Archive for the ‘Economics’ Category

Corporate Social Responsibility versus profits

September 12, 2019

For decades it’s been gospel that a corporation’s mission is just to maximize shareholder value. But now a group of over 180 heads of top U.S. companies has met and signed a statement saying they must also serve the interests of employees, customers, suppliers, and the wider society.

Perhaps a response to capitalism being assailed for “putting profits ahead of people,” blamed for growing inequality and environmental problems; some Democratic presidential contenders seem to run more against corporations than Republicans.

“Profit” is a dirty word; often coupled with “obscene.” We’re told X corporation or X industry “sucked” X dollars from the economy, as if the plain numbers bespeak evil. What’s never said is how much (or how little) return on invested capital those profits represent. Who’d invest in a business, with all the risks, without the prospect of a reasonable return?

That’s what creates the cornucopia of goods and services making our lives what they are. And the jobs enabling us to pay for them. Some of my friends fantasize a utopia where we get all that without anyone “sucking” profits. But I don’t see them forgoing earnings on their own industriousness.

Adam Smith made the point in 1776: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” That is, earnings or profits.

Maybe you have a different idea that didn’t occur to Smith — government providing everything. That’s what “socialism” actually means. Like in the USSR — where goods and services were notable for their absence. (People said, “we pretend to work and they pretend to pay us.”)

But do businesses in fact garner “obscene” profits? Well, there’s one salient test. I’ve invested in corporate stocks for three decades, and I’ve done nicely, but certainly not obscenely. If corporations were really “sucking” exorbitant returns, we could all easily get rich by buying their stocks. That’s obviously not so.

Which brings us back to the concept of companies existing basically to benefit shareholders. Here are two key points:

First, corporate managers actually work for shareholders, entrusted with a fiduciary duty to serve shareholder interests. Anything they do that’s inconsistent with shareholder interests is an unethical breach of that fundamental duty, an abuse of their trust. Remember too that shareholderincludes pension funds, retirement accounts, university and charity endowments, etc. Earning them a return on their investments is by itself a social good (with no conceivable substitute).

Second, as Adam Smith again showed, the quest for profit benefits society by incentivizing the supplying of things people need or want. When a corporation takes raw materials costing $10, and pays a worker $10 in wages to assemble them into something it can sell for $25, it creates $5 of added societal value. More in fact if you buy it because its value to you exceeds the $25 you pay. While the worker gains as well. So the $5 profit entails something good happening.

This wealth creation is the fundamental logic of free market capitalist economics. Assail capitalism all you like, but this has raised global average real dollar incomes around sixfold in the last century. It wasn’t socialism.

So where does corporate social responsibility, and the recent declaration by all those CEOs, fit in?

It’s lately fashionable to speak of employees, customers, suppliers, and the broader public as a corporation’s “stakeholders” along with shareholders. But this is not a novel or abstruse concept. Rather, it has always held; simply part of the basic understanding we all share as members of a society.

You don’t need a code of “corporate social responsibility” to know that profit maximization doesn’t allow for ripping off customers with shoddy products or failing to pay workers or contractors what they’re due, like Trump. Et cetera. Profit maximizing is always constrained by the universal rules of societal participation. A corporation is in reciprocal relationships with its stakeholders like workers and customers, and such relationships entail responsibilities. Fulfilling them is the necessary premise for being an enterprise operating in a society.

My own business is selling coins. I try to treat my customers according to the golden rule, not only because it’s the right thing to do, but It’s also good for business. And it enables me to gain satisfaction not just from earning profits, but earning them justly. If I had workers, the same would apply. A recent study showed that a firm’s employee satisfaction correlates with its customer satisfaction.

Economist Milton Friedman was the leading voice who saw profit maximizing and a company’s social responsibility as two sides of the same coin. He argued (like Smith) that a business making money does advance the public interest; and also stipulated the assumption that profits are earned legitimately, that is, by creating customer value (and not, for example, by fraud). And, further, that businesses compete.

This is another key concept. It’s competition that holds companies to account. One free from competitive pressures can do whatever it wants. Such untrammeled power is never a good thing. Moreover, free and open competition among businesses ensures that the lion’s share of the value created is reaped by consumers, with profits being only just enough to sustain their operations. Fierce competition forces supermarkets, for example, to set prices to allow a profit of only a few cents on every dollar of sales. So customers actually gain more from supermarkets than their owners do.

Capitalism’s critics say competition is often far from perfect. A big reason for that is actually government intervention, typically at the behest of some powerful corporate interest, seeking to screw competitors. Call this “corporate socialism.”

I always remember one of my first cases as a government regulatory lawyer. My agency went after a small upstart moving company for breaking the rules. Its crime? Rates too low! Who were we protecting? Certainly not the public. Rather, the established movers who hated competition.

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Is China our enemy?

June 15, 2019

In 1989, China’s regime followed Mao’s dictum, “power comes from the barrel of a gun,” shooting many hundreds of democracy proponents in Tiananmen Square. (Trump has called this a “strong, powerful government” quelling a “riot.”) Since then, even as China has modernized in many ways, its regime has become increasingly repressive, tolerating not the slightest chink in its absolute power. Its police state in Xinjiang is an Orwellian nightmare. Xi Jinping has made himself president-for-life. China bullies its neighbors, tightening its unlawful grip on a wide swath of the Pacific. It abuses world trade rules, its advance fueled by theft and dishonesty.*

So is China our enemy? Not exactly.

The Communist bloc, during the cold war, was our enemy. Its aim was world domination, ideologically, seeing the U.S. as a bete noir and wanting our failure or destruction. Putin’s Russia today, while non-ideological, has a similar outlook.

This again is not exactly true of China. While some regime elements do see us as conspiring to keep China down, that’s not exactly true of America. Wise heads in both countries understand there’s room in the world for both to prosper; indeed they’re in it together. Not a zero-sum game where one nation’s gain is the other’s loss. China becoming more prosperous and powerful doesn’t necessarily require America becoming less so. To the contrary, trade with a prosperous America is good for China. Thus a win-win mentality.

It’s not Trump’s mentality. This is why he’s a bull in the China shop. A lot of voices say he’s right to confront China on trade, and I actually agree, up to a point. However, Trump sees every thing we buy from China as China raping us; he wants it to stop. That’s idiotic.

The win-win logic is a key concept of economics, called comparative advantage. We buy from China what China is better at producing; China buys from us what we make best. Both countries benefit — even if one buys more than the other.

Do we lose some jobs to China? Sure. But the money U.S. consumers save buying cheaper Chinese goods enables more spending on local products and services, creating jobs. More than are lost. By messing with that dynamic, Tariff Man loses us jobs.

Nations are enemies when their interests clash, in a zero-sum sense. That’s not our situation with China. Again, we have a mutual interest in our bilateral trade. That doesn’t mean we don’t fight China on intellectual property theft, human rights, or territorial aggression. We can have those arguments while still expanding mutually beneficial trade and without being enemies. You have fights with your spouse but you still have intercourse.

The tragic stupidity of Trump’s China stance is that it’s the opposite. He wants no fights with his “great friend” Xi over things like Xinjiang or silencing dissent. Nor is he even really confronting China over intellectual property theft, which is the trade fight we should be having. Instead, it’s the intercourse he wants to curtail.

“Intercourse” doesn’t even begin to cover it, as elucidated in a recent Thomas Friedman column (https://www.nytimes.com/2019/06/04/opinion/us-china-trade.html). Our two economies are totally intertwined. We have huge investments in each other. Both economies rely heavily on vast, interlinked supply chains, each supplying to the other things necessary for their productivity. For example, Apple has products assembled in China; Chinese technology firms need U.S.-made chips. If we rip all that apart, Friedman says, “we’ll all end up living in a less secure, less prosperous and less stable world.”

But he fears that’s happening; stumbling into a new cold-war-enemy relationship with China that’s totally unnecessary. “The erecting of an equivalent of the Berlin Wall down the middle of the global technology market,” dividing it into separate and mutually hostile spheres.

Instead we should be working to coax China into full partnership with the rules-based globalist economic order. Which is really in China’s own long-term best interests. In this, a united front with all our allies would help. But Trump has antagonized them, picking trade fights with them too. (Britain, for one, now sees its trade relationship with China as economically central.) So we’re on our own.

Bad enough that Russia is a big enemy. China would be far bigger. Its economy is already as large as America’s and will soon outstrip it. Its population is more than thrice ours. China’s increasing global importance is an inevitability we must live with; making the best of it. And we can. If instead we opt for all-out battle, we will lose.

* Counterfeiting is a big industry — a major problem in my own business field, rare coins. Maybe bigger than we even know.

“Automating Inequality” — Using technology to screw the poor

June 7, 2019

Automating Inequality is a book by local researcher Virginia Eubanks; I attended a talk she gave. The focus was upon three initiatives ostensibly aimed at using technology to improve delivery of social services to needy people — that in practice do the opposite.

I’ve written about how it’s expensive to be poor in America — the many ways we actually penalize poverty. I discussed the criminal justice system actually preying upon the disadvantaged, extracting money from them. While banks and credit card companies exploit poorer people’s financial precariousness to load them with fees.

“Well, they’re mostly bad people,” remarked a guy sitting beside me at the talk. Referring to the poor. No, they are not mostly bad. They are mostly unlucky people — especially in their choice of parents. It’s easy to be smug if you’ve grown up with all the advantages (like me, and probably him). But if you’re born into lousy circumstances, there are huge obstacles (starting with rotten schools) to rising out of them, even if you are smart and responsible.

The bureaucrats in Eubanks’s reporting are mostly not bad people either. Most are well intentioned in trying to serve the public (somehow or other). Especially the “line workers” in actual contact with the disadvantaged people they’re tasked with helping. But it’s others who design the “advanced” systems she discussed.

One was Indiana’s, for processing applications for public benefits. It moved caseworkers from local facilities into regional ones, putting them in front of computers rather than the human beings they previously dealt with face-to-face. No more single point of contact; applicants would now speak to a different person every time they called. (Ever been in that situation? A recipe for frustration and run-arounds.) Meantime, the whole process was moved online. Fine if you have ready computer access; half of welfare recipients don’t.

The upshot was a million applications denied over three years. Mostly for some error in the process, often not the applicant’s fault. A notice of denial would give them ten days to fix the problem. Would the notice explain the problem? Nope!

Eubanks commented that the system couldn’t have worked better at kicking people off welfare if it had been designed to do exactly that.

Next was Los Angeles County’s “Coordinated Entry” system to evaluate homeless people for their vulnerability and match them with resources. Eubanks mentioned 58,000 LA County homeless people living in “encampments.” Only about a quarter get housing through the new system. A problem is that “higher functioning” homeless people get low vulnerability scores, so they’re de-prioritized. On the other hand, the kinds of things that give you a high score are often considered crimes, so people have to incriminate themselves to get a better chance at housing. And the info going into the system also goes to the police. But meantime, incarceration actually lowers one’s score — being in jail rates as “housing.”

Seems like one giant Catch-22. It’s really a way to ration — however irrationally — available housing resources that can accommodate only a fraction of the homeless.

The third case study was the “Family Screening Tool” used by Pennsylvania’s Allegheny County; here the scoring is to identify children at risk for abuse or neglect, based on information collected by social service agencies, incorporating factors that correlate with such risk. A family’s high score makes an investigation mandatory.

What actually results is a big feedback loop. Even if that investigation shows no problem, the fact that it occurred goes into a family’s score going forward. And the scoring really fails to distinguish poor parenting from parenting-while-poor. Non-poor and, especially, white families don’t even go into the database. And the system has real consequences — it’s all geared toward taking kids away from parents, in the guise of protecting them. Poor and non-white families are at constant risk for this.

And where do those kids go? To foster care. And the reality is that children are, generally, better off with biological parents, however less than ideal that situation may be, than in foster care, which tends to be far worse. The Nanny State on stilts. Here, it’s the Nanny from Hell.

Our entire system of public benefits and social safety nets is a crazy quilt of bureaucratic complexity that costs us way more — supposedly to make sure people are entitled to what they receive — than if we just handed a check to everyone who asks. Likewise, simply giving every homeless person an apartment would cost far less than we actually spend, not only on bureaucracy, but on the costs of people being on the streets, which include police, courts, and constant emergency interventions.

The system reflects our fundamental societal schizophrenia between, on the one hand, recognizing an obligation to help the needy and, on the other, seeing them as unworthy moochers (like that guy sitting next to me did).

This is a very rich country. We could amply afford to take care of every unfortunate person in the country if we would overcome that schizophrenia and decide to do it because it’s just humanely right. We give way more welfare to the well-off. Welfare for all the needy, without all the nonsense, would cost less than the waste in the defense budget. Less than we’ve thrown away in Trump’s tax cuts for the rich.

Plan-free fact-free anal sphincter foreign policy

May 16, 2019

Everyone before was stupid. He knows everything. Intelligence briefings, consulting experts, careful planning — loser stuff. The great deal-maker’s own great instincts alone would make America great again.

Are we there yet?

I’ve written about big-picture foreign policy — how since 1945 America’s painstaking construction of a cooperative global order has served our interests while also making a better world. And how Trump is nihilistically smashing it.

Bob Woodward’s book Fear explains that Trump likes to “fly by the seat of his pants . . . did not want to be derailed by forethought. As if a plan would take away his power, his sixth sense.” It portrays a man ruled by anger and ego, impervious to facts, incapable of focusing. For a time, adults around him struggled to forestall disaster. Now they’re all gone.

Let’s see how plan-free foreign policy is working out:

NORTH KOREA. The great deal-maker imagined just schmoozing his way to triumph. Returned from his first summit with Kim Jong Un declaring victory, problem solved, no more nuke threat. Nobel prize! Turns out (surprise) the “deal” was bullshit. North Korea agreed to nothing and continues testing missiles. Kim harvested valuable prestige at no cost. The great deal-maker has no plan.

IRAN. It took years for the U.S. and five other leading powers to negotiate a deal that would significantly slow Iran’s nuclear weapons development. Trump tore it up to replace it with . . . nothing. He had no plan. Now Iran will get a bomb sooner. While the regime hardliners, who hated the deal, are strengthened. Our allies are antagonized. And now too, with our modus vivendi with Iran shredded, there’s looming military conflict. Not a war we could “win;” almost certain to be a horrible mess and disastrous for American strategic interests.

VENEZUELA. Trump loves dictators. (Just hosted Viktor Orban who’s destroyed Hungary’s democracy.) So why not Maduro? Simple: his regime made the mistake of calling itself “socialist.”

Trump imagined pressure would cause Venezuela’s military to flip and oust Maduro. Didn’t understand the military is the regime, its leaders profiting, and terrorizing lower ranks against defections. And what about our threat of military intervention? Also sure to be a horrible bloody mess and disastrous for our larger interests.

So while loudly proclaiming Maduro must go, Trump has no plan.

SYRIA. What is the plan?

CHINA. Trade wars are easy to win? Tell that to the 1930s. What’s especially stupid is a democracy picking a trade war with a dictatorship that’s much more able to endure economic pain. Trump blundered into this battle with no plan for winning it.

He insists his tariffs on Chinese imports will be paid by China. Just like Mexico would pay for his wall. In fact American consumers will pay, through higher prices at the cash register. Estimates range up into the thousands per family. This will also mean U.S. job losses — estimated up to a million or more.

And this doesn’t count our economic damage from the retaliatory tariffs China is slapping on us.

True, our economy is doing great. No thanks to Trump’s trade war, but in spite of it. Without it we’d be doing even better. (And our prosperity actually owes far more to Obama than to Trump.) A 600 point fall in the Dow shows the market realizes how bad for us the trade war is.

Meantime, we might fare better against China if our allies presented a united front. The TPP deal would have been just that, but Trump ditched it, while further kicking our friends in the teeth, even picking trade fights with some of them too. So we’re now on our own battling China.

We do have real trade issues with China, but tariffs are not the remedy. Trump literally doesn’t understand global economics. He imagines if we buy more from China than we sell them, they’re ripping us off. No economist (except liar Peter Navarro) thinks that. If China can sell us widgets cheaper than we can make them ourselves, it’s to our advantage to buy theirs and make other things. What consumers save on widgets enables them to spend more elsewhere — creating jobs.*

ISRAEL & PALESTINIANS.  For half a century, very smart knowledgeable people couldn’t solve this. So Trump tapped son-in-law Jared Kushner, with zero relevant knowledge and experience, to create a plan. Soon to be unveiled as the greatest thing ever. Apparently it will avoid the issue of a Palestinian state. Why did no one think of that before? But meantime Trump’s pro-Israel actions have already scotched America being seen as an honest broker, so there’s no way Palestinians will buy into whatever fabulous plan Kushner concocts.

I didn’t vote for Obama and heavily criticized his foreign policy. But Obama was a foreign policy genius compared to this anal sphincter.

* Woodward’s book details how economic advisor Gary Cohn failed to make Trump see he’s screwing the 84% of our economy that’s services to benefit (a little of) the 16% that’s manufacturing. Cohn finally resigned. The book shows Trump believes trade is bad, full stop. So willfully stupid it’s insane.

Venezuela’s tragedy: lessons for America

April 18, 2019

Javier Corrales is the Dwight Morrow professor of political science at Amherst. I recently heard him give a talk about the situation in Venezuela, divided into three parts: what he called “democratic backsliding;” economic collapse; and lessons for America.

Corrales explained that the democratic decline preceded and led to Venezuela’s economic disaster. And he saw reasons for concern that the story could repeat even in well-established democracies like ours.

Corrales started with “Democracy 101.” America, in the 1700s, basically invented the modern concept of liberal democracy. (Not to be confused with the “liberalism” that’s a political orientation of some Americans.) It’s rooted in the Enlightenment, with government accountable to people, and limited, to prevent tyranny by either a minority or a majority. A key means is to divide power among different government branches to check each other, with constraints upon government as a whole to leash its authority.

For a time, after WWII, and especially after the Cold War, liberal democracy was spreading. But then came a “democratic recession” beginning around 2006. Notable cases are Turkey and Hungary, and of course Venezuela. What we see is not the “old fashioned” putsch, but something that more insidiously starts in ambiguity — what Corrales called “executive aggrandizement,” with other centers of power being neutered or co-opted. The picture may ostensibly seem at first more democratic, with a majority thinking they’re getting what they voted for.

Then the regime uses and abuses laws, and creates new ones, to make an uneven political playing field. Elections are still held, but they’re manipulated by a host of measures to produce the desired results. The ruling party becomes a rubber stamp cheering section. The opposition is demonized and delegitimized. Press freedom and public debate are suppressed.

Political scientists use a host of criteria to measure a nation’s degree of democracy. Corrales presented a graphic timeline of Venezuela’s scores. They started low, with a dictatorship until the 1950s, when they jumped to a sustained democratic plateau. Then in 1999 Hugo Chavez (a former would-be putschist) got elected president, and Venezuela’s democratic score fell off a cliff. (Corrales also displayed Cuba’s graph — basically flatlined since the 1959 Castro takeover — and America’s, starting high and rising higher through the period, but with a noticeable drop in the last few years.)

Another set of criteria encompasses all the specific ways in which undemocratic regimes subvert fair elections, and here again a detailed chart was presented for Venezuela. At the start of the Chavez era, voting was still pretty much fair. But then the regime utilized ever more of the measures on the chart, to the point where today, Venezuela’s voting is a cynical charade.

The manipulation became necessary because whereas Chavez was actually popular for a while, the regime’s popularity faded, and nosedived under his successor Maduro. This leads us to the matter of the economic disaster. Venezuela is an oil state; that is, almost all its national earnings are from oil. Chavez was the beneficiary of a big spike in the global oil price, and he used the windfall to buy off political support from the poorer classes. Then the oil price collapsed with the 2008 global financial crisis. As Warren Buffet said, when the tide goes out, you see who’s been swimming naked.

In Venezuela’s case, the regime’s economic mismanagement became tragically evident, plunging the once-rich nation into poverty, with an inflation rate measured in millions of percent, and a tenth of the 30 million population escaping to other countries. Corrales explained that Chavez not only imprudently spent all the oil windfall (saving nothing), but went deep into debt besides. While some of this profligacy did trickle down to the poor, most was frittered away through corruption and incompetence. None was allocated to investment to build the economy.

So Venezuela suffered from an unrestrained state — and that was combined with a restrained private sector. The regime’s “socialism” led it to regulate private business so as to destroy it. Thus food, medicine, and all sorts of other goods (which Venezuela, so oil-concentrated, used to import) have disappeared from the shelves. While the regime’s fiscal indiscipline brought forth hyper-inflation. It made things worse by responding with price controls and even more punitive anti-business measures.

Corrales rejected any idea that America somehow bears responsibility for Venezuela’s travail. To the contrary, he said, the U.S. actually helped finance the regime by buying its oil (now stopped). Meantime its oil income has plunged due to its mismanagement, stuffing the state oil company with political hacks.

We keep hoping Venezuela’s military will oust Maduro. After his talk, I suggested to Corrales it won’t happen because the generals too are profiting from the corrupt system. He agreed. So, I said, the only path is the opposition taking up arms and starting a war. He smiled and nodded (somewhat to my surprise). Then I added, “Some things are worth fighting for.” He smiled and nodded again (ditto).

The lessons here for America should be obvious by now. I have written about the burgeoning phenomenon of political populism (https://rationaloptimist.wordpress.com/2017/12/28/what-is-populism/.) Corrales said the world’s democratic backsliding is driven by populism, defined by its perceived political betes-noires. On the left (epitomized by Venezuela) it’s anti-capitalism, anti-imperialism, anti-Americanism. Bernie-style populism inveighs against “neoliberalism,” corporations, and the rich. Right-wing populism typically demonizes the intelligentsia, elites, immigrants, ethnic minorities, and crime. For both right and left, the stomping on hated enemies can excuse the stomping on democratic norms. (Many Western lefties still defend Maduro.)

Also obvious is Trump’s following the playbook Corrales outlined: executive aggrandizement, undermining governmental checks and balances, demonizing and delegitimizing opponents and the free press. We even see election manipulation, with voter suppression. All this is how it starts. Be afraid. Be very afraid.

Irrationality in the U.S. Coin Market

March 9, 2019

This is posted mainly for my numismatic friends. It concerns crazy high prices being paid for coins based on increments of condition perfection that are actually meaningless. The “slabbing” mentioned refers to coins in sealed capsules whose authenticity and grade is assigned by certification services. A version of this piece was just published in Coin World, but much condensed, omitting some significant points (and, oddly, the first line). So here is my complete text:

This Emperor has no clothes.

The U.S. coin market, that is — when it comes to the highest grades — especially for modern coins and the “top of the pop” thing (coins graded highest in the slabbing services’ population reports).

Let’s start with what’s rational about coin prices. They’re keyed to rarity and quality.

Rarity is a matter of supply and demand. The fewer the examples available to desirous buyers, the higher they’ll bid the price up.

The quality factor might seem similarly straightforward: better quality brings a higher price. That’s true of any goods. Numismatics in particular entails an aesthetic aspect. Better condition coins are nicer to look at. Thus, “eye appeal.” But note the complication that beauty is in the eye of the beholder, and collectors differ in what attracts them. There’s also a pride-of-ownership factor. Our collecting is a reflection of ourselves. (In my own collecting of world and ancient coins, I’m something of a condition snob.)

The rarity and quality factors are synergistic: in general, higher quality is rarer. Though not always. For 1883 “No Cents” nickels, or 1997-S Proof dimes, lower quality is actually the rarer. Of course, nobody will pay extra for that kind of rarity (except those pursuing “worst of” sets for the sake of numismatic perversity). But in the more usual situation — say, 1897-S dimes — high grade (mint state) coins are far rarer than well-worn ones, and command correspondingly higher prices.

There is also the concept of “condition rarity” where a coin otherwise common is hard to find in the best grades.

In all such cases the price disparity is rational and understandable to anyone. But what about, say, MS-67 versus MS-66 for modern coins? PCGS may have graded ten times more 66s than 67s. Does that make 67 a condition rarity? Should the price be ten times that of 66? Let alone a hundred times or more?

Basic human psychology comes into play here. I’ve mentioned pride of ownership. There’s a part of us — especially men, and coin collectors are mostly men — that wants to be the best and have the best. We call it “bragging rights.” And there’s also competitiveness, the desire to beat out the other fellow and thump one’s chest.

I see this in my own auctions. Some guys just don’t like the idea of being outbid, as though it’s losing a competition, even a knock to their manhood. They will top someone else’s bid just for the sake of claiming a victory. Probably they don’t consciously think this way, it’s unconscious. But it sure helps my prices realized.

Hugely feeding this is the advent of registry sets (a cunning invention by the grading services, to get fees on many common date coins that wouldn’t otherwise be worth slabbing). Now one can actually literally be certified as having the best collection of, say, Lincoln cents. So if you’re in that game, and suppose there’s only a few 1954 cents slabbed as MS-67, you’ve gotta have one. And you’ll pay way more than for a “common” MS-66. Way way more. Would you believe $31,200? That in fact is what an MS-67 1954 cent realized at Heritage’s 2018 FUN auction.

To be clear, 1954 is not even a scarce date. The bid price for MS-66 red is $55; though outside of a slab a BU, even if really nice, goes for maybe a buck. Meantime, for $31,200 you could literally buy a full roll of key date 1885 nickels — in Proof!

Something is seriously out of whack.

This carries the concept of condition rarity to an extreme that’s beyond irrational. Let’s take a deep breath and remember that while the difference between, say, EF and mint state 1897-S dimes is obvious and material (and the price difference is not huge), the distinction between MS-66 and MS-67 1954 cents is nothing of the kind. I am talking not about the market difference, but the actual physical quality difference. It’s awfully close to being a distinction without a difference.

We must also remember that this is all ultimately about aesthetics. People do not need coins. We collect them only because it is in some way pleasing to do so. Upon this foundation a gigantic economic edifice has been built, but at the end of the day, coins have no value except insofar as they confer pleasure on their owners. (Thus I sometimes say in my auction catalogs, “Love your coins for what they are, not for what they’re worth.”)

We do, once more, pay higher for better quality coins because they confer more pleasure. Again a matter of how a coin looks to the eye. But distinguishing between MS-66 and MS-67 requires close examination under magnification with special lighting. Otherwise they look just about identical — apart from any toning, which may actually have a far bigger impact on visual appeal than the bare number grade. Moreover (as Q. David Bowers keeps reminding us), those numbers don’t take account of strike either, a big aspect of a coin’s true quality. Thus the number grades reflect what is really a peculiar sort of tunnel vision. And still further, the numbers falsely imply a sort of scientific precision, when in fact they are a matter of subjective judgement, upon which even experts typically disagree.

Given all that, it might make sense to pay a little bit more for a coin that a grader at some grading service, on a particular day, after a particularly good lunch, decided to call MS-67 than for one in an MS-66 slab. But to pay multiples more — indeed, many hundreds of times more — is insane. In the fullness of time, collectors will come to their senses. As did the Dutch tulip speculators.

The original Sheldon scale contemplated just three quality levels for mint state coins (with one of them an almost impossible nirvana of perfection). Maybe a couple of finer differentiations would be reasonable. But expanding it to 11 (and even more, really, with pluses and Wings) stretched the concept of quality differentiation beyond what makes reasonable sense, given the subjectivity involved. Especially when a fetishistic obsession has emerged over distinguishing among inconsequential gradations of virtual perfection. This has sent U.S. numismatics down a rabbit hole pursuing an illusory holy grail (if I may mix my metaphors, and alliterate).

The Green New Deal

February 18, 2019

Green Nude Eel

It’s green. It’s new. And it’s a deal. What’s not to like?

Ah, the power of words. These three do make for a potent combo that’s caught the zeitgeist of today’s Democratic party. Don’t even try running for president if you’re not for the GND.

Columnist David Brooks writes that while “[t]he productive dynamism of capitalism is a wonder to behold,” this doesn’t today give the middle class, and the less skilled, economic security; nor help address “social decay.” Democrats in particular are increasingly disenamored of free market economics, blaming it for inequality and also seeing capitalism as the culprit behind climate change.

Their Green New Deal is intended as a response for all this. It envisions broad-scale government mobilization to reduce carbon emissions — to zero within a decade or two — with jobs-for-all thrown in.

Climate change is real, human activity is a cause, and the ill-effects will be costly. But the GND is a bad answer, for several fundamental reasons.

First, it does behoove us to reduce planet-warming carbon emissions, to the extent it’s reasonably possible. (Leaving the Paris agreement was brainless.) But zero is not reasonably possible (given existing or foreseeable technology) without sacrifices vastly disproportionate to the resulting climate benefit. Climate zealots seem to regard economic growth, indeed wealth itself, as an evil, urging us to scale back our lifestyles. (As though humankind is a criminal deserving punishment.) Yet these are the same people who bemoan inequality and poverty. They seemingly imagine both reversing economic growth yet also redistributing its fruits.

Economic growth, in recent decades, has in fact tremendously reduced world poverty. We shouldn’t want to reverse that, which zeroing out global carbon emissions would currently require. Indeed, the costs of basic poverty, to human well-being, far exceed climate change’s potential damage. Moreover, to deal with that damage, we’ll need the resources economic growth provides. So we must accept some temperature rise, as a necessary price to sustain our economies and global living standards.

In fact it’s not a choice. Because rising temperature is already baked in, even if emissions are cut to zero. Global warming will still continue, just a little less rapidly than if we do nothing. Thus the hair-on-fire zealotry for emission reduction is misplaced.

But if we really want to reduce emissions, nuclear power produces none. Yet greens ignore that option because . . . well, because it’s “nuclear.” (Dangerous? Fossil fuel power generation is estimated to kill around 20,000 Americans annually with lung disease. Nuclear power’s U.S. death toll: zero.)

And if we really want to stop warming, we’d have to consider geo-engineering initiatives to cool the planet. It could be done, maybe even cost-effectively. But climate zealots oppose even researching such options, because it would undermine their emissions fixation and (the horror!) enable economic growth to continue. So the GND ignores geo-engineering too.

Meantime, absent action to reverse otherwise inevitable warming, our main focus should be not on largely futile emissions reductions but, rather, preparations to combat warming’s effects. This the GND also ignores.

But meantime too, if we do insist on emissions reduction as the aim, economics gives us a clear answer for achieving it: to reflect, in the prices of things, the societal cost of their associated climate impacts. That is, a carbon tax. It would give people proper price incentives to reduce carbon and seek alternatives. (A scheme of emission permit trading would be somewhat analogous.)

However, efforts to enact a carbon tax have gone nowhere. Well, nobody likes taxes. But recently, a group of leading economists proposed, in the Wall Street Journal, a carbon tax whose revenue would be rebated via a universal dividend. That wouldn’t negate the tax’s carbon-reducing incentives, thus a win-win.

But the Democratic lefties behind the GND aren’t interested in such economic rationality, using markets and creating incentives to do right. Instead they want government giving us marching orders. Government would design and create massive new energy and transport infrastructures (“air travel stops being necessary”). These gigantic command-and-control institutions would replace much of what we’ve got now. Including most of our cars. There may also be a job for anyone unemployed (no skills needed, presumably).

This hugely consequential policy package is not the product of a careful broad-based consultative process. While lefties and greenies have long been talking in general on such lines, the GND seems to have been slapped together on the fly, on the back of an envelope, in a very short time, by a few members of Congress (including the over-hyped and under-experienced AOC). Paying for it all is another thing left unaddressed.

Brooks says the GND reflects “a faith in the guiding wisdom of the political elite,” with technocratic government planners in effect mastering the running of a huge and enormously complex part of America’s economic machine. How often must we see such hubristic faith come to tears? Remember the Solyndra fiasco? That was just a teensy foretaste of what the GND envisions. And Soviet central planners too fantasized being economic masterminds. Brooks wryly notes that the GND comes from “people who couldn’t even successfully organize the release of their own background document.”

The Economist moreover points out that the GND’s governmental behemoth would entail a massive redistribution of political and economic power, making big winners and losers. Lobbying and special interests will go into overdrive. While actually, the GND “largely dispenses with analysis of the costs and benefits of climate policy. It would create large opportunities for rent-seeking and protectionism, with no guarantee that the promised climate benefits will follow. [And with] growth-throttling taxes and dangerously high deficits” too.

Is this “Socialism?” The word doesn’t merely mean anything government does (libraries, road building), as some disingenuously suggest. It’s government taking over functions that, in a free economy, nongovernmental actors perform. And while lefties like to call it “democratic socialism,” such concentration of power is quintessentially anti-democratic and elitist.

This is the platform Democrats seem eager to run on.

Republicans, having destroyed their own brand with lies, bigotry, and thrall to a very bad man, have also managed to radicalize the Democrats into being the party of the GOP’s worst nightmare. When Democrats consolidate power — which Republican horribleness makes likely — “the era of big government,” that Bill Clinton said was over, will be back with a vengeance.

I dream of Election Day 2020 as a triumph of good over evil. But it may instead be a Hobson’s choice between Trumpian evil and everything about the left I’ve always opposed.

An immodest proposal for reducing inequality

December 15, 2018

Inequality — the cri de coeur of the left. The rich get richer while the poor get . . . actually richer too, in fact, though not as fast. We should stop obsessing enviously that the top 1% or 0.1% are so rich, as if their wealth makes others poor (it’s not so). Instead, the concern should be to give more people more opportunities to get rich(er).

America’s real inequality is between the well educated and the less educated. And that gap inexorably grows as the economy increasingly demands smart workers. So education ought to be the big equalizer. But U.S. education does the opposite — instead of giving the poor a hand up, it slaps them down. The education they get is worse than what the better-off receive.

And they only get it for half the year! What with weekends, holidays, and, mainly, the summer vacation which — at three months in America — is just about the world’s longest.

Fixing all that’s wrong in education for poorer kids is a huge challenge. But here’s one extremely simple thing we could do: cut the summer break. The education poor children get isn’t what it should be, but it’s better than nothing, yet for three months of the year we do give them nothing.

Poor kids fall further behind during those months. Studies have shown that such a prolonged hiatus causes children to lose a lot of what they learned in the preceding term. Affluent parents can offset this with enriching summer activities, which poorer ones can’t afford. Even just letting kids range free outdoors can aid development, but even this is curtailed by safety fears (largely overblown; though in the worst neighborhoods it is indeed dangerous for kids to be in the streets). Summer jobs too have largely become a thing of the past. The result is that poorer kids often spend summers as couch potatoes, rotting their brains.

A 2007 Baltimore study found the summer learning fall-off could account for two-thirds of the achievement gap between rich and poor students, by their mid-teens.

It even actually makes poor families poorer. During summers their kids miss free meals in schools, so their grocery bills rise, and they face added child care costs too.

Lengthening the school year would cost money, but would benefit all American children — the poor especially, reducing the opportunity gap. We can afford the added cost. Indeed, this investment in our kids and their future ability to contribute to the economy would surely more than pay for itself in the long run.

At the very least, we ought to do much more to provide summer activities, including meals, for poorer kids. Instead, Trump (who in the campaign challenged black Americans, “what the hell have you got to lose?”) has sought to cut all funding for such programs from the federal budget. Better educated citizens aren’t good for today’s Republican party.

Bitcoin: a solution in search of a problem

November 12, 2018

Since coins are my business, perhaps I should discuss Bitcoin.

It’s a “cryptocurrency” or digital currency. Or supposed to be. Existing only in cyberspace but worth money of the more conventional sort. It has a whiff of underground rebellion, breaking free from the system of government-run money supply — and all its associated regulation. The idea is to make transactions untraceable by snooping government. Thus, Bitcoin payment has featured in some shady doings, notably the “Silk Road” venue for, mainly, illegal drug trades, and in ransomware attacks (where bad guys hack into your computer and lock you out unless you pay them).

This Satoshi Nakamoto denies it

How does Bitcoin actually work? Such a system’s main challenge is to prevent the equivalent of counterfeiting. People spending Bitcoins they don’t own, spending the same coin twice, etc. Bitcoin’s solution is what’s called a “blockchain,” invented by a mysterious, probably pseudonymous “Satoshi Nakamoto,” who has since vanished. A blockchain, or “distributed ledger” is a kind of database which isn’t centrally controlled, but accessible to everyone, such that when a new transaction is recorded, it cannot thereafter be altered. Thus every Bitcoin transaction ever occurring is indelibly encoded into the blockchain.

Bitcoins are created by “mining.” This entails beating other punters to the solution of a complex mathematical puzzle requiring vast computer power, the winner garnering a reward in fresh Bitcoins. That serves to limit expansion of the “money supply.” In fact, it’s ultimately capped at 21 million coins. Mining Bitcoins consumes so much electricity that this has become a real problem for power supply in areas where miners locate (usually places with low electric rates).

Bitcoin’s value started at nine cents on July 18, 2010. With much fluctuation, it topped $19,000 in December, 2017, then fell by about two-thirds.

That huge run-up in value prompted numerous copycats to jump in with their own “cryptocurrencies,” introduced via “initial coin offerings” (ICOs), mimicking “initial public offerings” for securities. But they aren’t shares in a business or promises to pay (like bonds). They are only worth . . . well, what the market decides they are worth. Not much, it often turns out.

But what makes a Dollar worth a Dollar? A tautological question. Writer Yuval Noah Harari likes to call this a fiction kept aloft because a lot of people believe it. You accept a Dollar as payment because you expect you’ll be able to similarly spend it. But that web of expectation is its only value; you actually can’t take it to the government and exchange it for some commodity of tangible value, like gold. (And what makes gold so valuable, except our mutual understanding to so treat it?)

Anyhow, that ready universal acceptance is what makes a currency a currency; and cyptocurrencies singularly fail that test. A currency must also be a store of value, and the wild fluctuations in cryptocurrency prices fail that too. Nobody wants to accept a currency that could lose half its value in a short time. (Of course, this does happen occasionally with national currencies, like Venezuela’s right now — a huge economic disaster.)

Add to that the lack of what might be called consumer protections. The cryptocurrency world is rife with fraud and sharp practice. Most ICOs are really nothing more than scams.

A lot of people made a lot of money on Bitcoin; a lot of people lost their shirts. The reality is that Bitcoin has become not a currency but, mainly, an object of speculation, which is not at all what “Satoshi Nakamoto” had in mind. And the fact is that Bitcoin, after all, has no objective value that can be ascertained. The mining process is costly, but that expenditure does not somehow confer intrinsic value on the results. Nobody will value a Bitcoin based on its creation having entailed solving an abstruse mathematical puzzle.

Indeed, why it should have any value at all remains a salient question.

Richard Wolff in sheep’s clothing, on capitalism versus socialism

September 14, 2018

I heard Richard Wolff again on “Alternative [left-wing] Radio.” He’s the “Marxist” economics professor whose LOL take on first class airplane seats I wrote about. Wolf saw them as though created by God but unfairly handed out by dastardly airlines to rich folks, forcing plebeians to suffer in coach. In actuality, the rich subsidize the rest. That’s how airlines make their money. Without milking richies via vastly overpriced premium seats, they’d have to charge coach travelers far more, which wouldn’t fly — literally.

Wolff couldn’t see that reality. But he is a glib talker. His latest was on capitalism versus socialism. He thinks capitalism’s badness will cause socialism to triumph.

A chief theme was “socialism” getting a bum rap because people don’t understand it. This is part of the effort to sugar-coat socialism, making it seem innocuous — a wolf in sheep’s clothing. (We saw this with the Bernie campaign.) It’s the trope that if you like public roads and libraries and fire departments, etc., anything government does, why, that’s socialism!

Except that it isn’t. Providing necessary services that a free market cannot (at least not well) is just any government’s job. Socialism instead is government substituting for (and disallowing) a capable free market.

Now, if you think that’s a good idea, fine, try to persuade us. But socialists must doubt its persuasiveness, else why do they constantly hide what they really advocate, under false camouflage about roads and fire service?

Richard Wolff-in-sheep’s-clothing epitomizes this, again saying people misunderstand “socialism.” He repeatedly mocked the idea of any association with Stalin’s crimes. He stressed that “socialism” is not limited to any single categorical definition. But did he ever actually say what it does mean?

Nope.

But, talking about “capitalism,” Wolff did exactly what he criticized — painting it as one limited thing — which, typically, was a gross caricature.

I was struck by the contrast with a book I happened to be reading, Relentless Revolution: A History of Capitalism, by historian Joyce Appleby.* Indeed, its key theme is that “capitalism” has been not one discrete concept but endlessly flexible, adaptive, and evolving, with vastly varying iterations — its great strength.

This is clear from the first great book on the subject — titled Capital — by Karl Marx. I will not deride Marx as a fool. He was in fact a brilliant thinker, observer, and analyst, who had some important insights. But he was fundamentally wrong in predicting capitalism’s future. Marx saw an “iron law of wages” always pushing them down to bare subsistence, just enabling workers to stay alive to produce the golden eggs for the capitalists, until they’d revolt. Marx did not imagine the mass affluence capitalism (and the associated industrial/technological revolutions) would bring forth. Even amid all today’s lamentations about inequality, and capitalism’s supposed injustice, the fact is that workers in industrialized societies were able to gain a large enough share of the economic pie to give them living standards unimaginably cushier than the bare subsistence Marx posited.

That’s because the pie has grown so spectacularly. And because of democracy. “Democratic socialism” is really a contradiction in terms because the two ideas have proven in practice to be fundamentally incompatible. That’s due to socialist systems concentrating so much power in government, whereas free market societies distribute power widely. Socialism is not the antithesis of fascism or communism. All three have the central idea of valorizing the collective over the individual, thus being inherently coercive and repressive.

No type of society or system will deliver justice and equality free from the depredations of people who will always try to exploit it for their own advantage. That’s certainly been true in all socialist or communist systems, wherein some individuals always amassed great power over others — using the machineries of the state and its monopoly on violence (legitimate in free societies, but not in others). A free enterprise system at least does not allow that. Instead, there you gain advantage by (in the main) creating value others voluntarily pay you for, making society as a whole wealthier. That’s how Steve Jobs, for example, got so rich. It’s how the whole industrialized world — including its workers — got so much richer than Marx foresaw.

Richard Wolff (Yes, socialism IS for dummies)

Such prosperity has never been produced by socialism. China is a very instructive case. It has two economic systems functioning side-by-side: a socialist one of state-owned firms, and another of very free enterprise. The latter runs rings around the former. It is the source of China’s phenomenal economic advancement, lifting hundreds of millions out of poverty in the last few decades.

* She’s no right-wing free marketeer; plenty critical of capitalism’s negative aspects, especially environmental. Appleby is often a trenchant observer, but I can’t let pass how many annoying bloopers I noticed. Like, “Ingenuous people found a new way to exploit electromagnetism.” Really? I thought that was disingenuous.