Comments on: I am not afraid to keep on living

By: Professor Coldheart

Professor Coldheart — Wed, 23 Apr 2008 17:48:27 +0000

Sam – I attended a talk at BC, many many years ago, given by a Federal Reserve banker. He made a comment that’s stuck with me. “If the WTO were really about free trade,” he said, “the WTO charter would be one sentence long.”

By: Sam

Sam — Wed, 23 Apr 2008 17:45:58 +0000

The goal of corporations isn’t to make “as many people as wealthy as possible”; it’s to make certain people as wealthy as possible (as Tom pointed out). Where’s the conundrum?

(I thought your conundrum was going to be “explain the failure of ‘free trade’ agreements.”)

By: Professor Coldheart

Professor Coldheart — Wed, 23 Apr 2008 17:09:33 +0000

Brian – I am the wrong demographic.

By: Brian Martinez

Brian Martinez — Wed, 23 Apr 2008 16:20:50 +0000

It’s the state’s fault. (A frivolous response is all I can muster this morning.)

And boycott the Olympics all you like, but NASCAR? That’s inexcusable, commie.

By: M. Witty

M. Witty — Wed, 23 Apr 2008 16:19:04 +0000

I think you’re question presupposes that there ought to be, in theory, some kind of harmony between the idea of free exchange and the modern American-style (in the sense that it has 14th Amendment rights) corporation. The corporation isn’t concerned with freedom of trade, expression or organization. If tariffs, import ceilings, and export quotas can be had, through political influence, for less than the marginal profit they create, then why would there be any compunction against doing so? Indeed, they have a fiduciary responsibility to do so. The deadweight loss certainly doesn’t fall on them. The corporation is miles closer to Tony Soprano than John Galt.

By: Professor Coldheart

Professor Coldheart — Wed, 23 Apr 2008 15:59:10 +0000

Seriously? That is bizarre.

By: herbaliser

herbaliser — Wed, 23 Apr 2008 15:49:28 +0000

For another perspective, my boyfriend wants to get cable just so he can watch the summer Olympics this year.

By: BobHolt!

BobHolt! — Wed, 23 Apr 2008 14:55:46 +0000

Excellent answer Tom.

Also, from an information perspective, free trade is based on the principle of perfect knowledge between trading partners – complete information about the transaction and how it benefits both sides. It does not take into account the entities who actively seek to obfuscate and misinform (whether through legalese, marketing, or lobbying) as part of their profit-maximizing strategy.

In that sense, free trade is one of our simplest models, and most easily broken when adding additional factors.

But step over here and speak to my friends Nash and Bayes…

By: Tom

Tom — Wed, 23 Apr 2008 14:14:31 +0000

The modern corporation is run, at its highest levels, by people whose primary concern is not to maximize either the value created by the corporation, nor the value of the corporation itself, but rather the value of their *stake* in the corporation, at least until such time as they can cash out, as well as no small amount of the thrill of power itself. This encourages behavior that is personally beneficial to the executives.

Further, any executive of a big-enough corporation knows that he (I would say or she, but I am realistic about the state of corporate America) is essentially bulletproof. A CEO who fails miserably still collects millions upon millions in severance pay. A CEO who fails spectacularly gets a government bailout. See, e.g., Bear Stearns. This encourages those executives to take risks that are, in layman’s terms, stupid. Their situation is all upside and no downside.

So, American businesses of a sufficient size are run by people who reap the upside, are effectively insured against any downside, and are primarily interested in their own personal influence, power, wealth, and glory.

And we worry about the moral hazard effect of forgiving people’s mortgage debt!