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Tag: Adam Smith

Steven Mintz, the Ethics Sage Talks Occupy Wall Street, the 99%ers.

I consider the Ethics Sage to be a friend. His writing ranges from business ethics to workplace bullying to economic issues and of late he has written passionately about the death penalty.

In his lastest essay he describes the criticism of the Occupy Wall Street Movement and then responds by emphasizing the serious nature of the complaints presented by the protestors. I am using more than a third of his article and I do this because I don’t want to diminish the power of his message. Of course, you should real the full article if at possible. His heart is in this and I am pleased to consider him a colleague.

Steven Mintz, the Ethics Sage

If there is a class warfare that has developed in the U.S. it is because the selfish policies of these institutions caused the financial meltdown, economic recession, and massive loss of jobs – all through no fault of us who play by the rules. The unemployed didn’t cause the crisis. Sure, some people overspent and got too deeply in debt, but that was due in part to the belief fostered by the actions of these institutions that the good times would keep rolling along. Instead, the bubble burst and it was the average American that was left holding the bag.

The Republicans attack over-regulation in the form of Dodd-Frank and Sarbanes-Oxley that, they claim, has created an uncertainty and unwillingness to expand economically by the very companies being regulated. That may be so and there is no denying it is a problem. However, the Republicans need to look in the mirror of those being regulated to see the face of who created the need for more regulation.

Our free market capitalistic system is based on the notion that by acting out of self-interest, business will create a better economic climate for all Americans. Well, it is just not working out as intended by Adam Smith. According to a survey by salary.com, the average salary and benefits paid to the CEOs of the Standard & Poor’s top 500 companies in 2010 was $11.4 million. The average CEO earned 343 times more than typical workers.

Very little has been said this election year cycle about how much the financial crisis has cost the average American in lost wealth. Well, hold on to your chairs as you look at the data provided by The Pew Charitable Trust that covers the period between 2008 and 2009:

  • $100,000: Cost to the typical American family in combined losses from declining stock and home prices
  • $5,800: Average household income loss resulting from declining economic growth
  • $14,200: Average household loss in wealth caused by plunging real estate prices
  • $66,200: Average stock market losses for households from July 2008 to March 2009
  • $2,050: Average household cost to pay for TARP, the main government program to shore up the economy
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Catherine Crier Attacks Conservative Dogma About Adam Smith

Adam Smith; engraving

Image via Wikipedia

In an article in Huffington Post, Catherine Crier finds the Tea Party and Conservative view of Adam Smith and his doctrines to be ridiculous. In her interpretation (and mine), Adam Smith was at one with the principles of the mixed economy, that is, some regulation and some economic freedom. Here’s two key paragraphs –

Just as Jeffersonian democracy operates best on a small scale, Adam Smith believed his self-correcting free markets were ideal for small businesses in a domestic economy. Integrated in their communities, these businesses would be influenced directly by the needs and demands of consumers, and any dangerous or abusive conduct would rarely affect the broader economy. But Smith treated large, powerful companies very differently. He said big business was led by “an order of men…that generally have an interest to deceive and even to oppress the public”, and he referred to powerful corporations (then known as joint stock companies) as “unaccountable sovereigns” that were as dangerous to free markets as tyrannical governments. Unrestrained, they had the power to shape society and governments for their own purposes, and consumers would pay for “all the extraordinary profits” while suffering from “all the extraordinary waste”, the inherent fraud and abuse, that accompanies such immense economic power.

Smith stated emphatically that a strong government, acting through democratic and legal institutions, was the only entity capable of challenging such corporate power. Smith supported necessary government regulations, labor and human rights, public education, and progressive taxation to ease the economic and social inequities he knew would occur in a capitalist system. Without these “liberal” measures, social and political unrest would threaten a nation’s stability and his free market economy could not survive.

I have often been surprised what conservative say writers mean and what I read when I study the same text. She appears to have had the same experience. Few individuals read the Great Works of the Western World with any focus. The material is difficult and often lengthy as well but the Great Books are worth the effort.

I have long been a fan of Robert Maynard Hutchins and his belief in the importance of books and skilled reading. I have read almost a third of the books he lists at the end of his book, “How to Read a Book.” Let’s have more reading and understanding and less dogma.

James Pilant

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What The Market Will Bear?

I reported a few days ago that David Lazarus of the Los Angeles Times had written a good article explaining the dispute between banks and retailers over the higher costs of credit cards as opposed to cash. He has a new column today explaining the strange phenomena of a poll backing the bank’s side of the argument happily presented to all and sundry as consumer opposition to any change in the current system. Strangely enough I worked on a doctorate for a while and I remember a few scant traces of my survey research teaching. The methods used in the Visa card survey are completely useless for getting statistically accurate data. They essentially did push polling where you ask loaded questions to get the answers you want. A properly phrased set of questions can get you positive numbers for the proposition that there are too many mothers and we should thin the herd.

Lazarus reports that credit card fees on a retail transaction might be as little as a few pennies per purchase. Lazarus also points out that retailers wonder why larger transactions cost more than smaller ones. Its a computer process, just numbers. Does a computer seemed more fatigued after a seven digit transaction than a three digit transaction? Does it demand overtime or organize a protest or form a union? Does it take longer breaks? Where’s the pain justifying higher fees for a hundred as opposed to ten dollar transaction? But there’s more.

Let me quote from the article –

Ken Clayton, senior vice president of the American Bankers Assn., said the cost of processing credit card transactions should be whatever the market will bear.

“Who puts the value on the price of a ticket Jack Nicholson pays to watch the Lakers?” he asked. “It’s however much Jack Nicholson wants to pay to sit in the front row.”

Whatever the market will bear! Wow! You know if I can recall my Adam Smith (and I can), the free market is based on a free exchange of information about such things as pricing and he had a strong preference for small economic units that would actually compete. Strangely enough we have no idea what it costs banks to do these transactions. So, they deliberately withhold the knowledge of their costs and charge us whatever they want. Then, they pronounce with the certainty of a prophet from a vindictive and very strict religion that they can charge as much as the market will bear. Wow, doesn’t that strike you as a little unethical? I mean doesn’t it seem to you that if businesses can band together and claim that every transaction they process costs them up to 3% regardless of the advances in the speed and computing power of their operation, that they might be deceiving you and acting unfairly. Shouldn’t they be competing with each other? You know, that weird funny thing called the free market? What they are doing here sounds a lot like a monopoly. But it couldn’t be because that would be domination by a singly entity or cooperation by a number to control pricing and eliminate competition. Surely we don’t see any large economic units all practicing the same policies and withholding the same information. Right?

From wiki:

In economics, a monopoly …  exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it.

Goodness? That must be one of those inaccuracies I hear when people criticize wikipedia. I better go to a better source.

From Black’s Law Dictionary –

“A privilege or peculiar advantage vested in one or more persons or companies consisting in the exclusive right (or power) to carry on a particular business or trade, manufacture a particular article or control the whole supply of a particular commodity. A form of market structure in which one or only a few firms dominate the total sales of a product or service.”
Black’s Law Dictionary, 5th edition, page 908.

You can’t trust anybody. That one must be wrong too.

Well, I wouldn’t worry the fees on retail transaction because our interests are being watched over the men running the banks. Who, you all know are honorable men. I will not wrong such honorable men.

I will not suggest that their business practices place a cruel burden on retailers. I will not argue that their interpretation of the free market is simplified child like understanding that wouldn’t get the a B in the fifth grade. I would never intimate that creating a push poll justifying their position suggests that they are in weak or vulnerable position with their argument.

Well, best wishes. I’ll try and make more concrete arguments the next time.

James Pilant

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