peripherally on so many of the themes we cover, that I requested permission to run it, which the writer graciously gave. I suspect that some of you will have strong feelings about this.

Without further ado, then:

"I am very much a pro-capitalism kind of guy. I have participated fully in the capitalism systemfrom hitting it big when the company I worked for went public, to watching my seven-figure stock options vaporize to nothing in three weeks. I've been fired, laid-off, bought-out, and have started small businesses which were utter failures. And now I [launched my current business] from scratch, created new jobs and have a $500K payroll [personal compensation excluded].

"Plus, I'm an opinionated SOB by nature; so I've got a few thoughts on this subject.


"If your company has to take bailout funds
money from the government solely to keep your business running and not for any products or services you provide to the governmentthen the government owns you. You are the President's bitch. The owner gets to make the rules because you have proved too inept to survive on your own. It's no longer capitalism when the government has bailed you out; it's corporate welfare. Even if you are a Harvard MBA, you are still a welfare queen. Capitalists are supposed to make their money through ownershipnot salaries. Stock options (equity ownership) are supposed to provide the incentive to really run the company well: When the stock price goes up, the executive shareholder makes the big bucks. It's how Bill Gates got to be worth over $50 billion while drawing a salary of less than $1 million a year. Ditto Warren Buffet. But when the stock is worthless and the taxpayers have to be the owners because investors won't touch you, the rules change.

"Normally, when companies go bankrupt, all sorts of receivers and judges and auditors and mediators get to come in and rewrite contracts, impose limitations of all sorts, and even transfer the ownership from the equity stakeholders (shareholders) to the debt holders, who become the new owners. And since the old stock has become worthless, the stock options
usually a major component of executive compensationare worthless, too. Usually the old executive team is tossed out and 'turnaround specialists' are brought in to take the company out of bankruptcy.

"With a bailout, bankruptcy is avoided. Most of the old, under-performing executive team is usually allowed to stay on. And until you can pay back all the money, the President, through the administrative branch, gets to set the rules.

"Rule #1: You don't get a bigger salary than the President.

"Rule #2: You've got to give money to ACORN.
*

"I don't think this is a new precedent for government intervention. We've had much worse
such as WWII and nationalizing all industry for the war effort. Even patent rights were suspended. A guy named Philo Farnsworth invented the modern television, only to have the U.S. government seize his invention and hand it over to RCA for the war effort.** He died poor and bitter. And today the government gets to determine which businesses they will save: Checker Motors and Studebaker can disappear, but Chrysler gets bailed out. The government now wants to rewrite mortgage terms for borrowers and lenders totally outside the bankruptcy rules that governed the process when the contracts were written. Any wonder why banks aren't in a lending mood right now?

"You had plenty of chances to buy stock in GM and Chrysler, but you chose not to. Now the government has used your taxes to make that investment for you.
***

"Those previous examples are dangerous precedents. And the inside-the-beltway crowd wonders why 'The Market' is not responding?


"You've been a college teacher who has seen what happens when 'failure' is outlawed: Kids who should have been weeded out show up in college and they can't write at a 10th-grade level, much less a collegiate level. The standards have been lowered to the point where you, as a teacher, have no confidence in the ability of the incoming class. And the students copped an entitled-to-it mentality that demotivates all who try to maintain standards. Not a good situation at all.


"The same thing has happened in the economy. Banks that loaned money to people with a history of not repaying their obligations have lost billions of dollars. The executives who made those policies are still employed, but the stockholders are wiped out. OK, the executives are now de facto government employees.


"I'm not an Obama fan at all. But this steaming turd pile was left on his desk; he didn't create it. That said, he's going about this clean-up all wrong. The stimulus bill should be scrapped. Bush proved this sort of thing doesn't work
so why is Obama following the failed blueprint? The only way to create jobs is to get people to do the following:
  • Take risks by investing in new businesses.
  • Stabilize the dollar: Stop printing zillions of them.
  • Don't extend unemployment benefits. Paying people for not being productive is dumb; it just delays the hard decision that need to be made (get a new skill; move to a better market; go out on your own...)
  • Give incentives to people to create jobs. Maybe let them keep more of what they make?
  • The market should determine winners and losers and the value of an individual's skill set, not the government.
  • Don't remove the pain from failure. It's a great motivator.
"Getting back to your initial question: there is a price to pay for everything. If you take taxpayer money to keep your ass in business, then you've eliminated your riskand rewards."
===================================

NOTE: If you haven't seen the Bill Gates Net Worth Page, linked above with his name, you should check it out. It's fun, and full of mind-bending financial facts.


* That's called sarcasm, folks, and smartly done, too. But it's rooted in this.
** The precise sequence of events here remains controversial to this day, though it is clear that Farnsworth played a significant role in the birth of television.
*** This is, to me, a powerful line, and worth thinking about.

41 comments:

RevRon's Rants said...

I think your contributor hit the nail pretty much on the head, but I would offer one very significant caveat. I think the bailout is necessary at this point, but not as a tool to subsidize ill-advised business practices. While the big financial firms, lending institutions, and automakers have suffered as a direct result of their own greed and short-sightedness, there are many businesses that were well-run that suffer greatly due to no fault of their own, and it is these businesses - and individuals - who are truly deserving of government help.

A good example would be the company that provides machined parts for the automotive industry. Even if they ran their business well, managed their finances prudently, and paid their employees a fair wage for good work, when one of the big 3 cancels orders that make up a significant portion of their revenue, these smaller companies face complete devastation. Their employees get laid off or fired outright. Employees get behind on mortgage and rent payments, utility bills, and other debts, and run the very real risk of finding themselves homeless and dependent upon the government for their very survival.

Had the elected officials had the integrity to impose realistic regulations on industry in the first place, the vast majority of the abuses that led to the current crisis could have been avoided. That, however, is hindsight. What we need to do now is for the government to focus its efforts upon easing the financial pain of those individuals and companies that did it right, but were caught in the net of others' malfeasance and stupidity. And when that effort necessitates the subsidization of the companies that screwed things up in the first place, it is only appropriate that the assistance comes with conditions designed to prevent future stupidity and abuse. Capping executive salaries & benefits, as well as allowing investors to feel the consequences of poor decisions, is essential. These folks reaped the benefits when the bottom line looked great; they should also be liable when things turn sour. Both are integral parts of entrepreneurship.

It has been suggested - albeit with tongue in cheek - that the bailout funds be distributed equally among the citizens, which would amount to roughly $10,000 in the pocket of every man, woman, and child in the country. Perhaps those tongues need to be removed from the cheeks, after all. Imagine the upsurge in consumption if everyone got a check for ten grand! Cars would be bought, banks would have capital again, and the government would get a partial repayment of its investment immediately, in the form of taxes collected on expenditures. As for the people who got us into this mess in the first place... let them go out and get jobs. I'm sure their records of "success" would look great on their resumes.

Anonymous said...

Kind of a windbaggy way of saying "beggars can't be choosers", no?

Steve - who is arguing the other side of this? Who thinks bailed out companies should not have capped executive compensation?

Steve Salerno said...

Anon: Perhaps you missed the point here, or I missed the point of your comment. Our contributor is not saying that beggars can't be choosers; it's that they shouldn't be beggars in the first place. Our contributor argues quite specifically that the bailout should not have occurred, which therefore makes the issue of executive compensation moot. And I don't want to presume to put words in anyone's mouth, but I think our contributor would say that the matter of salaries and all the rest should be left to the free market to sort out. Let the chips fall where they may.

Btw, support for Obama's new stimulus package now appears to be down in the low 30s, percentage-wise, so I think a lot of us are losing our enthusiasm for this willy-nilly tactic of just throwing money at the problem--especially money we don't have.

roger o'keefe said...

Your contributor nails it, and bravo to you for posting something from "the other side". No, not "the dark side", just "the other side".

People lose sight of the fact that the gov't is the gov't and industry is industry, and it's supposed to work that way in both good times and bad. If we run scared, so that the gov't in effect nationalizes industry every time we face a crisis, we no longer have a true free-market economy. I also think the point about your teaching experiences and the sense of entitlement is the operative one and is often overlooked. The concept of bailouts is dangerous not just because it conflicts with the very nature of capitalism, but because it allows management to operate in a very sloppy fashion. It dumbs down the business ethic in the same way that self-esteem education dumbed down academics performance.

If management knows that there's always a safety net and they're going to be bailed out no matter how poor their strategies and controls are, then where's the incentive for genuine excellence? That aspect hasn't even really been talked about during this whole bailout process, yet it's one of the most important issues.

Anonymous said...

That's where the bailout money goes--for outrageous bonuses and perks, lobbyists:
http://tinyurl.com/co49cn

and hookers:
http://tinyurl.com/b8mush

RevRon's Rants said...

First of all, Roger, we do not live in a true free market society. Due to the scope and complexity of our society, some degree of centralized governance is necessary. The core function of any society is to protect its individual members from predation, and to ensure the collective security of the whole. Had our elected officials (on both sides of the aisle) maintained even a minimal level of protective regulation against predation by powerful industries, we would not be facing the crisis that is presently before us. Much emphasis has been placed upon the danger from foreign enemies, while the actions of domestic predators has not merely been overlooked, it has been subsidized by our government, all in praise of the mantra of "opportunity." We need to remember that if we are to encourage opportunity, we must also guard against unchecked opportunism. The powerful must not be allowed to harm the powerless. Of late, the powerful have been given free rein to do as they wish, and our current financial crisis is the inevitable result.

It comes as no surprise that those who have so greatly profited from their abusive activities are so loudly decrying any attempt to regulate those activities. A child that is allowed to misbehave will similarly complain when finally faced with the expectation of appropriate behavior.

I'd be the first to admit that the "fix" is less than ideal, but political realities typically force us to swallow the bitter pill along with the sugar. And the reality is that our elected officials have grown so accustomed to quid pro quo for everything they do that they wouldn't vote for world peace unless they got their own reward for doing so.

I do believe that Obama is a smart man - likely a good bit smarter than the vast majority of the armchair quarterbacks who so eagerly look for something to criticize. He's learning that even the best of intentions will run up against the wall of myopic self-interests, especially those of people accustomed to exerting some influence. How well he will succeed is, I believe, dependent upon both his own leadership qualities and the willingness of the populace to face some harsh realities. If self-interest rules the day, Obama will fail. If, however, the American public (and our elected officials) are willing to look honestly at what got us into this mess, and to take the necessary and sometimes painful steps to get us out of it, he - and the country - will succeed.

My biggest concern right now is that there are some people who would have him fail, no matter the cost to the country. And to my way of thinking, such people are guilty of treason, no more American than the people in the streets of Tehran who cheered when they heard what happened on 9/11.

Elizabeth said...

And to my way of thinking, such people are guilty of treason, no more American than the people in the streets of Tehran who cheered when they heard what happened on 9/11.

Whoa! I looove it when you talk dirty, Ron...;)

RevRon's Rants said...

"Whoa! I looove it when you talk dirty, Ron...;)"

You ain't seen nothing yet, Elizabeth! Blame it on being sick of the whining, coupled with a muffin shortage.

roger o'keefe said...

Ron: Your reasoning is circular from the outset. You say "we don't live in a true free-market society" as if that's a winning serve, an automatic debate-stopper when maybe the question ought to be: Why not? Would we be in a better position right now if we'd remained more faithful to HONEST free-market principles?

You say "some degree of central governance" is necessary. We have strayed very far from "some degree" these days. Washington seems to be calling most of the shots, and I get the sense that if Obama had his druthers he'd be calling all of them: how much you can earn, how much profit you can generate, how much you need to "give back to society" in order to be considered a “good corporate citizen”.

You say "We need to remember that if we are to encourage opportunity, we must also guard against unchecked opportunism". I don't think you can do both. Like it or not, the steps you take to ensure the latter cancel out the former. If you leave the free market alone it will work. It's the halfway steps, the mixed metaphor that throws a wrench into everything.

I also think Obama's a smart guy, but smart doesn't necessarily equal capable or philosophically correct. Karl Marx was pretty smart too, I hear.

I think it is unfair and unconscionable for you to characterize corporate America as a "child" throwing a tantrum because it's used to getting its way. How many companies are we talking about here? And how many have been thrown into chaos through no fault of their own. But you go beyond that. "Domestic predators"? "Treason"?? What this kind of melodramatic rhetoric is mostly good for is inferring the writer's true feelings about Big Business and capitalism. I'd have expected to hear something like that on the streets of Munich in the 1930s, except maybe your targets then would have been "those damned Jew merchants".

RevRon's Rants said...

Sigh... here we go...

"Ron: Your reasoning is circular from the outset. You say "we don't live in a true free-market society" as if that's a winning serve, an automatic debate-stopper when maybe the question ought to be: Why not?"

Quite simply, because a true free market society would be built upon the principles of Social Darwinism, which is diametrically opposed to the values we allegedly hold dear.

"Would we be in a better position right now if we'd remained more faithful to HONEST free-market principles?"

We've been moving in that direction for the last decade, removing even reasonable restraints upon business practices. And frankly, that's what got us into this mess in the first place. You don't get yourself out of a hole using the same shovel.

"Washington seems to be calling most of the shots,"

If by Washington, you mean K-Street, I agree with you.

"and I get the sense that if Obama had his druthers he'd be calling all of them: how much you can earn, how much profit you can generate, how much you need to "give back to society" in order to be considered a “good corporate citizen”.

As I'd mentioned before, imposition of any restraint upon previously tolerated behavior will seem stifling to some.

You say "We need to remember that if we are to encourage opportunity, we must also guard against unchecked opportunism". I don't think you can do both. Like it or not, the steps you take to ensure the latter cancel out the former. If you leave the free market alone it will work. It's the halfway steps, the mixed metaphor that throws a wrench into everything."

Yeah. Look how that "unchecked opportunity" has benefited the populace of Hong Kong. Not my idea of an ideal society... though it might be to the wealthiest of their citizens.

"I also think Obama's a smart guy, but smart doesn't necessarily equal capable or philosophically correct. Karl Marx was pretty smart too, I hear."

And disagreement with him doesn't necessarily confer intelligence. Nor does a comparison of his intelligence to that of a communist confer communist leanings. That would have been a cheap shot, had it not been so transparent.

I think it is unfair and unconscionable for you to characterize corporate America as a "child" throwing a tantrum because it's used to getting its way."

Well, the shoe fits...

"How many companies are we talking about here? And how many have been thrown into chaos through no fault of their own."

Over half a million jobs lost so far this year. How many of those workers' fault is it that they are unemployed?

"But you go beyond that. "Domestic predators"? "Treason"?? What this kind of melodramatic rhetoric is mostly good for is inferring the writer's true feelings about Big Business and capitalism. I'd have expected to hear something like that on the streets of Munich in the 1930s, except maybe your targets then would have been "those damned Jew merchants".

Once again, that would have been a cheap shot, save for its transparency. In my opinion, anyone who places their own ideology or party affiliation above the good of the country, to the point that they would rather see the country in ruins than see someone who doesn't share their affiliations succeed, is a traitor to the country and the ideals upon which it is based. If that touches a nerve, so be it.

Anonymous said...

RevRon:

What makes you think the failure of President Obama is the same as the failure of the country? The government is not the country; we the people are the country.

Trying to prevent the plan of a US President - Bush's war (eg. Dixie Chicks); Obama's looting of the treasury to fund democrat supporters and programs - is not treason. Criticizing the performance of "your guy in power" is not treason, unless the guy in power is a dictator.

Anonymous said...

Roger:

You seem to forget that the first and apparently botched bail-out was Bush's idea, not Obama's.

roger o'keefe said...

How is that a cheap shot, Ron? You are demonizing an entire class of people, just like our German friend did, and in this case the people happen to be the ones that built America into what it is. Now you could go nitpick the "what it is" part of that last sentence as I'm sure you will. It won't change the fact that free enterprise, warts and all, has produced an astonishing degree of productivity overall. Even poverty in the U.S. is nothing like poverty abroad. Our flaws are relative.

One final thought: Concern for the worker class has never made a society prosper and excel. That goes against the grain for a lot of people but it's true. Our society flourishes because it allows for boundless entrepreneurial aspiration, yes even when it's done in the name of greed. Read the full Boesky speech sometime, the one that was the basis for the "greed is good" speech in Wall Street. If you can honestly disagree with any of it, I want to know why.

RevRon's Rants said...

Anon - What gets under my skin is the chorus of folks who refuse to even consider that the man who was elected by the majority of voters might have a handle on fixing some of our problems, and are unwilling to give him the chance that his election victory conferred. They are usually the same people who sat silently as the last president flushed the middle class and plunged us into an unnecessary war. Too much tied to labels, and too little to logic.

If we are so fixed in our ideology or party affiliation that we refuse to even allow him to begin to do the job we hired him to do, it's not just the president who will fail; we'll all fail, right along with him.

Elizabeth said...

As much as I would like to stay out of this (and other discussions) nowadays, I must ask you, Roger, about a couple of your statements.

You said:
Concern for the worker class has never made a society prosper and excel.

and

Even poverty in the U.S. is nothing like poverty abroad.

If I read this correctly, you are saying that American poverty is "better" (more "prosperous," etc.) than poverty elsewhere in the world. I think it would be helpful for you to be more specific here. By "abroad" do you mean France or Haiti, for example? Because if you mean the latter (and other underdeveloped countries), then yes, you are right, our poverty is "better" than theirs. But if you look at other (post)industrialized countries (of Western Europe, for example), then American poverty is horrific compared to theirs -- and this is precisely because of their concern over the working stiff and other underprivileged folk.

BTW, I grew up in what would be considered poverty (maybe even abject poverty by American standards) in a socialist country, and I can tell you from my own experience that being poor there (and then) beats by a 1000 miles being poor in America. I could also elaborate on why it is so, if you were interested to know (though I think I did that, sort of, several times on SHAMblog already).

Elizabeth said...

Our flaws are relative.

Our flaws are relative to what, Roger -- those of Third World countries? Is this the standard of comparison you want to use? If so, then why? And if so, then let's also talk about the relative character of our virtues. Because yes, our virtues are relative too.

Besides, the fact that our flaws may be relative (to Third World countries, for example) does not mean much to those at the very bottom of our society who have no chance for social advancement, even though they may own shoes or a refrigerator (wow). Nor, frankly, should it matter to any of us. It's a small consolation to keep repeating that in some respects we may be better than, say, Haiti or Zimbabwe.

RevRon's Rants said...

"How is that a cheap shot, Ron? You are demonizing an entire class of people, just like our German friend did, ..."

It's not really a cheap shot, Roger, simply because its implication is so off the mark and transparent as to render it ludicrous. And I *am* demonizing an entire class of people: those who sought to enrich themselves at the cost of others' well-being, not to mention the well-being of the very commerce that has made us successful.

As to nit-picking - Perhaps we simply have different perspectives as to what makes this country great. I happen to agree with the comment that the strength of our character is what makes us truly great. While we certainly need to be prosperous in order to be strong, wealth can be made, lost, and made again. Absent that strength of character, no amount of wealth will sustain us.

"One final thought: Concern for the worker class has never made a society prosper and excel."

Nor has the abuse of the worker class made a society great. One need only study history to recognize that a society that eschews concern for the "common man" is doomed to eventual failure. There must be balance between the desires of the powerful class and the needs of everyone else. When either one assumes a position of extreme dominance, the society itself either falls under draconian rule or simply collapses. Even the imposition of draconian rule fails to permanently prevent the eventual collapse. And I assume you know what they say about ignoring the lessons of history...

Elizabeth said...

Last (but not least) thought on the perils of the free market ideology (bear with me for a moment): there are certain areas of life where the cut-throat competition promoted by the free market is not only useless, but quite harmful -- and I don't think we are fully cognizant of that (if at all), even though it may seem to be an obvious statement.

On the recent SHAMblog thread about infidelity, someone made a comment about women competing with men in marriage as one of the reasons (the reason?) for infidelity and the breakdown of marriage. That was a good point, I thought, but somewhat limited in scope, for the competition between spouses does not arise from some personal fault of one spouse (or both; most of the time, that is), but more often it is just a reflection of the larger social structure and order. In a society where everything is for profit and every human action and interaction is viewed from this perspective, is it any wonder that we have married folks looking at their spouses as rivals in the survival game? Love, compassion and self-sacrifice are distinctly unprofitable and are looked upon as a waste of time (which is money, after all) or signs of one's naivete, if not downright stupidity. That "gender wars" are so toxic in the US is no accident, IMO, for they are fueled by the fiercely competitive and individualistic ethos embedded in the free market economy.

Roger, not that long ago you asked Steve, incredulously, how the economics justify his prolific blogging. That was a legit question, of course, but quite symptomatic, IMO, of the point of view which makes us consider everything we do as potential means of enlarging our profits. Personally, I could not begin to express how sad and dehumanizing such an approach is, especially when it spills over from the areas of industry and commerce to human interactions and relationships. But it clearly does so, as we see over and over again pretty much everywhere we look.

RevRon's Rants said...

"That "gender wars" are so toxic in the US is no accident, IMO, for they are fueled by the fiercely competitive and individualistic ethos embedded in the free market economy."

I hadn't even considered that, Elizabeth, but it certainly doesn't seem like much of a stretch (if any). Given the inherent fragility of our male egos, coupled with women's relatively recent emergence into the uber-competitive aspects of business, I can see where things could get ... difficult (I started to say "sticky," but that word has other, less combative connotations to me). :-)

Jen said...

Re: Elizabeth's observation:

... there are certain areas of life where the cut-throat competition promoted by the free market is not only useless, but quite harmful....

I am glad you brought this up, Elizabeth. It is disheartening to watch one-upsmanship go on for too long, whether it's in the "gender" war(s) or in the various ideological and philosophical battles we keep waging with each other, with no cease fire in sight.

Maybe all we need is a new language, or just a new way of talking to each other. It sometimes seems as if people are waiting and watching for key words to appear, in speech or in writing, so these can either be struck down or exalted. Good, bad. Cut, dried. (I'm not excluding myself from "those" people, by the way.)

Things aren't as simple as we would perhaps like them to be; they are much more complex. Words are such emotional triggers, and with so much blame going around, who can hear what is really being said most of the time?

Anyway, I found your comparison of the free market to the male/female competition enlightening.

Elizabeth said...

Ron, m'friend, you're incorrigible. ;)

Seriously, yes, this could a subject for another thread (or two, or three, or fifty). Those who extol the virtues of the free market system often do not notice how it affects all aspects of our lives, including our family structure and functioning, our intimate relationships, and our innermost thoughts and feelings. (This of course can be said about any and all socio-economic systems.)

I could go on a (so tiresome) rant here, but I have a better idea (especially for the champions of free market): check out writings of this guy -- he is a staunch anticommunist, yet his (correct, IMO) views on free market capitalism may sober you up a bit -- or not. It's a cumbersome read at times, but, well, what do you expect? :)

And this is the man's special message for the US. Here is a fragment (and mind you, this is from 1999):

Corruption is often among the causes of crushing public debt, and is therefore a serious problem which needs to be considered carefully. “Respecting no boundaries, [corruption] involves persons, public and private structures of power and the governing elites”. It creates a situation which “encourages impunity and the illicit accumulation of money, lack of trust in political institutions, especially the administration of justice and public investments, which are not always transparent, equal for all and effective”.(62)

Here I wish to recall what I wrote in the Message for the 1998 World Day of Peace — that the plague of corruption needs to be denounced and combatted forcefully by those in authority, with “the generous support of all citizens, sustained by a firm moral conscience”.(63) Appropriate supervisory bodies and transparency in economic and financial transactions are helpful and in many cases stop the spread of corruption, the dire consequences of which fall in the main upon the weakest and most marginal members of society. It is also the poor who are the first to suffer as a result of delays and inefficiency, by not being properly defended, because of structural deficiencies, especially when corruption affects the administration of justice itself.

Steve Salerno said...

Jen: Interestingly, in connection with my piece for Skeptic on crime and punishment, I've been reading a book about how jurors make the decisions they do--it is seldom based on the evidence per se, apparently, despite what they'll tell you in post-mortems. And the book points out that most of us, if we're going to be honest (with ourselves above all), listen for words and phrases that trigger "confirmation bias." We seize upon something that validates what we already believe, and reject (in the meantime) anything else that would tend to refute what we believe. Even if the objective evidence is overwhelmingly on the other side of the ledger, we'll filter all that out, or find some way of rationalizing it, in order to create a framework in which we can give primary emphasis to the facts that allow us to go on believing what we already believe and/or that conform to our existing way of looking at life.

Strange and fragile creatures, aren't we?

Anonymous said...

This an interesting debate, you can really see people's biases showing in full color. Myself I'm closer to Roger under normal cicumstances but, these are not normal circumstances. It's a tough one.
-Carl

Jen said...

Steve, regarding confirmation bias: Yes, this reminds me of "The Thin Blue Line," which you are probably familiar with. There is a book (Adams vs. Texas, by ) and a movie, both of them excellent, although the book tells much more than the movie. It is about Randall Adams, who was wrongly convicted for murdering a police officer in Dallas. It was a bizarre story in which the actual murderer became the primary witness; he basically just repeated in court what he himself did except that he pointed to another guy (Randall) and said that he did it. Nobody questioned the guy's story; he was so believable because he was actually telling the truth about what happened, just skewed slightly to get himself off the hook.

I read the book first and was so captivated by it, I went out and bought the movie. It's one of those stories with so many twists and turns you wonder how it ever could have ended up that way. Definitely in the "truth is stranger than fiction" category, and there seems to be as much mystique behind the story that wasn't published, too. (The extended back story.)

Steve Salerno said...

Jen: Yes, I saw it and was deeply shaken by it. There was also a segment on one of the newsmagazines; I forget which and when, but it told the story of the mother of a boy who was awaiting execution--he was 19, 20 tops--and the evidence against him was somewhere between flimsy and downright absurd: e.g., "eyewitnesses" who saw the perpetrator at night, only from the back (he was a black boy), at a distance of more than 50 yards, and couldn't even describe his clothing. He also had an alibi that the jury evidently discounted. I will never forget that final scene of her rolling on the ground and keening in front of her modest apartment as the clock strikes 12 and she knows that her son is, at that moment, being put to death.

to live and die in the USA said...

So let me understand what this guest blogger and the other diehard capitalists are arguing for because I'm not sure I do. You want a totally unfettered free market? There would be no Taft Hartley or Mag-Moss? No unemployment insurance? I hate to bring farmers into it because I know they're a sore spot with many people, but what should have been done with them originally? Just let them all fail? I don't really understand what you're saying. Are you really arguing for total market Darwinism where the market decides everything, no exceptions? So for example if a company puts out a product that kills people, and keeps doing it, then you just want the public to gradually learn that they should buy another product instead, without the government ever getting involved? Because once you start regulating where do you stop?

It's like I have friends who are extreme personal liberty types who hate the Patriot Law and all that, but I don't think I know anyone who would seriously argue for taking the metal detectors out of airports. It would be suicide.

Anonymous said...

to live and die in the USA...

Steve graciously let me author this blog - we have had many off-blog discussions. I don't always agree with Mr. Salerno, but he does make me think.

let me address your questions:

Do I advocate and unfettered free market? No, not "unfettered"; but i do think failure and bankruptcy should be outlawed because some companies deem themselves "too important to fail". The government should not pick winners and losers; let the market do that.
- Am I against Taft-Hartley? Not at all - taft-Hartley put restrictions on Labor Unions and curbed many of their thuggish tactics, and allowed states to enact "right-to-work laws". http://en.wikipedia.org/wiki/Taft-Hartley_Act
- Am I against the Magnuson-Moss Act? Mag-moss pertains to defective products and the liability of manufacturers. Totally irrelevant to anything I've written. My position is about the responsibility of individuals, companies and the people who run the companies. Ever expanding government is allowing individuals, companies and their executives to abdicate any responsibility for failure.
- No unemployment insurance? No "expanded unemployment insurance is more accurate. Hard decisions need to be made when a person loses a job. I've been there; I've suffered this humiliation more than once. The jobless need to not wallow in their misfortune and give up false hope that their job is coming back. The true obligation is not from society to the jobless; but from the jobless to him/herself, family and dependents.
- What should have been done with farmers "originally"? How far back do you want to go here? Before the industrial revolution, over 80% of the colonists were involved in farming. The vast majority of this country's population was eeking out a subsistence living. It would have been a really dumb idea to prevent small farm failures in the 1700s; and it's just as dumb right now.
-Where do we stop regulating? When the regulations have hit the wall of diminishing returns, that's when. Lead in gas and paint was a great thing to banish. Lead weights on automotive wheels and tires for balancing purposes is not something which should be banished because there is no environmental impact whatsoever from their use. Ditto cholorcarbons (sp?) in asthma inhalers - asthma inhalers have just gone from $7 to $60 due to a stupid regulation which won't help the environment at all; but will hurt millions of people who suffer from asthma.

- Total market Darwinism? No, I'll just settle for the government not using your money (and mine) to subsidize failure. The best and brightest people do not work for the government. And I trust you to spend your money more wisely than the government spending it for you. If big government were the answer, the USSR would have buried us.

Now I must get back to running my business - which involves selling luxury goods and services which absolutely nobody needs, but many people desire. Many of my competitors are are going out of business and liquidating due to the current economic situation. But not my shop. We refuse to participate in this recession. We will out-think; out-hustle; and out-perform our competitors to ensure that we will thrive. It's 2:00PM on Saturday, and I am now preparing the January bonuses for the employees - they have earned their rewards and I am a firm believer in spreading the wealth.

Steve Salerno said...

I am posting this correction on behalf of Anon 1:57, who is the author of the guest post. He writes:

"The third paragraph reads:
'but i do think failure and bankruptcy should be outlawed ...'

"It should read 'But I do NOT think failure and bankruptcy should be outlawed...' "

Anonymous said...

"Even if the objective evidence is overwhelmingly on the other side of the ledger, we'll filter all that out, or find some way of rationalizing it, in order to create a framework in which we can give primary emphasis to the facts that allow us to go on believing what we already believe and/or that conform to our existing way of looking at life."

Steve, I brought this up to you a while back about jurors and people's biases. If I remember correctly, you felt you could get beyond your own biases if you needed to and be an excellent juror. Glad you are finally reading up on it.

Anonymous said...

I agree with the guest poster! He is a true businessman and entrepreneur. I wish there were more of those. Our country needs them.

As any economist will tell you, the U.S. is NOT a free market system and we can no longer afford to pay for bad business. The Chinese and Saudis will only lend us so much money and what then?

Steve Salerno said...

Anon 12:04: I ask again, what does any of this have to do with me and anything I might do? If I write a post about how serial killers think, does that mean I'm a serial killer? (I hope that's not what people assume from some of the positions I take on the blog.) I've also written that I'm sure the terrorists, in their own minds, were justified in knocking down those buildings, and it's not up to me to say that they're wrong--but that doesn't stop me from saying, as an individual, that I think they're wrong. (I refer you again to "a few words of explanation" on the sidebar of the blog's main page.)

Elizabeth said...

As it often happens, The Quote of The Day on your homepage, Steve, provides a neat commentary to your various posts.

This the current one:

The real significance of crime is in its being a breach of faith with the community of mankind.
Joseph Conrad
(1857-1924)

Elizabeth said...

Anon 12:04: I ask again, what does any of this have to do with me and anything I might do? If I write a post about how serial killers think, does that mean I'm a serial killer? (I hope that's not what people assume from some of the positions I take on the blog.)

No, Steve, I don't think that's what people necessarily assume (if I can assume that, of course:). Though I'm not Anon, maybe I can offer a (helpful, I hope) comment here. I think, if I'm not mistaken, that what Anon hints at is the fact that (some of) your readers, Steve, like to have their perspectives and points of view acknowledged, even if you do not always agree with them, and also expect, rightly or not, more (what seems like) humility and self-reflection from their host. That's how this comment reads to me, but, again, I may be completely off-base here and if so, I expect to be corrected soon. :)

sassy sasha said...

steve, i have an idea, i think you should give out gold stars for people who make good points, like they used to do in kindergarten. or maybe if somebody makes an especially good point, they get to be "comment person of the day" and wear a special t-shirt. LOL!!! sorry, i couldn't resist, this is so silly to me!

Steve Salerno said...

NOTE: I did give some consideration to whether or not to publish sasha's comment. Inasmuch as she and I have often found ourselves on opposite sides of an issue, I decided that on balance, it was not inappropriate.

Elizabeth said...

Sasha, I disagree with you. I think Steve should give out silver stars and we should *all* vote for the Comment of the Day.

Going back to the Anon's and Steve's point(s) on jurors' biases, if I'm not mistaken, the Anon refers to your post from July 9th (yes, I looked it up, and no, I am not the Anon) and the discussion that followed, where s/he observed that you too, Steve, are (would be) just an average juror. To which you responded with, essentially, "no freakin' way," meaning that you'd never use the biased reasoning you see used on various real crime TV shows. Which, I would (not so humbly perhaps) observe, is a bias in itself, to think that you, unlike all of us human beings, are/would be bias-free. :)

P.S. Somehow I don't think I'll be getting the silver star today (or even a gold one, sigh ;).

Anonymous said...

Now I must get back to running my business - which involves selling luxury goods and services which absolutely nobody needs, but many people desire.

And does that just about say it all, huh? So let me translate: You have developed a business niche where you live parasitically off people who milk the system for all it's worth. You are a hanger-on in a subset of humanity that probably contributes very little but steals every penny it can for its own selfish use, like to buy whatever foolish commodity you sell. Are you any different from the high-line hooker services we now hear Wall Street was patronizing even as they were coming to Washington for survival funds?

Please tell me you're not in the fur business. That's all I'd have to hear right about now.

And you happily do this and "thrive" while you know that by your own words, others are going out of business left and right and America in general is in the grips of a terrible recession. You cater to the wealthy and you say f**k the poor, because they are of no use to you.

One question: How do you sleep at night? You don't even have to answer that. I'm sure you sleep like a baby. It's easy to do that when you have no conscience.

Steve Salerno said...

Once again--what is it with today?--I was on the fence about this last comment (Anon 5:34), but I felt it was fair play inasmuch as (a) both the author and the person making the comment are anonymous in this case and (b) the author of the post, in my view, "opened the door" to this sort of rebuttal through both the tone and substance of various statements made in both the original post and, in particular, the "amplification" of 1:57, several comments above. I do the best I can in presiding over these debates.

Elizabeth said...

A couple of relevant NYT pieces -- from Frank Rich:

The public’s revulsion isn’t mindless class hatred. As Obama said on Wednesday of his fellow citizens: “We don’t disparage wealth. We don’t begrudge anybody for achieving success.” But we do know that the system has been fixed for too long. The gaping income inequality of the past decade — the top 1 percent of America’s earners received more than 20 percent of the total national income — has not been seen since the run-up to the Great Depression.

(...) As Robert Reich, the former Clinton labor secretary, wrote after Daschle’s fall, Americans “resent people who appear to be living high off a system dominated by insiders with the right connections.”


And from Nicholas Kristof:

Wall Street is one of the most male-dominated bastions in the business world; senior staff meetings resemble a urologist’s waiting room. Aside from issues of fairness, there’s evidence that the result is second-rate decision-making.

“There seems to be a strong consensus that diverse groups perform better at problem solving” than homogeneous groups, Lu Hong and Scott E. Page wrote in The Journal of Economic Theory, summarizing the research in the field.

(...)

One of the shortcomings of any system of men sitting in front of screens making financial bets was reported last year in the journal Evolution and Human Behavior, in case you missed your copy. That study found that men are particularly likely to make high-risk bets when under financial pressure and surrounded by other males of similar status.

As for women, their risk-taking was unaffected by this kind of peer pressure.

(...) when men of similar status gather, they jockey for an edge and jostle for the alpha role — and try to get ahead with high-stakes gambles.

On the plus side, boasting about these financial bets might make a great pickup line. On the downside, the bank goes bust.

A greater gender balance could reduce some of these unhelpful consequences of male herding. After all, we also saw some unexpected gains from the balance resulting from women’s suffrage.

Anonymous said...

"And you happily do this and "thrive" while you know that by your own words, others are going out of business left and right and America in general is in the grips of a terrible recession. You cater to the wealthy and you say f**k the poor, because they are of no use to you."

This is the essence of the free market capitalism, forging ahead no matter what, "out-hustling" others, their misery your opportunity for profit.

Anonymous said...

Anon 5:01, I'm assuming you're also the earlier Anon who is the author of this post. Let me ask you then: You don't feel the slightest shame or discomfort about any of what you do or describe here?