Profit Maximization is Self Annihilation

April 21, 2015

“Some states (i.e., nations – ed.) have lost their liberty by particular accidents: But this calamity is generally owing to the decay of virtue. A people is travelling fast to destruction, when individuals consider their interests as distinct from those of the public.” – John Dickinson, Letters of a Pennsylvania Farmer, 1768

 

Profit maximization is self annihilation or, PM = SA in economese, should one feel the need to mathematize the phenomenon, but profit maximization first emerged not of mathematical modeling, or validated by empirical evidence, but by commentary that tickled the vice of greed.

In 1970, Milton Friedman wrote an article for The New York Times, “The Social Responsibility of Business is to Increase Profits.”

And with that commentary, Friedman kicked off one of the most singularly damaging ideologies that would go on to send the global economy over a cliff.

In this writing, Friedman argued for the singular focus of business to be profits. This myopic view of business endeavors completely ignored the negative externalities that could unfold from such a concentration and, being an economist, Friedman should have understood the concept of negative externalities.

No doubt he did, but only in areas of economic theory that supported his ideology. That’s the beauty of neoclassical economic theory, the orthodox teachings of most economic departments today: With its mathematical elegance and a priori thinking, one can make neoclassical economic theories say anything one wants. For the uninitiated, such theories appear “scientific” thanks to the abstruse mathematics. And while the mathematics provides a patina of science, in fact neoclassical economic theories are diametrically opposed to sound scientific endeavor, as a conclusion is assumed before a hypothesis is empirically tested.

And that is exactly what Friedman does in this perennial favorite of C-suite management: he assumes the conclusion, otherwise known as “begging the question.”

Ignored in his argument is that a singular, obsessive focus on profits completely discounts the reality that profits are a means to an end, not an end unto itself.

The ultimate goal of business – yes, and even economics – is social welfare. Business and economic institutions reside in a society to serve the needs of that society’s individuals, its citizens.

For those in the audience who are thinking, “Uh oh, here comes the corporate social responsibility speech,” or for the lesser minds who enjoy clinging to hyperbole, a case for “socialism,” guess again.

A singular focus on profit maximization not only destroys markets, an economy or other macroeconomic entities, it also destroys that other twin-obsession to profits, “shareholder value.”

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Globalization’s Mausoleums: The Former Factories of the Rust Belt

April 8, 2015

At any street corner the feeling of absurdity can strike any man in the face. – Albert Camus

 

 

The story that follows isn’t unique to this Rust Belt city.

It has occurred, over and over, across the Rust Belt – across the U.S. – for the past 35 years.

What’s amazing is it is still unfolding.

What’s even more amazing is how complacent everyone has remained.

About the loss of jobs.

About the weak or non-existent development efforts for local economies.

About how the U.S. will sink into serfdom, not by the threats of socialism (as Hayek suggested)…

…but by the reality of our apathy, our denial, or our ignorance.

I simply wanted to commit this story to writing, as a way to preserve it, in case anyone ever asks, “What happened?”

That is, if there is anyone left who cares enough in the future to ask.

No one is asking now. [1]

Globalization’s Mausoleums

The spirits of past General Electric workers reside here.

Bldg Demolition

This is one of the buildings currently under demolition at General Electric’s Broadway campus in Fort Wayne, Indiana. To the right is an opening where another GE building, of similar size, once stood.

Last year, GE closed down a testing lab, the last operation of any kind on the campus. It employed some 28 people at the end.

At its height, General Electric employed over 10,000 employees in Fort Wayne; almost all were well-paying jobs.

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Decentralizing economies.

December 3, 2014

Over Thanksgiving break, a vandal scrawled the following graffiti across an exterior wall at Indiana University’s Kelley School of Business:

“Fuck Capitalism.”

It may be a convenience for a graffiti artist to use “capitalism” as a monolithic term – just as “socialism,” “communism” or “anarchism” are treated in the same fashion – but it is indeed small minded to maintain this monolithic treatment within serious discussions. There is – surprise – more than one type of capitalism, and the time to discuss the alternatives has arrived, now.

The attempt to erase the "Fuck Capitalism" sentiment, added to the Kelley School of Business in November 2014, was in vain.

The attempt to erase the “Fuck Capitalism” sentiment, added to the Kelley School of Business in November 2014, was in vain.

The arguments against (centralized) capitalism are numerous, and the examples of the dysfunctional nature of centralized capitalism – as it has emerged over the past couple of centuries – are readily found. But I remain supportive of (decentralized) capitalism because I believe there is something intrinsic in the nature of humanity that desires recognition for one’s efforts.

Sadly, this “recognition” has been translated by centralized capitalism to mean one’s salary, but that is a very empty translation. We can live in trendy neighborhoods, drive expensive vehicles and join the exclusive clubs but at the end of our lives, on our deathbeds, we realize we were just another anonymous gnat on the ass of the universe. The world, at large, does not know us, appreciate us, or can even comprehend what in the hell we actually accomplished while manipulating spreadsheets on our computer monitors. Centralized capitalism – with the exception of the very few – renders us anonymous, insignificant, and isolated.

Decentralized capitalism holds the potential to render us valuable, as being significant, as holding meaning… within a local community, within a local economy. I may be nothing more than the village butcher, baker or candlestick maker, but I provide an invaluable service to the local residents of my neighborhood or village. I am recognized for my work, and the value I bring to a community. Such recognition, value and sense of dignity cannot be bought with a paycheck. Read the rest of this entry »

The Economic Metaphors of ‘All is Lost’

March 6, 2014

Now that the hub-bub of the Oscars is over, it’s an appropriate time to examine the metaphor-laden film, All is Lost. It was nominated for an Academy Award in sound editing (but ultimately taken by Gravity), but received little attention during Oscar season. I believe the economic metaphors were recognized by the elites, and they weren’t very interested in promoting All is Lost any more than necessary.

I must provide a spoiler alert, although the film is one of those “have-to-see-it” experiences. Having read summaries before seeing All is Lost, I held some trepidation about the film, wondering if a single cast member with a dialogue-less script (there is a short voice-over at the beginning) could really pull it off.

It works. As I said, you have to see it for yourself to believe such a sparse premise can keep your attention.

However, I do not plan to undertake a scene-by-scene analysis here. The broader strokes are discussed. I’ll leave it to the viewer to fill in the gaps. And forgive me if some of the descriptions show my lack of understanding the nomenclature. Having hailed from the Midwest doesn’t lend itself to a very full education of maritime knowledge.

The economic overtures are already at a start when we learn All is Lost was written and directed by J.C. Chandor, who garnered an Academy Award nomination for best original screenplay for Margin Call, an excellent film on Wall Street’s role in the Global Financial Crisis.

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The Evil of Asymmetrical Information

December 3, 2013

I find it interesting that during the Global Financial Crisis, banks, the Federal Reserve, Congress and government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac implicitly blamed borrowers for the mortgage-default debacle by their actions, such as the Fed’s preference for helping lenders rather than homeowners, Freddie Mac betting against the homeowners and banks pressing the Fed to curb borrowers’ rights. Yet, when it came time to consider new regulatory action to prevent future mortgage debacles, the Fed wanted to strip homeowners of their right to fight foreclosures, and the only legislation with teeth came in the form of tougher scrutiny for borrowers, not banks.

What was, and continues to be, missing is a means to disseminate full disclosure of what, exactly, the home buyer is signing. That bright, shiny home is too much of a temptation, and all rational thinking goes out the door. Papers are pushed across the table, everyone is grinning, pens go to work signing, and keys are handed over. A new homeowner is born, and the poor son-of-a-bitch hasn’t a clue as to what he or she just signed.

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A Faded Conservative’s Call for a Social Net

June 27, 2013

I do not consider myself a conservative, at least, not in the contemporary understanding of that term in 21st century America. Nor, for that matter, do I consider myself a liberal, progressive, or libertarian; again, not in the way these terms are generally understood today. This has done me no favors, as those unfamiliar with my writings tend to pigeonhole my politics as quickly as possible into one of these categories. In this age of microwave attention spans, I have to assume this is the norm and live with the consequences.

Nevertheless, when a piece of writing catches my attention in the manner the one below did, I like to pass it on, no matter the conclusions to which a reader may jump. And in the following essay, conclusion jumping will come easy, since the title of this work by August Heckscher II holds the word “conservative” in it. Those on the left will immediately write it off and never read it, and those on the right will be angered by its message, having been pulled into this essay on miscalculated assumptions.

But for those who labor to read the essay, it will be worth the time. The conservative mindset represented here, in post-World War II America, has almost vanished. It is inconceivable for me to consider any of the conservatives operating in the public forum today as standing behind Heckscher’s sentiments towards conservatism. That is why I felt it important to post this work, to keep alive, in a paltry manner, a conservatism that quickly became a relic of the past when Richard Nixon entered the White House and Ronald Reagan forever banished such thinking from the Republican Party, making room for the rise of neo-conservatism, an evolution of American conservatism that distorts-beyond-recognition the viewpoints presented here.

August Heckscher II (1913-1997) was an American intellectual, historian, and administrator. He served as President John F. Kennedy’s Special Consultant on the Arts from 1962 to 1963 (the White House’s first cultural adviser), as well New York City Mayor John Lindsay’s Parks Commissioner in 1967, amongst other highlights in a wide-ranging career and life. His obituary can be found here.

This essay originally appeared in Confluence in 1953, a journal that lasted for only seven volumes in the 1950s (Trivial Pursuit: Henry Kissinger edited Confluence while at Harvard).

The Imaginative Conservative first made the text available here, and I found this copy here.

Many thanks to Emilio, over at LinkedIn, for bringing this to my attention. I, working alone, admit to having added the emphases throughout the text. I hope you enjoy it.

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Boston Marathon Bombing Turning Ripe… and Stinking

May 23, 2013

In the aftermath of the Boston Marathon bombing, I was stunned by the extremely heavy-handed approach federal authorities took towards an already injured 19 year old, hunched over in the bottom of a boat preparing to die. Three stun grenades and a hail of bullets were launched at this kid discovered by the boat owner, an owner who had calmly peered under the boat’s canvas, found the suspect, then turned his back and walked towards his house to notify authorities without so much as a verbal threat from the suspect.

Now we get a story of another suspect in the Boston Marathon bombing who was interrogated at his home, then shot during the proceedings. How in the hell does something like that happen? The whole purpose of having additional personnel in place during an interrogation is to ensure the suspect can be restrained should he launch himself against the interrogator. And wasn’t the suspect frisked prior to the interrogation? This, of course, assumes any validity of the story that the suspect had possession of a knife, a detail that is now being backpedaled out of the story.

At best, this is extremely sloppy police work. The argument can certainly be made that law enforcement was hopped up on their own adrenaline.

At worst, there is a possibility that outright lies are being made by law enforcement about the interrogation, wherein the suspect may have revealed damning evidence against authorities regarding the bombing, and the suspect was silenced before the truth could emerge.

This Boston Marathon bombing case is beginning to smell like rotting roadkill, surrounded by the thick of summer heat.

The Focus is on Cheap Labor, Not Immigration

May 1, 2013

Today is May Day, a universal recognition of labor everywhere save the U.S.: We have  “Labor Day” in September, which serves as a proxy for the end of summer. Thus, Labor Day is a bit of a downer, even if the weather doesn’t start to change towards fall for another month.

May Day, however, has always been tinged with workers’ movements, socialism, communism, etc., etc., so its always been viewed as a little unseemly, hence the U.S. had to create its own day for labor recognition.

Nevertheless, labor is a hot-button issue these days in the U.S., so May Day seems to be a good day to post on labor issues.

Wait. What labor issues? Who’s talking about labor issues?

Well, if truth be told, the entire immigration reform battle, er, discussion, revolves around the labor issue, not the immigration issue. More specifically, cheap labor, and more specifically than that, cheap skilled labor. Read the rest of this entry »

Two Explosions – One an Obsession, the Corporate-Induced One Ignored

April 22, 2013

I hold no sympathy for the Boston Marathon bombers who killed three people and permanently disabled at least a dozen others, but the bombing’s aftermath became surreal.

Far too many people, probably most not even residing in the Boston area, took to social media to disseminate rumors and make unfounded conjectures. Bloomberg News posted a link to provide “live” coverage of the manhunt surrounding the search for the second suspect, as if the manhunt became a sporting event in its own right (no doubt capturing a far higher viewership than the marathon itself could ever dream). And Boston went on an area-wide, quasi-hysterical lock-down, although it was very evident that the suspects’ actions in the bombing’s aftermath showed them to be amateurs, not professionals. Ironically a man, who ignored the police request to stay indoors, found the second suspect hiding out in his boat, not the authorities.

For some reason, while writing this post I remembered that plane crash scene with Ezra Stiles (Edward Herrmann) at the stick, from the movie The Great Waldo Pepper.

Meanwhile…

…an explosion at a fertilizer factory in West, Texas killed 12 people to date, wounded 200 others, and 60 for which remain unaccounted. And we learn that

“The Texas plant that was the scene of a deadly explosion this week was last inspected by the Occupational Safety and Health Administration (OSHA) in 1985.” (emphasis added)

 

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The Quiet Constitutional Crisis Behind the 2nd Amendment

April 9, 2013

The following post discusses the original intent behind the Second Amendment. Readers should hold their assumptions, read carefully, and check their conclusion jumping until the end.

Introduction

The rhetoric over gun control legislation is heating up, yet from no corner of the political spectrum do we hear discussed the underlying constitutional crisis that precipitated this ongoing debate, one that America has lived with for over a century. Unfortunately, the accusations and aspersions thrown from either side towards the other generates more heat than light, and it is nigh time to investigate the original intent of the Second Amendment. Although many alleged constitutional authorities have waxed obliquely on the reasons behind the insertion of this amendment, James Madison left little doubt as to why the arming of citizens was a critical civil liberty. His reasoning can be found in The Federalist No. 46.

I find, however, that far too many Americans do not understand the intent of the Bill of Rights, much less the intent of the Second Amendment, and so it is here I must begin. I suspect this reality arises more from the degraded state of our high-school education in civics than from anything else. For those who are comfortable with their understanding of the Bill of Rights, you can safely skip to the next section. Read the rest of this entry »


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