profit maximization

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pages: 278 words: 74,880

A World of Three Zeros: The New Economics of Zero Poverty, Zero Unemployment, and Zero Carbon Emissions by Muhammad Yunus

active measures, Bernie Sanders, Capital in the Twenty-First Century by Thomas Piketty, clean water, conceptual framework, crony capitalism, distributed generation, Donald Trump, financial independence, fixed income, full employment, high net worth, income inequality, Indoor air pollution, Internet of things, invisible hand, Jeff Bezos, job automation, Lean Startup, Mark Zuckerberg, megacity, microcredit, new economy, Occupy movement, profit maximization, Silicon Valley, the market place, The Wealth of Nations by Adam Smith, too big to fail, unbanked and underbanked, underbanked, urban sprawl, young professional

We need to address the issues from all sides, including concerns about lifestyle; government policies about energy, mining, and businesses; and other factors. And since profit-maximizing businesses will represent the great bulk of business activity for the foreseeable future, we must insist that they operate in an environmentally responsible fashion. Government regulations as well as social pressure from customers and citizens’ groups will play an important part in enforcing this norm. It would make no sense to create a world in which social businesses are working to repair the damage to the environment that human behavior has caused while at the same time profit-maximizing companies are allowed to create fresh damage. This means that companies of all kinds are required to join this giant initiative to simply uphold our shared humanity, to behave in an ethical, responsible fashion toward the environment that we all depend upon.

For example, in my book Creating a World Without Poverty, I explained how big infrastructure projects like a mega port can be built through a social business corporation owned by the poor people of the area.2 If we make public demands that governments give priority to social businesses in selecting companies for all purchases and contracts, big or small, it will reduce the involvement of greedy profit-maximizing businesses in public affairs. One risk is that unscrupulous owners of profit-maximizing businesses will start creating fake social business “front” companies to compete for government contracts. However, even if this happens, matters won’t be worse than before. Close scrutiny by independent watchdog groups and journalists can reduce the problem. And over time, genuine social businesses will grow to outcompete the fake ones. Social business offers a sustainable way for governments to fulfill one of their central responsibilities—namely, to take care of people at the bottom of the economic ladder and to open up opportunities for them so that they can take care of themselves and live with dignity.

When you are building an organization whose mission is not to enrich any individual but rather to help make the world a better place for those in need, most people are happy to support it in the same spirit of altruism. Competition among market participants seeking to outwit each other becomes unnecessary. Elaborate safeguards to prevent exploitation are less important than they are in the world of profit-maximizing business. As long as a clear separation is made between the realm of social business and the realm of traditional profit-maximizing business, both realms will be able to flourish. And as more and more people become familiar with the concept of selfless business, participate in creating social businesses, and enjoy the benefits they create, an understanding of “dog-help-dog” economics will spread. This will make it easier for people to work together in a spirit of mutual trust without the need for elaborate contracts to control their interactions.


pages: 823 words: 220,581

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

"Robert Solow", accounting loophole / creative accounting, banking crisis, banks create money, barriers to entry, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, business cycle, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, fixed income, Fractional reserve banking, full employment, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, information asymmetry, invisible hand, iterative process, John von Neumann, Kickstarter, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, money market fund, open economy, Pareto efficiency, Paul Samuelson, place-making, Ponzi scheme, profit maximization, quantitative easing, RAND corporation, random walk, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Coase, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave, zero-sum game

I instead saw a logical error: Stigler’s proof that marginal revenue for the individual firm would converge to market price as the number of firms increased was correct, if those firms all set marginal revenue equal to marginal price. But all the problems that I had identified in this chapter still remained: in particular, producing where supply equaled demand required ‘profit-maximizing’ firms to actually make losses on all goods sold past the point at which industry-level marginal revenue equaled marginal cost. There was only one explanation: equating marginal cost and marginal revenue couldn’t be profit-maximizing behavior. I followed the logic forward and proved that the true profit-maximizing formula was quite different. If competitive firms did actually profit-maximize, they would produce an output much lower than the level where marginal cost equaled marginal revenue. The market outcome was that a competitive industry would produce the same amount as a monopoly, and market price would exceed marginal cost.

A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data available eISBN 9781780322209 CONTENTS Tables, figures and boxes Preface to the second edition Preface to the first edition 1 Predicting the ‘unpredictable’ 2 No more Mr Nice Guy Part 1 Foundations: the logical flaws in the key concepts of conventional economics 3 The calculus of hedonism 4 Size does matter 5 The price of everything and the value of nothing 6 To each according to his contribution Part 2 Complexities: issues omitted from standard courses that should be part of an education in economics 7 The holy war over capital 8 There is madness in their method 9 Let’s do the Time Warp again 10 Why they didn’t see it coming 11 The price is not right 12 Misunderstanding the Great Depression and the Great Recession Part 3 Alternatives: different ways to think about economics 13 Why I did see ‘It’ coming 14 A monetary model of capitalism 15 Why stock markets crash 16 Don’t shoot me, I’m only the piano 17 Nothing to lose but their minds 18 There are alternatives Bibliography Index TABLES, FIGURES AND BOXES Tables 2.1 Anticipations of the housing crisis and recession 3.1 ‘Utils’ and change in utils from consuming bananas 3.2 Utils arising from the consumption of two commodities 3.3 The commodities in Sippel’s ‘Revealed Preference’ experiment 4.1 Demand schedule for a hypothetical monopoly 4.2 Costs for a hypothetical monopoly 4.3 Sales and costs determine the level of output that maximizes profit 4.4 Cost and revenue for a ‘perfectly competitive’ industry identical in scale to hypothetical monopoly 5.1 Input and output data for a hypothetical firm 5.2 Cost drawings for the survey by Eiteman and Guthrie 5.3 Empirical research on the nature of cost curves 7.1 Sraffa’s hypothetical subsistence economy 7.2 Production with a surplus 7.3 Relationship between maximum and actual rate of profit and the wage share of surplus 7.4 The impact of the rate of profit on the measurement of capital 10.1 Anderson’s ranking of sciences 12.1 The alleged Money Multiplier process 13.1 A hypothetical example of the impact of decelerating debt on aggregate demand 13.2 The actual impact of decelerating debt on aggregate demand 14.1 A pure credit economy with paper money 14.2 The dynamics of a pure credit economy with no growth 14.3 Net incomes 14.4 A growing pure credit economy with electronic money 15.1 Von Neumann’s procedure for working out a numerical value for utility 15.2 The Allais ‘Paradox’ 15.3 The Allais ‘Paradox’ Part 2 16.1 The solvability of mathematical models 17.1 Marx’s unadjusted value creation table, with the rate of profit dependent upon the variable-to-constant ratio in each sector 17.2 Marx’s profit distribution table, with the rate of profit now uniform across sectors 17.3 Steedman’s hypothetical economy 17.4 Steedman’s physical table in Marx’s value terms 17.5 Steedman’s prices table in Marx’s terms 17.6 Profit rate and prices calculated directly from output/wage data 17.7 Marx’s example where the use-value of machinery exceeds its depreciation Figures 2.1 US inflation and unemployment from 1955 2.2 Bernanke doubles base money in five months 2.3 Private debt peaked at 1.7 times the 1930 level in 2009 3.1 Rising total utils and falling marginal utils from consuming one commodity 3.2 Total utils from the consumption of two commodities; 3.3 Total ‘utils’ represented as a ‘utility hill’ 3.4 The contours of the ‘utility hill’ 3.5 Indifference curves: the contours of the ‘utility hill’ shown in two dimensions 3.6 A rational consumer’s indifference map 3.7 Indifference curves, the budget constraint, and consumption 3.8 Deriving the demand curve 3.9 Upward-sloping demand curve 3.10 Separating out the substitution effect from the income effect 3.11 Engel curves show how spending patterns change with increases in income 3.12 A valid market demand curve 3.13 Straight-line Engel ‘curves’ 3.14 Economic theory cannot rule out the possibility that a market demand curve may have a shape like this, rather than a smooth, downward-sloping curve 4.1 Leijonhufvud’s ‘Totems’ of the Econ tribe 4.2 Stigler’s proof that the horizontal firm demand curve is a fallacy 4.3 Profit maximization for a monopolist: marginal cost equals marginal revenue, while price exceeds marginal cost 4.4 Profit maximization for a perfectly competitive firm: marginal cost equals marginal revenue, which also equals price 4.5 A supply curve can be derived for a competitive firm, but not for a monopoly 4.6 A competitive industry produces a higher output at a lower cost than a monopoly 4.7 The standard ‘supply and demand’ explanation for price determination is valid only in perfect competition 4.8 Double the size, double the costs, but four times the output 4.9 Predictions of the models and results at the market level 4.10 Output behavior of three randomly selected firms 4.11 Profit outcomes for three randomly selected firms 4.12 Output levels for between 1- and 100-firm industries 5.1 Product per additional worker falls as the number of workers hired rises 5.2 Swap the axes to graph labor input against quantity 5.3 Multiply labor input by the wage to convert Y-axis into monetary terms, and add the sales revenue 5.4 Maximum profit occurs where the gap between total cost and total revenue is at a maximum 5.5 Deriving marginal cost from total cost 5.6 The whole caboodle: average and marginal costs, and marginal revenue 5.7 The upward-sloping supply curve is derived by aggregating the marginal cost curves of numerous competitive firms 5.8 Economic theory doesn’t work if Sraffa is right 5.9 Multiple demand curves with a broad definition of an industry 5.10 A farmer who behaved as economists advise would forgo the output shown in the gap between the two curves 5.11 Capacity utilization over time in the USA 5.12 Capacity utilization and employment move together 5.13 Costs determine price and demand determines quantity 5.14 A graphical representation of Sraffa’s (1926) preferred model of the normal firm 5.15 The economic theory of income distribution argues that the wage equals the marginal product of labor 5.16 Economics has no explanation of wage determination or anything else with constant returns 5.17 Varian’s drawing of cost curves in his ‘advanced’ microeconomics textbook 6.1 The demand for labor curve is the marginal revenue product of labor 6.2 The individual’s income–leisure trade-off determines how many hours of labor he supplies 6.3 An upward-sloping individual labor supply curve 6.4 Supply and demand determine the equilibrium wage in the labor market 6.5 Minimum wage laws cause unemployment 6.6 Demand management policies can’t shift the supply of or demand for labor 6.7 Indifference curves that result in less work as the wage rises 6.8 Labor supply falls as the wage rises 6.9 An individual labor supply curve derived from extreme and midrange wage levels 6.10 An unstable labor market stabilized by minimum wage legislation 6.11 Interdependence of labor supply and demand via the income distributional effects of wage changes 7.1 The standard economic ‘circular flow’ diagram 7.2 The rate of profit equals the marginal product of capital 7.3 Supply and demand determine the rate of profit 7.4 The wage/profit frontier measured using the standard commodity 9.1 Standard neoclassical comparative statics 9.2 The time path of one variable in the Lorenz model 9.3 Structure behind the chaos 9.4 Sensitive dependence on initial conditions 9.5 Unstable equilibria 9.6 Cycles in employment and income shares 9.7 A closed loop in employment and wages share of output 9.8 Phillips’s functional flow block diagram model of the economy 9.9 The component of Phillips’s Figure 12 including the role of expectations in price setting 9.10 Phillips’s hand drawing of the output–price-change relationship 9.11 A modern flow-chart simulation program generating cycles, not equilibrium 9.12 Phillips’s empirically derived unemployment–money-wage-change relation 10.1 Hicks’s model of Keynes 10.2 Derivation of the downward-sloping IS curve 10.3 Derivation of the upward-sloping LM curve 10.4 ‘Reconciling’ Keynes with ‘the Classics’ 10.5 Unemployment–inflation data in the USA, 1960–70 10.6 Unemployment–inflation data in the USA, 1950–72 10.7 Unemployment–inflation data in the USA, 1960–80 10.8 The hog cycle 11.1 Supply and demand in the market for money 11.2 The capital market line 11.3 Investor preferences and the investment opportunity cloud 11.4 Multiple investors (with identical expectations) 11.5 Flattening the IOC 11.6 How the EMH imagines that investors behave 11.7 How speculators actually behave 12.1 Inflation and base money in the 1920s 12.2 Inflation and base money in the post-war period 12.3 Bernanke’s massive injection of base money in QE1 12.4 Change in M0 and unemployment, 1920–40 12.5 Change in M1 and unemployment, 1920–40 12.6 Change in M0 and M1, 1920–40 12.7 M0–M1 correlation during the Roaring Twenties 12.8 M0–M1 correlation during the Great Depression 12.9 Bernanke’s ‘quantitative easing’ in historical perspective 12.10 The volume of base money in Bernanke’s ‘quantitative easing’ in historical perspective 12.11 Change in M1 and inflation before and during the Great Recession 12.12 The money supply goes haywire 12.13 Lindsey, Orphanides, Rasche 2005, p. 213 12.14 The empirical ‘Money Multiplier’, 1920–40 12.15 The empirical ‘Money Multiplier’, 1960–2012 12.16 The disconnect between private and fiat money during the Great Recession 13.1 Goodwin’s growth cycle model 13.2 My 1995 Minsky model 13.3 The vortex of debt in my 1995 Minsky model 13.4 Cyclical stability with a counter-cyclical government sector 13.5 Australia’s private debt-to-GDP ratio, 1975–2005 13.6 US private debt to GDP, 1955–2005 13.7 Aggregate demand in the USA, 1965–2015 13.8 US private debt 13.9 The change in debt collapses as the Great Recession begins 13.10 The Dow Jones nosedives 13.11 The correlation of debt-financed demand and unemployment 13.12 The housing bubble bursts 13.13 The Credit Impulse and change in employment 13.14 Correlation of Credit Impulse and change in employment and GDP 13.15 Relatively constant growth in debt 13.16 The biggest collapse in the Credit Impulse ever recorded 13.17 Growing level of debt-financed demand as debt grew faster than GDP 13.18 The two great debt bubbles 13.19 Change in nominal GDP growth then and now 13.20 Real GDP growth then and now 13.21 Inflation then and now 13.22 Unemployment then and now 13.23 Nominal private debt then and now 13.24 Real debt then and now 13.25 Debt to GDP then and now 13.26 Real debt growth then and now 13.27 The collapse of debt-financed demand then and now 13.28 Debt by sector – business debt then, household debt now 13.29 The Credit Impulse then and now 13.30 Debt-financed demand and unemployment, 1920–40 13.31 Debt-financed demand and unemployment, 1990–2011 13.32 Credit Impulse and change in unemployment, 1920–40 13.33 Credit Impulse and change in unemployment, 1990–2010 13.34 The Credit Impulse leads change in unemployment 14.1 The neoclassical model of exchange as barter 14.2 The nature of exchange in the real world 14.3 A nineteenth-century private banknote 14.4 Bank accounts 14.5 A credit crunch causes a fall in deposits and a rise in reserves in the bank’s vault 14.6 A bank bailout’s impact on loans 14.7 A bank bailout’s impact on incomes 14.8 A bank bailout’s impact on bank income 14.9 Bank income grows if debt grows more rapidly 14.10 Unemployment is better with a debtor bailout 14.11 Loans grow more with a debtor bailout 14.12 Profits do better with a debtor bailout 14.13 Bank income does better with a bank bailout 14.14 Modeling the Great Moderation and the Great Recession – inflation, unemployment and debt 14.15 The Great Moderation and the Great Recession – actual inflation, unemployment and debt 14.16 Modeling the Great Moderation and the Great Recession – output 14.17 Income distribution – workers pay for the debt 14.18 Actual income distribution matches the model 14.19 Debt and GDP in the model 14.20 Debt and GDP during the Great Depression 15.1 Lemming population as a constant subject to exogenous shocks 15.2 Lemming population as a variable with unstable dynamics 17.1 A graphical representation of Marx’s dialectics Boxes 10.1 The Taylor Rule 13.1 Definitions of unemployment PREFACE TO THE SECOND EDITION Debunking Economics was far from the first book to argue that neoclassical economics was fundamentally unsound.

It’s not only because they can abuse the power that being a monopoly can confer: it’s also because, according to neoclassical theory, a monopoly will set its price above the marginal cost of production. If monopolies were the rule, then there could be no supply curve, and standard neoclassical microeconomic analysis would be impossible. Conversely, neoclassical economists love the market structure they call ‘perfect competition,’ because it guarantees that profit-maximizing behavior will cause firms to produce an output at which marginal cost equals price. Only it won’t. The manner in which neoclassical economics derives the result that profit-maximizing behavior by competitive firms means that they will produce where marginal cost equals price commits one of the simplest mathematical mistakes possible: it confuses a very small quantity – an ‘infinitesimal,’ as mathematicians describe it – with zero. When that error is corrected, it is easily shown that a competitive market will also set price above marginal cost, and therefore a supply curve that is independent of the demand curve can’t be drawn.


pages: 207 words: 52,716

Capitalism 3.0: A Guide to Reclaiming the Commons by Peter Barnes

Albert Einstein, car-free, clean water, collective bargaining, corporate governance, corporate personhood, corporate raider, corporate social responsibility, dark matter, diversified portfolio, en.wikipedia.org, hypertext link, Isaac Newton, James Watt: steam engine, jitney, money market fund, new economy, patent troll, profit maximization, Ronald Coase, telemarketer, The Wealth of Nations by Adam Smith, transaction costs, War on Poverty, Yogi Berra

If managers are accountable to shareholders for profit-based performance, to whom are they accountable for commons-based performance? Hypothetical answers to such questions can no doubt be drafted, but what would happen in the real world, I suspect, is what The Economist surmises: profit maximization would dominate, accompanied by obfuscation about other goals. Corporate communications departments would try to maximize the appearance of social responsibility for the lowest actual cost. We’d see beautiful ads and reports, but little change in core behavior. It’s important to remember that the profit-maximizing algorithm is enforced not just by laws, but by a variety of carrots and sticks. For example, CEO compensation is typically based on a list of goals established by the board. These often include nonfinancial goals, but the goal that carries the most weight, and is least amenable to obfuscation, is profit.

(Significantly, needs are generic, while thneeds are typically branded.) Filling needs contributes more to human well-being than does selling thneeds, yet our economic system increasingly devotes scarce resources to thneeds. Time to Upgrade | 11 Why do we have so much illth and so many thneeds? Because our economic operating system is far out of balance. On one side, representing owners of capital, are powerful profit-maximizing corporations. On the other side, representing future generations, nonhuman species, and millions of humans with unmet needs, are— almost nothing. The system lacks institutions that preserve shared inheritances, charge corporations for degrading nature, or boost the “demanding” power of people whose basic needs are ignored. Hence the system generates ever more illth, waste, and ever-widening disparities between rich and poor.

Waiting for 3.0 Let’s summarize the history of capitalism thus far. Since arising in the eighteenth century, capitalism has changed the face and chemistry of the earth. It keeps doing so, despite signals of planetary peril, like a runaway steam engine without a governor. It has built mountains of private wealth, but much of that wealth was taken from the commons, and a great deal of it adds little to our happiness. Its main actors, profit-maximizing corporations, are essentially out of control, and the fruits of their exertions are dispensed in a highly unequal way. Why does surplus capitalism behave this way? It’s possible that we consistently hire bad CEOs, but I think otherwise. I think it’s the 32 | THE PROBLEM operating system that causes most CEOs to act not with the next generation, but with the next quarterly statement, foremost in mind.


pages: 335 words: 104,850

Conscious Capitalism, With a New Preface by the Authors: Liberating the Heroic Spirit of Business by John Mackey, Rajendra Sisodia, Bill George

Berlin Wall, Buckminster Fuller, business process, carbon footprint, collective bargaining, corporate governance, corporate social responsibility, creative destruction, crony capitalism, cross-subsidies, en.wikipedia.org, Everything should be made as simple as possible, Fall of the Berlin Wall, fear of failure, Flynn Effect, income per capita, invisible hand, Jeff Bezos, job satisfaction, lone genius, Mahatma Gandhi, microcredit, Nelson Mandela, Occupy movement, profit maximization, Ralph Waldo Emerson, shareholder value, six sigma, social intelligence, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, Steven Pinker, The Fortune at the Bottom of the Pyramid, The Wealth of Nations by Adam Smith, too big to fail, union organizing, wealth creators, women in the workforce, zero-sum game

Gallup has found that Americans’ confidence in big business has declined steadily, from about 34 percent in 1975 to a historic low of 16 percent in 2009, rebounding to 19 percent in 2011.15 The Myth of Profit Maximization The persistent myth claiming that the ultimate purpose of business is always to maximize profits for the investors probably originated with the industrial revolution’s earliest economists. How did this myth originate? It appears to have come from two sources: a narrow view of human nature and an inadequate explanation of the causes of business success. Looking to create elegant mathematical models of economic systems, academic economists adopted the narrow view that we humans are maximizers of economic self-interest to the exclusion of all else. By logical extension, businesses, too, were deemed to be pure profit maximizers. These simplistic assumptions enabled economists to create models that seemed to explain some of the workings of the larger economy.

The heroic story of free-enterprise capitalism is one of entrepreneurs using their dreams and passion as fuel to create extraordinary value for customers, team members, suppliers, society, and investors. This is a very different narrative than the one that sees history through the lens of profit maximization. Bill Gates did not start Microsoft with the goal of becoming the richest man in the world. He saw the potential of computers to transform our lives and was on fire to create software that would make them so useful that eventually all of us would own one. He followed his passion and, in the process, became the richest man in the world—but that was the outcome, not his goal or purpose. The myth that profit maximization is the sole purpose of business has done enormous damage to the reputation of capitalism and the legitimacy of business in society. We need to recapture the narrative and restore it to its true essence: that the purpose of business is to improve our lives and to create value for stakeholders.

The pie grows, and there is more for everyone. This idea is at the core of capitalism’s extraordinary and unique ability to generate wealth. The Unintended Consequences of Low-Consciousness Business When businesspeople operate with a low level of consciousness about the purpose and impact of business, they engage in trade-off thinking that creates many harmful, unintended consequences. Such businesses view their purpose as profit maximization and treat all participants in the system as means to that end. This approach may succeed in creating material prosperity in the short term, but the resultant price tag of long-term systemic problems is increasingly unacceptable and unaffordable. Too many businesses fail to recognize the significant impacts they have on the environment, on other creatures that inhabit the planet (such as wildlife and livestock animals), and on the physical health and psyches of team members and customers.


Virtual Competition by Ariel Ezrachi, Maurice E. Stucke

Airbnb, Albert Einstein, algorithmic trading, barriers to entry, cloud computing, collaborative economy, commoditize, corporate governance, crony capitalism, crowdsourcing, Daniel Kahneman / Amos Tversky, David Graeber, demand response, disintermediation, disruptive innovation, double helix, Downton Abbey, Erik Brynjolfsson, experimental economics, Firefox, framing effect, Google Chrome, index arbitrage, information asymmetry, interest rate derivative, Internet of things, invisible hand, Jean Tirole, John Markoff, Joseph Schumpeter, Kenneth Arrow, light touch regulation, linked data, loss aversion, Lyft, Mark Zuckerberg, market clearing, market friction, Milgram experiment, multi-sided market, natural language processing, Network effects, new economy, offshore financial centre, pattern recognition, prediction markets, price discrimination, price stability, profit maximization, profit motive, race to the bottom, rent-seeking, Richard Thaler, ride hailing / ride sharing, road to serfdom, Robert Bork, Ronald Reagan, self-driving car, sharing economy, Silicon Valley, Skype, smart cities, smart meter, Snapchat, social graph, Steve Jobs, supply-chain management, telemarketer, The Chicago School, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, Travis Kalanick, turn-by-turn navigation, two-sided market, Uber and Lyft, Uber for X, uber lyft, Watson beat the top human players on Jeopardy!, women in the workforce, yield management

Instead, price discrimination in some contexts, such as higher education, is more accepted than in many other contexts, where people view it as unfair. Why is this? One must examine price discrimination beyond the neoclassical economic analysis, which assumes that we are self-interested (greedy) profit maximizers, to the frontiers of behavioral economics, which views price discrimination through the prism of fairness and equality. 122 Behavioral Discrimination First, price discrimination may be accepted where its primary purpose is to advance social goals, not simply profit maximization. For many elite U.S. universities, the full tuition does not cover the university’s marginal cost of supplying a year of education to an undergraduate student.18 The same applies for some private high schools, like Phillips Exeter Academy. Every student, in effect, receives a discount—a benefit from the university’s or high school’s endowment and revenue stream.

Department of Justice noted, “if the competitors know each other well through social connections, trade associations, legitimate business contacts, or shifting employment from one company to another.”35 Pricing algorithms will not “congregate in the same building or town,” thereby having “an easy opportunity for last-minute communications.”36 Instead, it is often assumed that algorithms, in engaging in cold, profit-maximizing calculations, won’t agree with, or trust, other computers; even if they did, they would find ways to cheat on any agreements. Price discrimination should also be less likely. The collation of information makes it easier for consumers to compare the prices of advertised goods—thus making it harder for sellers to selectively increase the prices or degrade the quality of goods.37 Armed with more information, consumers become aware of the full range of substitutes, which they can take into account when making purchasing decisions.38 On the Path to Better Competition With the growth of online platforms—from search engines to price comparison websites—we are seemingly on the road to optimizing competition.

Accordingly, exceptions to the general rule of free market competition, protected by antitrust enforcement, should be permitted only on compelling evidence that competition cannot work or is inimical to some overriding social objective.”5 Thus, the modern interpretation of Adam Smith’s “invisible hand” 6 has been central to the changing attitudes toward antitrust enforcement. Many adherents of neoclassical economic theory assume competition to be “a self-initiating process,”7 which, when left alone by government regulators, will generally allocate resources efficiently toward users who value them the most. Any company’s attempt to secure or maintain market power would likely be defeated by other well-informed profit maximizers—either new entrants or existing competitors. The key proponents were economists and lawyers associated with the University of Chicago.8 They generally assumed that market participants were rational, were self-interested, and had strong willpower, that most markets were competitive, that mergers and vertical arrangements often created efficiencies, and that market forces would often defeat any attempt to exercise market power.


pages: 204 words: 54,395

Drive: The Surprising Truth About What Motivates Us by Daniel H. Pink

affirmative action, call centre, Daniel Kahneman / Amos Tversky, Dean Kamen, deliberate practice, Firefox, Frederick Winslow Taylor, functional fixedness, game design, George Akerlof, Isaac Newton, Jean Tirole, job satisfaction, knowledge worker, longitudinal study, performance metric, profit maximization, profit motive, Results Only Work Environment, side project, the built environment, Tony Hsieh, transaction costs, zero-sum game

But traditional businesses have long considered purpose ornamental a perfectly nice accessory, so long as it didn't get in the way of the important things. But that's changing thanks in part to the rising tide of aging baby boomers reckoning with their own mortality. In Motivation 3.0, purpose maximization is taking its place alongside profit maximization as an aspiration and a guiding principle. Within organizations, this new purpose motive is expressing itself in three ways: in goals that use profit to reach purpose; in words that emphasize more than self-interest; and in policies that allow people to pursue purpose on their own terms. This move to accompany profit maximization with purpose maximization has the potential to rejuvenate our businesses and remake our world. Drive Drive: The Glossary A new approach to motivation requires a new vocabulary for talking about it. Here's your official Drive dictionary.

An L3C in North Carolina, for instance, is buying abandoned furniture factories in the state, updating them with green technology, and leasing them back to beleaguered furniture manufacturers at a low rate. The venture hopes to make money, but its real purpose is to help revitalize a struggling region. Meanwhile, Nobel Peace Prize winner Muhammad Yunus has begun creating what he calls social businesses. These are companies that raise capital, develop products, and sell them in an open market but do so in the service of a larger social mission or as he puts it, with the profit-maximization principle replaced by the social-benefit principle. The Fourth Sector Network in the United States and Denmark is promoting the for-benefit organization a hybrid that it says represents a new category of organization that is both economically self-sustaining and animated by a public purpose. One example: Mozilla, the entity that gave us Firefox, is organized as a for-benefit organization.

Neither open-source production nor previously unimagined not only for profit businesses are yet the norm, of course. And they won't consign the public corporation to the trash heap. But their emergence tells us something important about where we're heading. There's a big movement out there that is not yet recognized as a movement, a lawyer who specializes in for-benefit organizations told The New York Times. One reason could be that traditional businesses are profit maximizers, which square perfectly with Motivation 2.0. These new entities are purpose maximizers which are unsuited to this older operating system because they flout its very principles. How We Think About What We Do When I took my first economics course back in the early 1980s, our professor a brilliant lecturer with a Patton-like stage presence offered an important clarification before she'd chalked her first indifference curve on the blackboard.


pages: 94 words: 22,435

Bandit Algorithms for Website Optimization by John Myles White

profit maximization, pull request

Deb knew that Oscar was an established expert in business decision-making, so she suspected the Oscar would have something intelligent to say about her newfound questions about balancing experimentation with profit-maximization. And Oscar was indeed interested in Deb’s idea: "I entirely agree that you have to find a way to balance Cynthia’s interest in experimentation and Bob’s interest in profits. My colleagues and I call that the Explore-Exploit trade-off." "Which is?" "It’s the way Operations Researchers talk about your need to balance experimentation with profit-maximization. We call experimentation exploration and we call profit-maximization exploitation. They’re the fundamental values that any profit-seeking system, whether it’s a person, a company or a robot, has to find a way to balance. If you do too much exploration, you lose money.

After we show that you can configure the epsilon-Greedy algorithm to behave like A/B testing, we’ll show you that the epsilon-Greedy algorithm can also be configured to behave exactly like the profit-maximization rule that Bob hoped Deb would settle upon after her experimental phase was over. Setting up the epsilon-Greedy algorithm to achieve either of these goals is surprisingly easy: Cynthia’s original experimental design involves assigning each visitor to Deb’s website to one of two colors completely at random, which is exactly how the epsilon-Greedy algorithm behaves if it knows about 2 arms and has set epsilon = 1.0. We can do that by simplying instantiating our EpsilonGreedy class with the right parameters: algo = EpsilonGreedy(1.0, []) initialize(algo, 2) Bob’s rule for profit-maximization is also a single line: algo.epsilon = 0.0 Those three lines fully describe Cynthia and Bob’s approaches, which are literally the two most extreme ways that you can configure the epsilon-Greedy algorithm.


The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics by Rod Hill, Anthony Myatt

American ideology, Andrei Shleifer, Asian financial crisis, bank run, barriers to entry, Bernie Madoff, business cycle, cognitive dissonance, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, different worldview, endogenous growth, equal pay for equal work, Eugene Fama: efficient market hypothesis, experimental economics, failed state, financial innovation, full employment, gender pay gap, Gini coefficient, Gunnar Myrdal, happiness index / gross national happiness, Home mortgage interest deduction, Howard Zinn, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, liberal capitalism, low skilled workers, market bubble, market clearing, market fundamentalism, Martin Wolf, medical malpractice, minimum wage unemployment, moral hazard, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, positional goods, prediction markets, price discrimination, principal–agent problem, profit maximization, profit motive, publication bias, purchasing power parity, race to the bottom, Ralph Nader, random walk, rent control, rent-seeking, Richard Thaler, Ronald Reagan, shareholder value, The Myth of the Rational Market, the payments system, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, union organizing, working-age population, World Values Survey, Yogi Berra

Apparently they are assuming that firms have only one plant, but many firms have several plants. Let’s consider our long-run average cost curves to be for the firm as a whole, regardless of the number of plants it has. So, for example, a firm may find it more cost effective to expand production within one plant or to establish another plant to produce a particular total output. Profit maximization: two cases Figure 5.6 shows the profit-maximizing output in the long run in the case of the perfectly competitive firm, which takes the market price as given. Using the usual profit-maximizing logic, the firm produces output up to the point where its long-run marginal cost equals its marginal revenue, in this case the market price. In the situation illustrated, the firm is just covering all 99 5  |  The firm A. Constant returns to scale $/dozen loaves Long-run marginal cost Long-run average cost Market price Dozens of loaves of bread/day Minimum efficient scale figure 5.6 The long-run equilibrium for the competitive firm of its costs.

Kurt Rothschild (1971: 7) 1 the standard text The business firm is an organization within which factors of production – ­workers, capital (buildings, machinery, equipment and so on) and land – are used with inputs purchased from other firms (raw materials, parts, security services, for example) to produce goods and services for sale. The organization can have different legal forms: a sole proprietorship, a partnership, a cooperative or a corporation. Although non-profit firms (such as universities) are not uncommon, the firm’s goal is assumed to be profit maximization. More precisely, this is the maximization of the present discounted value of the profits it will earn now and into the future. Production The firm’s managers (who may or may not be its owners) make decisions about such things as how much to produce, how they will produce it and what prices to charge. To do this, they have to know the ‘technology’ of production available to them. ‘Technology’ just describes how inputs produce outputs.

An example is shown in panel A of Figure 5.8, where marginal cost is $1 per loaf of bread at all levels of output. Since marginal costs determine the firm’s willingness to supply output, the firm’s supply curve will be a horizontal line at $1 per loaf. If all firms face the same costs, that means that the industry’s supply curve is also a horizontal line at $1 per loaf, and supply must equal demand at that price. But if the price were $1, how much would the individual firm produce? Profit-maximizing output is indeterminate: the marginal revenue from producing an extra loaf of bread is $1 and the marginal cost is also $1 at any level of output. No matter what it does, the firm makes the same profit (or loss in this case, as the firm’s fixed costs are not covered). Similarly, we can’t say how many firms there would be. One firm could produce all the bread, for example, but then we wouldn’t have a competitive market.


pages: 237 words: 67,154

Ours to Hack and to Own: The Rise of Platform Cooperativism, a New Vision for the Future of Work and a Fairer Internet by Trebor Scholz, Nathan Schneider

1960s counterculture, activist fund / activist shareholder / activist investor, Airbnb, Amazon Mechanical Turk, barriers to entry, basic income, bitcoin, blockchain, Build a better mousetrap, Burning Man, capital controls, citizen journalism, collaborative economy, collaborative editing, collective bargaining, commoditize, conceptual framework, crowdsourcing, cryptocurrency, Debian, deskilling, disintermediation, distributed ledger, Ethereum, ethereum blockchain, future of work, gig economy, Google bus, hiring and firing, income inequality, information asymmetry, Internet of things, Jacob Appelbaum, Jeff Bezos, job automation, Julian Assange, Kickstarter, lake wobegon effect, low skilled workers, Lyft, Mark Zuckerberg, means of production, minimum viable product, moral hazard, Network effects, new economy, offshore financial centre, openstreetmap, peer-to-peer, post-work, profit maximization, race to the bottom, ride hailing / ride sharing, SETI@home, shareholder value, sharing economy, Shoshana Zuboff, Silicon Valley, smart cities, smart contracts, Snapchat, TaskRabbit, technoutopianism, transaction costs, Travis Kalanick, Uber for X, uber lyft, union organizing, universal basic income, Whole Earth Catalog, WikiLeaks, women in the workforce, Zipcar

In January 2016, Uber slashed wages once again, this time by 30 percent to about 50 cents per mile in some locations (after Uber’s 25 percent cut of each fare is subtracted). If driving for Uber was such a great job and paid halfway decently, wouldn’t more drivers last longer and drive more hours? Many businesses are increasingly relying on these types of operations as a core part of their profit-maximizing model. If this new corporate model is left unregulated, it will destroy what remains of a vibrant middle class. But fortunately there are solutions. One that I and others have proposed is creating a “universal and portable safety net.” Each worker should be assigned an “Individual Security Account” into which every business that hires that worker would pay a small “safety net fee,” prorated to the number of hours a worker is employed by that business.

Put a cap on pay-outs and compensation. In our competition-driven economy, a scarcity mentality has given many people—or even most—an insatiable drive to accumulate wealth. Even a cooperative can get swept up in this dynamic if powerful stakeholders use their leverage to extract value from the cooperative. Executives could vie for higher and higher pay. Although cooperatives generally—and preferably—do not allow for profit-maximizing equity investment, a cooperative could still end up giving up too much to lenders or preferred shareholders. To prevent these possibilities from even making it to the negotiation table, a cooperative’s bylaws should establish caps on employee pay, investment return, and other payouts. Where to set those caps? The platform cooperative Loconomics uses data from the Bureau of Labor Statistics to cap employee pay at 3.5 times the median wage for all occupations in the region where the employee works.

When decisions are no longer driven by the desire to maximize gain, I think that a desire to ensure that everyone has enough is the ethic that steps in to replace it. True, a company won’t be able to attract the kind of talent that thinks of everything in terms of commodities and maximizing monetary profit. But it will attract talented people who are smart enough and have enough self-awareness to know that doing good work with good people is what makes for a good life. If you hire someone who is driven not by profit-maximization, but rather by a desire to do meaningful work, they will also be more intuitively oriented to the cooperative’s purpose of benefiting members. Which leads me to the third item… 3. Adopt a staff trusteeship model of governance. Staff trusteeship is a governance model that views all staff members of the cooperative as trustees who manage the platform for its beneficiaries, the body of members as a whole.


pages: 492 words: 118,882

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah

accounting loophole / creative accounting, Ada Lovelace, Airbnb, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, Ben Bernanke: helicopter money, bitcoin, blockchain, Bretton Woods, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, David Graeber, deskilling, Diane Coyle, discrete time, disruptive innovation, distributed ledger, diversification, double entry bookkeeping, Ethereum, ethereum blockchain, fiat currency, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, large denomination, liquidity trap, London Whale, low skilled workers, M-Pesa, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, MITM: man-in-the-middle, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, Satoshi Nakamoto, Satyajit Das, savings glut, seigniorage, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Von Neumann architecture, Washington Consensus

As the private currency creators are essentially issuing tokens, which are intrinsically valueless, the value of these currencies is based on their scarcity, utility and reputation. As the tokens are unique and non-falsifiable, every user within the network is capable of verifying the total quantity in circulation and witnessing the flows between users. Thus, money supply is determined by profit maximization. As users witness the transfer flows of other users, they form belief systems about the exchange value of the private fiat and alter their behavior (save/spend) in order to protect their own individual interests. Profit maximization thus serves the same purpose as monetary policy with private monies (Fernández-Villaverde and Sanches, 2016). The difference in the way the supply of private and state fiat currencies occurs is a key issue to determining how they can compete within a common state, and some recent work from researchers at the Federal Reserve Bank of Philadelphia and the University of Pennsylvania have highlighted the consequences of this difference.

Bitter Lake (2015) traces the beginnings of Islamic terrorist groups and shows they have their origins in the longstanding economic alliance between the USA and Saudi Arabia. A good documentation of the US-Saudi alliance can also be seen in the 2005 PBS Frontline documentary, House of Saud. The events described in this sidebar seem to portray debt as a necessary evil which was used unscrupulously under the guise of profit maximization. However, this was the result of economic pressures and the decisions of leaders of a new regime who were experimenting with new ideas. This is not to say that an increase in the demand for debt and the growth of the private credit industry was a completely manufactured process. Debt by itself is vital to growth, and any civilization that used some form of money has also used some form of debt instrument (Graeber, 2012).

27 Know your business. 73 Chapter 2 ■ Fragmentation of Finance The response to this question is multifaceted in nature, but the underlying issue is that subjects pertaining to identity and KYC cannot be resolved if banks do not have mutually beneficial circles of trust between themselves. The lack of shared narratives in this arena is impeding adaptation and progress in a world where customer-centric approaches to delivering services and products equate to value generation. Banks currently attempt to sidestep this issue by focusing on short-term profit maximization instead of dealing with the longer-term structural issue. What is therefore required is a merging of identities with value exchange networks. The argument for a more inclusive way of looking at KYC is also one that needs to be looked at from a contextual scenario. What is required today is not just a dependence on the identity documents that we use to control our physical presence within politically established borders (passports, driving licences, etc.), but also our virtual borders.


pages: 297 words: 84,009

Big Business: A Love Letter to an American Anti-Hero by Tyler Cowen

23andMe, Affordable Care Act / Obamacare, augmented reality, barriers to entry, Bernie Sanders, bitcoin, blockchain, Bretton Woods, cloud computing, cognitive dissonance, corporate governance, corporate social responsibility, correlation coefficient, creative destruction, crony capitalism, cryptocurrency, dark matter, David Brooks, David Graeber, don't be evil, Donald Trump, Elon Musk, employer provided health coverage, experimental economics, Filter Bubble, financial innovation, financial intermediation, global reserve currency, global supply chain, Google Glasses, income inequality, Internet of things, invisible hand, Jeff Bezos, late fees, Mark Zuckerberg, mobile money, money market fund, mortgage debt, Network effects, new economy, Nicholas Carr, obamacare, offshore financial centre, passive investing, payday loans, peer-to-peer lending, Peter Thiel, pre–internet, price discrimination, profit maximization, profit motive, RAND corporation, rent-seeking, reserve currency, ride hailing / ride sharing, risk tolerance, Ronald Coase, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Nature of the Firm, Tim Cook: Apple, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, ultimatum game, WikiLeaks, women in the workforce, World Values Survey, Y Combinator

Apple, Pfizer, Microsoft, Deutsche Bank, PayPal, and Marriott, among others, spoke out or protested the North Carolina law that sought to specify which restrooms transgender people had to use; the outcry led to the eventual repeal of that law. This push for tolerance shouldn’t come as any surprise. Big business has lots of customers and relies on the value of brand names. It doesn’t want any group of those customers to feel put out or discriminated against or to have cause for complaint, not least because we live in an age of social media. Profit maximization alone—not to mention the consciences of some CEOs—puts big business these days on the side of inclusion and tolerance.6 Larger firms, in particular, which you can think of as wildly successful businesses and thus embodiments of the logic of business, tend to be more tolerant of employee personal tastes than smaller firms. A local baker might be reluctant to make a wedding cake for a gay couple, but Sara Lee, which tries to build very broadly based national markets for its products, is happy to sell to all.

The British conservative historian Niall Ferguson has become one of the ringleaders of this movement, which has made surprising inroads with a number of right-wing politicians, many of whom are convinced that the major tech companies go out of their way to censor conservative ideas and intellectuals.12 I am pretty critical of the media in some ways, but I would never call them “the enemy of the people,” as Trump and some other Republicans have done. Do you really think Trump is so unambiguously pro-business? Don’t forget that the media, too, are American corporate enterprises. A BRIEF ROAD MAP I’m here to speak up for business, to persuade you that it deserves more of your love and less hate. Perhaps, like you, I am not entirely comfortable with ceding so much of the daily human realm to apparently selfish, profit-maximizing, and even sometimes corrupt entities, but on closer examination this is a better bargain than it might seem at first. Indeed, at its best, business gives our lives more scope for the heroic and the noble, as we can use the outputs of business to satisfy our own creative desires and to better our lives. I’ll argue that a lot of the most common criticisms of American business don’t stand up to scrutiny.

Friedman thought that ends other than profit could be valuable for society, but in his mind those ends were better pursued through charity, nonprofit institutions, or government policy, as corporations could not perform those tasks efficiently or in accordance with their basic natures.14 Although I am a fan of Milton Friedman and I share his skepticism about socialist solutions, I think this article reflected significant ideological blinders. Goals other than simple profit maximization often end up boosting both business profits and social benefits. For example, the people who work at SpaceX, the Elon Musk company that launches satellites using advanced and sometimes revolutionary rocket technology, often really do believe in the dream of colonizing other planets and the stars. The founders of Skype and the managers who work there seem to believe in the ideal of bringing friends, families, and business associates together.


pages: 320 words: 86,372

Mythology of Work: How Capitalism Persists Despite Itself by Peter Fleming

1960s counterculture, anti-work, call centre, clockwatching, commoditize, corporate social responsibility, creative destruction, David Graeber, Etonian, future of work, G4S, Goldman Sachs: Vampire Squid, illegal immigration, Kitchen Debate, late capitalism, Mark Zuckerberg, market bubble, market fundamentalism, means of production, neoliberal agenda, Parkinson's law, post-industrial society, post-work, profit maximization, profit motive, quantitative easing, Results Only Work Environment, shareholder value, social intelligence, The Chicago School, transaction costs, wealth creators, working poor

Like all forms of hyper-rationalization, shareholder capitalism fosters a mentality that is generally antisocial and sometimes diabolical when observed from an outside perspective. For example, a large funeral home corporation in the United Kingdom recently had to break some bad news to its shareholders. Dividends will be less than expected because the winter was rather mild. Therefore, fewer elderly people died. The valuable ends of providing funeral home services now become a mere means for profit maximization. The more deaths, the more money made, which is now the end that matters. One may even imagine the firm’s managing directors eventually hoping for a harsh winter (as energy firms clearly do), perhaps even encouraging a speculative market around future weather patterns (as Enron notoriously did) and so forth. We can observe a similar shareholder rationalism depleting city accommodation in the large centres of the capitalist West, something that is directly linked to the reproduction of the global workforce.

For these employers, would it not simply be a ‘waste’ to pay a worker for an extra hour when they technically didn’t do anything? Ultimately, this is a cruel form of employment (low real wages, unpaid ‘waiting time’, no guarantee of work, employees bearing the negative externalities of business, etc.). But it makes perfect rational sense from a myopic economic perspective because it more effectively facilitates the subsidization process. Who will carry the real price that underlies the cost-saving and profit-maximizing employment policies of fast-food restaurants and online book stores? Perhaps family, more reluctantly the now emasculated welfare state, but ultimately the working class itself. We must place this rationalization process once more in the context of class relations defined by subsidization. In the thought experiment above, we travelled back to that alien world 20 or 30 years ago and noted an unfathomable abundance of ‘waste’.

Hence the socially manufactured scarcity that even Dallas, the beggar cum drug dealer residing outside my East London flat, understands well enough. The most interesting trait of the workforce today is the sheer amount of labour exerted that not only goes unpaid (discretionary work, unrecognized overtime, etc.) but is also functionally unessential to the firm, even by the firm’s own standards of profit maximization. This is work done for its own sake, which may look from the outside to be meaningless, but is driven by extant concrete forces not greatly different from ancient rites of superfluous sacrifice. And as we shall note in the forthcoming chapters, this does not undermine the process of hyper-rationalization mentioned in the Introduction, but is integral to it. Most working people recognize that capitalism fanatically underlines the importance of surplus labour in order to maintain its logic of expropriation, so that the rich can enjoy the idleness they are so afraid we might come to think is our entitlement as well.


pages: 305 words: 69,216

A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression by Richard A. Posner

Andrei Shleifer, banking crisis, Bernie Madoff, business cycle, collateralized debt obligation, collective bargaining, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, diversified portfolio, equity premium, financial deregulation, financial intermediation, Home mortgage interest deduction, illegal immigration, laissez-faire capitalism, Long Term Capital Management, market bubble, money market fund, moral hazard, mortgage debt, Myron Scholes, oil shock, Ponzi scheme, price stability, profit maximization, race to the bottom, reserve currency, risk tolerance, risk/return, Robert Shiller, Robert Shiller, savings glut, shareholder value, short selling, statistical model, too big to fail, transaction costs, very high income

Rational indifference to the indirect consequences of one's business and consumption behavior is the reason the government has a duty, in regulating financial behavior, to do more than prevent fraud, theft, and other infringements of property and contract rights, which is the only duty that libertarians believe government has. Without stronger financial regulation than that, the rational behavior of law-abiding financiers and consumers can precipitate an economic disaster. Not only does competition force businessmen to be profit maximizers, which implies, as we have seen, that they will accept a small risk of bankruptcy; we want them to be profit maximizers—it is what drives economic progress. But in this example private virtue is a public vice, because the profitmaximizing businessman rationally ignores small probabilities that his conduct in conjunction with that of his competitors may bring down the entire economy. Similarly, when the economy is weak, it is rational for people to reduce their consumption and increase their savings.

The more an executive's compensation depends on how well his firm does, the fewer risks he may be inclined to take, because all or most of his financial eggs, as distinct from the shareholders', are in that one basket. That is why asymmetric compensation schemes in which compensation tied to stock value is combined with a generous severance package may be in investors' interest. But such schemes may not be in the interest of the nation as a whole if they enhance the risk of a depression — and they do. Securitization also played a role in encouraging short-term profit maximization. Instead of having to wait twenty-five or thirty years to receive the full return on a residential mortgage, exchanging the mortgage for a security gave a bank the present value of the loan up front, increasing the bank's current profits, some part of which would accrue to the bank's executives in the form of salary, bonus, benefits, or stock. A bank could always have sold a mortgage, but securitization made the mortgage market more liquid.

Because of the absence of such a relationship, he does not bear the cost and so is unlikely to give it much weight in deciding what to do —especially if his action creates a significant externality only in conjunction with similar actions of many other people. That is the situation of the individual consumer who desires to plume himself on his frugality by reducing the purchase of luxury items that he can well afford, and of the businessman who decides to take less risk than is profit maximizing in order to benefit the economy as a whole. Still another reason for the epidemic of dissaving that preceded the crash was rapid advances in marketing sophistication and technology. The World Wide Web played a role here (think how easy oneclick ordering makes the buying of consumer products), along with advances in cognitive psychology. Increased sophistication in the marketing of goods and services enabled sellers to induce consumers to shift much of their savings, designed to protect their future consumption, into buying more consumer goods now.


Governing the Commons: The Evolution of Institutions for Collective Action by Elinor Ostrom

agricultural Revolution, clean water, Gödel, Escher, Bach, land tenure, Pareto efficiency, principal–agent problem, prisoner's dilemma, profit maximization, RAND corporation, The Nature of the Firm, transaction costs

Further, price is a sufficient statistic for summarizing an incredible amount of specific information of value to an entrepreneur. Profit maximization is a useful theoretical tool for predicting behavior in static market situations; it does not enable a theorist to predict which firms are most likely to survive or to predict innovative technolog­ ical or institutional changes. 13 CPR situations are rarely as powerful in driving participants - even survivors - toward efficiency as are competitive markets. Nor is there any single variable, such as market price, that can be used as the foundation for making rational choices in a CPR environment. Simply following short­ term profit maximization in response to the market price for a resource unit may, in a CPR environment, be exactly the strategy that will destroy the CPR, leaving everyone worse off.

One can predict that in a highly competitive environment, those who do not search for and select alternative rules that can enhance net benefits will lose out to those who are successful in adopting better rules. It is the operation of firms in competitive, or at least contestable, markets that enables theorists to predict that surviving firms will choose strategies that will maximize profits (Alchian 1950). Theoretical equilibria exist in market models after all of the inefficient or non-profit-maximizing firms have been eliminated. The process of getting to equilibrium is not the focus of these models; rather, they focus on the characteristics of the market and the firms in the market at theoretical equilibrium. That many firms do not maximize profits prior to equilibrium is unimportant when the theoretical question of interest concerns the characteristics of actors who are present at equi­ librium.

., 218n6 policy analysis, 23-6, 191-2 policy prescriptions as metaphors, 21-3, 184-5 policy space, 142 1>001, J., 5 Popper, K. R., 38 Port Lameron Harbour, Nova Scotia, 179-80 Scotian inshore fisheries 229n33 108-9, 119, l>rice, M., 225n7 277 Index principal-agent problem, 17 prisoner's dilemma, 3-5, 6-7, 11, 16,39, 42-3,46-8, 182-3, 217nl see also games privatization, 12-14, 136 see also property rights, private; voluntary association privileged group, 111 profit maximization, 207 property rights, 20, 66-7 communal, 13, 60-4, 66, 224n3, 224-5n5, 229n37; see also common pool resource private, 12-13, 18,22,60-1,63--4,157, 175-6; see also privatization provision, 32-3, 47, 49-50, 55-6, 223n26 demand-side problem of, 49 supply-side problem of, 49 see also design principles, congruent rules entrepreneurship, 127-33 133-6 quasi-voluntary compliance, 94-5, 97-9, 125-6, 229n39 see also compliance rate Rabibhadena, A., 241n26 Radnitzky, G., 221n6 Rahman, A., 241n26 H., 217n1 action, 33-8, 193 rationality principle, 38 see also rational action Raymond Basin, California, 111-14, 116, 122, 124, 128, 134, 179-80,189-90,202,209,212-13, 231n8,232n18,235n32 exchange pool in, 114 report of the referee in, 111-12 watermaster in, 114, 125, 234n26 see also California groundwater basins Reder, M. w., 243n15 Renshaw, w., 232n18 rent dissipation, 48-9, 145, 150, 155, 157, 179, 238n6 Replenishment District Boundary Committee, 131 resource common pool, see common pool resource flow, 30,47 nonstationary (fugitive), 13 open-access, 32,175-6 renewable, 30-1 stock, 30, 47 see also common pool resource resource system, 13, 30-3, 43 resource units, 30-3, 43 Rhodes, R.


pages: 772 words: 203,182

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right by George R. Tyler

8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, bank run, banking crisis, Basel III, Black Swan, blood diamonds, blue-collar work, Bolshevik threat, bonus culture, British Empire, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, carried interest, cognitive dissonance, collateralized debt obligation, collective bargaining, commoditize, corporate governance, corporate personhood, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, crowdsourcing, currency manipulation / currency intervention, David Brooks, David Graeber, David Ricardo: comparative advantage, declining real wages, deindustrialization, Diane Coyle, disruptive innovation, Double Irish / Dutch Sandwich, eurozone crisis, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Gordon Gekko, hiring and firing, income inequality, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, pension reform, performance metric, pirate software, plutocrats, Plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sand Hill Road, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

Suboptimal outcomes are also common because management resorts to shortcuts and rules-of-thumb in dealing with their highly complex and uncertain environment. Moreover, it is simply too time consuming to determine where the profit-maximizing intersections of marginal costs and marginal revenues rest for hundreds of products in hundreds of overlapping markets, each with unique dynamics. Far worse, it turns out that even the most informed, analytical, and competent American executives have not even bothered to clarify the proper data set required for profit-maximizing production and pricing. CEOs tend to base pricing decisions on sunk or fixed costs, even though economists have long taught MBA students that profit-maximizing price and output decisions should be dictated by marginal revenues and costs. As early as 1939, it was realized that this seminal rule is broadly flouted and may not even be known by many executives.

I’ll let Justin Fox of the Harvard Business Review and Harvard professor Jay Lorsch explain: “Conflict between shareholders and managers is asymmetric warfare, with shareholders in no position to prevail.”5 Because of management’s ability to control information, it was inevitable that shareholder capitalism would devolve to managerial capitalism, where enterprises in Reagan-era America neither maximize profits nor maximize shareholder returns. That has made shareholder capitalism useless as an operational philosophy. The Myth of Profit-Maximizing Enterprises During the golden age, US executives were paid modestly, with the rare outstanding performance rewarded with bonuses or higher salaries. Compensation was important, but so were other issues. That changed in the Reagan era. Firms nominally became profit maximizers, ostensibly managed solely for the benefit of shareholder-owners. And that outcome was to be accomplished by linking executive compensation to profits. This conceptualization of shareholder capitalism argued that management should pivot from the golden age ethos of prioritizing profits along with community and employee goals to a sole focus on profits.

But one of the first rules of economics is to follow the money. And that trail teaches us that profits and share prices have risen much less than executive compensation. Management—not shareholders—has been the big winner in Reaganomics. Indeed, economists have determined that executives don’t even bother to maximize firm profits. The extensive research documenting this reality has been unkind to Milton Friedman’s 1953 dictate that profit maximization should drive executive suite behavior: “Whenever this determinant happens to lead to behavior consistent with rational and informed maximization of returns, the business will prosper and acquire resources with which to expand; when it does not, the business will tend to lose resources and can be kept in existence only by the addition of resources from outside.”6 Friedman’s market determinism has been discredited.


pages: 261 words: 103,244

Economists and the Powerful by Norbert Haring, Norbert H. Ring, Niall Douglas

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, bank run, barriers to entry, Basel III, Bernie Madoff, British Empire, buy and hold, central bank independence, collective bargaining, commodity trading advisor, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, diversified portfolio, financial deregulation, George Akerlof, illegal immigration, income inequality, inflation targeting, information asymmetry, Jean Tirole, job satisfaction, Joseph Schumpeter, Kenneth Arrow, knowledge worker, law of one price, light touch regulation, Long Term Capital Management, low skilled workers, mandatory minimum, market bubble, market clearing, market fundamentalism, means of production, minimum wage unemployment, moral hazard, new economy, obamacare, old-boy network, open economy, Pareto efficiency, Paul Samuelson, pension reform, Ponzi scheme, price stability, principal–agent problem, profit maximization, purchasing power parity, Renaissance Technologies, rolodex, Sergey Aleynikov, shareholder value, short selling, Steve Jobs, The Chicago School, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, ultimatum game, union organizing, Vilfredo Pareto, working-age population, World Values Survey

Defined Contribution Plans and Individual Retirement Accounts (401(k)’s) hold more than 40 percent of all mutual fund assets in the US. In the US, the big prize for a money management firm running a family of mutual funds is to become trustee of a corporate 401(k) retirement plan. If such firms face a tradeoff between increasing their chances of becoming (and remaining) trustee and making the optimal investment choices for their clients, the profit-maximizing choice is simple. They do the bidding of MONEY IS POWER 57 the company that has the power to name the trustee. The retirement savers would benefit from having a diversified portfolio. In particular, they should not be overinvested in the stock of their employer since they already face the risk of low income or job loss if their employer should fare badly. However, the company has an interest in having its stock price pumped up by increasing demand.

“This is consistent with the view that important aspects of executive compensation are chosen as a way to transfer wealth from shareholders to executives ex post,” reads the blunt conclusion of Garvey and Milbourn (2006). The outrage constraint in action According to the managerial power theory, the pay level of managers is determined by social norms, not by the mathematical solution of a profit maximization problem. What top managers get depends on what the public and the shareholders are willing to accept. After the subprime crisis hit the world economy and drew attention to the extremely large THE POWER OF THE CORPORATE ELITE 121 paychecks that many executives in the financial industry had collected despite having caused the disaster, the public was outraged, at least temporarily. With large losses of corporations and societies in plain view, people did not believe the pay-for-performance justification for these exorbitant salaries any more.

The problem with this theory is that due to the very high sunk fixed costs for plant and machinery before a production run begins, most MARKET POWER 143 industrial goods are produced under conditions of constant or falling marginal costs – indeed the only globally commonplace industries today known to normally have rising marginal costs are nonmechanized laborintensive industries such as subsistence farming. It gets worse, because information goods (e.g. IT, media content such as movies, music, art etc.) typically cost a very great deal for the very first copy and almost zero for every subsequent copy; so as Shapiro and Varian (1999) point out, the optimal profit-maximizing strategy is to maximize sales right down to a marginal cost of almost zero (i.e. to allow some, but not too much, piracy) which implies a scale of mass production approaching infinity, and therefore is exactly the textbook economics model flipped upside down. Building 100,000 cars in a big factory tends to be cheaper per car than building 1,000 or 20,000 in a smaller factory. Even after the costminimizing plant size is reached, a company that builds another factory and sells twice as many cars can reduce administrative and development costs per car.


pages: 330 words: 99,044

Reimagining Capitalism in a World on Fire by Rebecca Henderson

Airbnb, asset allocation, Berlin Wall, Bernie Sanders, business climate, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, collaborative economy, collective bargaining, commoditize, corporate governance, corporate social responsibility, crony capitalism, dark matter, decarbonisation, disruptive innovation, double entry bookkeeping, Elon Musk, Erik Brynjolfsson, Exxon Valdez, Fall of the Berlin Wall, family office, fixed income, George Akerlof, Gini coefficient, global supply chain, greed is good, Hans Rosling, Howard Zinn, Hyman Minsky, income inequality, index fund, Intergovernmental Panel on Climate Change (IPCC), joint-stock company, Kickstarter, Lyft, Mark Zuckerberg, means of production, meta analysis, meta-analysis, microcredit, mittelstand, Mont Pelerin Society, Nelson Mandela, passive investing, Paul Samuelson, Philip Mirowski, profit maximization, race to the bottom, ride hailing / ride sharing, Ronald Reagan, Rosa Parks, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Snapchat, sovereign wealth fund, Steven Pinker, stocks for the long run, Tim Cook: Apple, total factor productivity, Toyota Production System, uber lyft, urban planning, Washington Consensus, working-age population, Zipcar

We have the technology and the resources to build a just and sustainable world, and doing so is squarely in the private sector’s interest. It is going to be hard to make money if the major coastal cities are underwater, half the population is underemployed or working at jobs that pay less than a living wage, and democratic government has been replaced by populist oligarchs who run the world for their own benefit. Moreover, embracing a pro-social purpose beyond profit maximization and taking responsibility for the health of the natural and social systems on which we all rely not only makes good business sense but is also morally required by the same commitments to freedom and prosperity that drove our original embrace of shareholder value. A mere decade ago the idea that business could help save the world seemed completely crazy. Now it’s not only plausible but also absolutely necessary.

Since December 2015, when the Paris Climate Agreement was signed, for example, the world’s fossil fuel companies have spent more than a billion dollars lobbying against controls on greenhouse gas (GHG) emissions.21 Lobbying in favor of heating up the planet may have maximized shareholder value in the short term, but in the long run, was it a good idea? Taken literally, a single-minded focus on profit maximization would seem to require that firms not only jack up drug prices but also fish out the oceans, destabilize the climate, fight against anything that might raise labor costs—including public funding of education and health care, and (my personal favorite) attempt to rig the political process in their own favor. In the words of the cartoon: “Yes, the planet got destroyed, but for a beautiful moment in time we created a lot of value for shareholders.”

The vast majority of the fruits flowing from the productivity growth of the last twenty years have gone to the top 10 percent of the income distribution, particularly in the United States and the United Kingdom.27 Real incomes at the bottom have stagnated.28 The populist fury that has emerged as a result is threatening the viability of our societies—and of our economies. What went wrong? In a nutshell, markets require adult supervision. They only lead to prosperity and freedom when they are genuinely free and fair, and in the last seventy years the world has changed almost beyond recognition. Global capitalism looks less and less like the textbook model of free and fair markets on which the injunction to focus solely on profit maximization is based. Free markets only work their magic when prices reflect all available information, when there is genuine freedom of opportunity, and when the rules of the game support genuine competition. In today’s world many prices are wildly out of whack, freedom of opportunity is increasingly confined to the well connected, and firms are rewriting the rules of the game in ways that maximize their own profits while simultaneously distorting the market.


pages: 490 words: 117,629

Unconventional Success: A Fundamental Approach to Personal Investment by David F. Swensen

asset allocation, asset-backed security, buy and hold, capital controls, cognitive dissonance, corporate governance, diversification, diversified portfolio, fixed income, index fund, law of one price, Long Term Capital Management, market bubble, market clearing, market fundamentalism, money market fund, passive investing, Paul Samuelson, pez dispenser, price mechanism, profit maximization, profit motive, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, shareholder value, Silicon Valley, Steve Ballmer, stocks for the long run, survivorship bias, technology bubble, the market place, transaction costs, Vanguard fund, yield curve, zero-sum game

Agents take on the role of principal either by allowing the satisfaction of client interests to transcend the imperative of profit generation or by employing the technique of side-by-side investment to transform the fundamental character of the incentive structure. In the case of subordinating profit maximization to client outcomes, the agent pursues the unusual path of valuing client results more highly than personal profit. Unfortunately, few agents in the financial services profession reject the Economics 101 notion of profit-maximizing behavior. In the case of agent co-investment alongside the principals’ assets, the agent becomes a principal. As the degree of co-investment increases, so does the principal orientation of the manager. Few agents possess the means (or the desire) to allow return generation to trump fee collection.

Churning of mutual-fund holdings by investors adds an additional odds-lengthening factor to the equation. At the end of the day, as described in Chapter 7, The Performance Deficit of Mutual Funds, investors cannot win the active management game. The failure of the mutual-fund industry to produce attractive investment results stems from the inherent conflict between behaving as a fiduciary and acting as a profit-maximizer. The contest between serving investor interests and making money never even makes the starting gate. Profits win in a runaway. The crux of the conflict stems from divergence between the goals of the mutual-fund-investor principal and the mutual-fund-manager agent. Investors benefit from low fees, low taxes (related to low portfolio turnover), and fair, transparent arrangements. Managers profit from high fees, high portfolio turnover (related to high taxes), and inequitable, opaque arrangements.

Before management fees, before commissions, before market impact, before sales loads, before contingent fees, and before taxes, investors in actively managed mutual funds face a coin flip. After all fees and expenses, investors experience a performance deficit. Rational mutual-fund investors avoid active management. CHAPTER SUMMARY Management fees and trading costs represent the most important battlegrounds in the contest between fiduciary responsibility and profit maximization. In the arena of active management, investor interests suffer a resounding defeat. Profits win and responsibility loses. Sales loads constitute an affront to investors. A sales load leads to certain-return diminution that no-load investors avoid. In fact, evidence suggests that the size of the load corresponds to the load fund’s performance deficit. In spite of widespread recognition of the superiority of no-load funds, load funds remain extremely popular, driven by the brokerage community’s fee-induced marketing greed.


pages: 202 words: 58,823

Willful: How We Choose What We Do by Richard Robb

activist fund / activist shareholder / activist investor, Alvin Roth, Asian financial crisis, asset-backed security, Bernie Madoff, capital asset pricing model, cognitive bias, collapse of Lehman Brothers, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, delayed gratification, diversification, diversified portfolio, effective altruism, endowment effect, Eratosthenes, experimental subject, family office, George Akerlof, index fund, information asymmetry, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, lake wobegon effect, loss aversion, market bubble, market clearing, money market fund, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, principal–agent problem, profit maximization, profit motive, Richard Thaler, Silicon Valley, sovereign wealth fund, survivorship bias, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, ultimatum game

Shoppers who were exposed to fewer choices were more likely to purchase a jar of jam.12 But an aversion to excessive jam options doesn’t necessarily mean that people dislike choice. They just don’t want to engage with too many options or waste too much time relative to the matter at hand—after all, it’s only jam. In any case, this experiment tells us little about the real world where merchants learn to offer only as many options as consumers want to analyze. I trust my belief that profit-maximizing merchants know what they are doing over an intuition that consumers truly prefer less variety. While anxiety may accompany choice, consumers evidently want to experience this anxiety and its subsequent release once the choice is made. Are we drawn to movies in which only good fortune befalls the protagonist? Of course not. Enjoying a dramatic plot with a buildup of tension is no more paradoxical than the paradox of choice.

This craving for authentic physical challenges that for many are absent from modern life can also explain extremes in exercise, sports, all-nighters at the office, political campaigns, military training, and prodigious work travel. Businesses may deliberately make experiences harder than necessary for consumers. “Why don’t they just raise the price?” the economist asks in response to long lines at popular restaurants and sporting events. The restaurant owner who could reduce lines by raising prices might instead reinforce the authenticity of the waiting line by citing a motive other than profit maximization, such as fair pricing. Whatever the owner’s motive, for the consumer, the fight is part of the product and part of its appeal. Players Must Stay in the Game Suppose you suddenly and unexpectedly receive a significant amount of money. Would you act with caution and set the whole amount aside? Or would you throw caution to the wind and splurge? Rational choice predicts that people would save most of a financial windfall and spread the benefits over their lifetime.

Smith, Wealth of Nations, 18. 11. See Delmonico’s Dinner Menu, 1899. 12. Iyengar and Lepper, “When Choice Is Demotivating.” 13. Tversky and Shafir, “Disjunction Effect,” 305–306. 14. Personal finance guides counsel living by a budget, but many people resist this advice. We want each spending decision to feel, to the extent possible, like a unique act of will. 15. Oprea, “Survival versus Profit Maximization,” 2227, 2234–2235. 16. Plutarch, Lives of Illustrious Men, 438. 17. Ricardo, On the Principles, 158–170. 18. Knight, “World Justice, Socialism, and the Intellectuals,” 442. 19. See Karabarbounis, “Labor Wedge,” 212. 20. Keynes, “Economic Possibilities,” 365–373. 21. The grandnephew’s comment is from Kestenbaum, “Keynes Predicted.” 22. Phelps, Mass Flourishing, 19–40; Phelps, “The Good Economy,” 6. 23.


pages: 151 words: 38,153

With Liberty and Dividends for All: How to Save Our Middle Class When Jobs Don't Pay Enough by Peter Barnes

Alfred Russel Wallace, banks create money, basic income, Buckminster Fuller, collective bargaining, computerized trading, creative destruction, David Ricardo: comparative advantage, declining real wages, deindustrialization, diversified portfolio, en.wikipedia.org, Fractional reserve banking, full employment, hydraulic fracturing, income inequality, Jaron Lanier, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, land reform, Mark Zuckerberg, Network effects, oil shale / tar sands, Paul Samuelson, profit maximization, quantitative easing, rent-seeking, Ronald Coase, Ronald Reagan, Silicon Valley, sovereign wealth fund, the map is not the territory, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, Upton Sinclair, Vilfredo Pareto, wealth creators, winner-take-all economy

This better-balanced capitalism—we could call it everyone-gets-a-share capitalism—wouldn’t solve all our problems, but it would do more than any other potential remedy to preserve our middle class, our democracy, and our planet. ODDLY ENOUGH, THIS BOOK BEGAN as an idea for a board game. The idea came to me while I was teaching a course at Schumacher College in England. I wanted to make the point that capitalism—that is, a market economy with private property and profit-maximizing corporations — isn’t necessarily inconsistent with a healthy planet or an equitable society. I projected a PowerPoint slide of the iconic Monopoly board game and said, “Imagine a game like this, except with slightly different rules. There’d be private property, profit-seeking corporations, winners and losers, but at the same time, nature and the middle class would fend for themselves and flourish.”

An affluent economy is a prerequisite for a large middle class but by no means a guarantee. To sustain a large middle class, a nation must consciously and continuously temper the natural impulse of capitalism to minimize labor costs. That has been done by various countries in various ways, but there’s always pushback and never a guarantee that gains for the middle class will endure. Sustaining a large middle class requires counterbalancing the profit-maximizing imperative of corporations. For much of the twentieth century, the requisite counterforce came from labor unions. In the United States and Western Europe, labor unions finished the job that Henry Ford started. Through collective bargaining, they drove up wages and shortened the workweek; through political power, they won such benefits as unemployment insurance and Medicare. In countries like Germany and Sweden, where labor unions have remained strong, so has the middle class.

Consider, for example, health care in America, about one-sixth of our economy. There are many reasons why the United States spends 80 percent more per capita on health care than does Canada, while achieving no better results, but one of the biggest is that Canada has wrung huge amounts of rent out of its health-care system and we haven’t.9 Every Canadian is covered by nonprofit rather than profit-maximizing health insurance, and pharmaceutical prices are tightly controlled. By contrast, in the United States, drug companies overcharge because of patents, Medicare is barred from bargaining for lower drug prices, and private insurers add many costs and inefficiencies.10 Not even major reforms won by President Obama in 2010 are likely to change this. Indeed, by expanding coverage, they may actually increase the rent extracted by health-related companies.


pages: 586 words: 159,901

Wall Street: How It Works And for Whom by Doug Henwood

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, Louis Bachelier, market bubble, Mexican peso crisis / tequila crisis, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, plutocrats, Plutocrats, price mechanism, price stability, prisoner's dilemma, profit maximization, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

The difference in emphasis is important, because the Coasian view sees the corporation's role as maximizing efficiency, not profit, which is another matter entirely. Advertising, planned obsolescence, predatory pricing, and spurious innovation are partly or wholly socially useless, even malignant, activities, but they are profit-maximizing. Veblen also argued that an industrial system run for social efficiency rather than maximum profit might see more internalized and fewer market transactions. Sometimes profit-maximizing will lead to socially beneficial combination and coordination, but sometimes it won't. Janet Knoedler (1995) argued, for example, that GM's integration with its suppliers (like Fisher auto body) had less to do with economizing on costs than with simplifying the annual style change, a marketing rather than an industrial consideration.

Reading the updated Berle 27 years later, even more than the 1932 original, it's hard to imagine that anyone could have thought that modern corporate society moves by anything significantly different from the maximization of profit. But the belief that the advent of the large corporation had changed capitalism into a more humane, progressive force was a core belief of American liberalism from the New Deal through the end of the 1960s. Profit maximization, the motor of 19th century entrepreneurial capitalism, had been replaced by growth, and competition by long-term corporate planning and administered prices. In one moving cri de rentier (pp. 115-116), Berle and Means denounced the potential for managerial abuse of the poor owner: "out of professional pride," managers may "maintain labor standards above those required by competitive conditions," or "improve quality above the point" that is likely to be maximally profitable to shareholders!

Stockholder rebellion among large corporations was "so rare that it can be ignored," because trouble-free GOVERNANCE profitability was the norm. Of course, management told Congressional committees that the board and the stockholders were in control, and conducted yearly meetings to flatter the nominal owners, but Galbraith's corporation was run by the technostructure. Unlike Baran and Sweezy, Galbraith dismissed profit maximization as the goal of the giant firm in favor of the growth in sales and prestige. To thrive, it needed not maximum profits, but "a secure minimum of earnings" that would keep it from having to tap troublesome capital markets or cope with demanding outside stockholders (pp. 151-152). Secure mediocrity was the ideal. The technostructure had little to gain from high profits, which would only be passed along to shareholders, and might even entail higher risk — risk that could disturb managerial autonomy.


pages: 273 words: 93,419

Let them eat junk: how capitalism creates hunger and obesity by Robert Albritton

Bretton Woods, California gold rush, clean water, collective bargaining, computer age, corporate personhood, creative destruction, deindustrialization, Food sovereignty, Haber-Bosch Process, illegal immigration, immigration reform, invisible hand, joint-stock company, joint-stock limited liability company, Kickstarter, land reform, late capitalism, means of production, offshore financial centre, oil shale / tar sands, peak oil, price stability, profit maximization, profit motive, South Sea Bubble, the built environment, union organizing, Unsafe at Any Speed, upwardly mobile

First, capital’s privileging of short-term profits over all other considerations leads to an indifference to preserving the long-term quality of land, lakes, rivers and oceans. Profits may dictate deforestation, land degradation, and the pollution of bodies of water. Longterm conservation for the sake of future generations requires a relationship of stewardship, a relationship diametrically opposed to short-term profit maximization by private corporations only concerned for their own immediate gain. In principle, the imperatives 24 L E T T H E M E AT J U N K of profit could drive capital to cut down all forests; cover arable land with suburbs; convert arable land to growing tobacco and other addictive drugs; empty bodies of water of fish; pollute land, water, and air; or divert food crops to ethanol production even when large numbers of people do not have enough food.

Capital homogenizes natural landscapes by destroying species diversity, by desertification, by pollution, by monoculture, by harvesting “exotic animals”, by strip mining, by strip malls, by diverting rivers, by urbanization and suburbanization, by overfishing in the oceans, by building dams, by paving over the landscape, by clear-cutting forests or by any smoothing or homogenizing of the landscape that would speed up the turnover of capital’s circuits and thus profits. In general space is homogenized by capital when its diversity gets in the way of capital mobility, when mass production and consumption require standardization, and when the built environment is standardized by capitalist commercialization and profit fixation. The material, qualitative or use-value characteristics of space can be quite resistant to being totally subsumed to short-term profit maximization. A major result of this is that capital has always developed unevenly spatially. Yes, it has always had an expansive and globalizing thrust, but this has run up against oceans and untamed land masses, the limits of technology, political policies stemming from semi-sovereign nation-states, and social formations that are to varying degrees resistant or hostile to capitalism. Indeed capital has only managed to gain as much global hegemony as it has by often compromising its own inner principles, as, for example, when popular movements have forced upon it concerns for quality of life which it would otherwise ignore.

The growing season could be extended, the maturation of a crop could be speeded up, and irrigation made agriculture less weather-dependent. For the first time in history, the natural qualitative/material constraints that had always figured so large in limiting the ability of capital in this sector seemed to be overcome. Now it seemed that human technology could at last subsume the vagaries of nature to the quantitative concerns of profit maximization, and nature could be forced to submit to the rapid increases in productivity needed by capital to keep up with industrial rates of expansion. As is characteristic of capital in general, social costs could be ignored since either they were sufficiently long-term that damages would not show up immediately, they would be hard to trace, or they could by paid for by the taxpayer. The privatization of profits and socialization of costs made agriculture a veritable paradise for profit making, with the collateral damage deferred to future generations.


pages: 500 words: 145,005

Misbehaving: The Making of Behavioral Economics by Richard H. Thaler

"Robert Solow", 3Com Palm IPO, Albert Einstein, Alvin Roth, Amazon Mechanical Turk, Andrei Shleifer, Apple's 1984 Super Bowl advert, Atul Gawande, Berlin Wall, Bernie Madoff, Black-Scholes formula, business cycle, capital asset pricing model, Cass Sunstein, Checklist Manifesto, choice architecture, clean water, cognitive dissonance, conceptual framework, constrained optimization, Daniel Kahneman / Amos Tversky, delayed gratification, diversification, diversified portfolio, Edward Glaeser, endowment effect, equity premium, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, George Akerlof, hindsight bias, Home mortgage interest deduction, impulse control, index fund, information asymmetry, invisible hand, Jean Tirole, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, late fees, law of one price, libertarian paternalism, Long Term Capital Management, loss aversion, market clearing, Mason jar, mental accounting, meta analysis, meta-analysis, money market fund, More Guns, Less Crime, mortgage debt, Myron Scholes, Nash equilibrium, Nate Silver, New Journalism, nudge unit, Paul Samuelson, payday loans, Ponzi scheme, presumed consent, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, random walk, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Silicon Valley, South Sea Bubble, Stanford marshmallow experiment, statistical model, Steve Jobs, Supply of New York City Cabdrivers, technology bubble, The Chicago School, The Myth of the Rational Market, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, ultimatum game, Vilfredo Pareto, Walter Mischel, zero-sum game

Simon had coined the term “bounded rationality,” but had not done much fleshing out of how boundedly rational people differ from fully rational ones. There were a few other precedents, but they too had never taken hold. For example, the prominent (and for the most part, quite traditional) Princeton economist William Baumol had proposed an alternative to the traditional (normative) theory of the firm (which assumes profit maximization). He postulated that firms maximize their size, measured for instance by sales revenue, subject to a constraint that profits have to meet some minimum level. I think sales maximization may be a good descriptive model of many firms. In fact, it might be smart for a CEO to follow this strategy, since CEO pay oddly seems to depend as much on a firm’s size as it does on its profits, but if so that would also constitute a violation of the theory that firms maximize value.

For example, after Hurricane Katrina devastated New Orleans, Home Depot and other chains loaded up trucks with emergency supplies of food and bottled water to give away. At the same time, such a natural disaster will induce some entrepreneurial folks to load a truck with plywood in a nearby city and sell it in the devastated areas for whatever price it will fetch. In this case, both sellers are profit-maximizing. The chain store is establishing a reputation for fair dealing that will have long-term payoffs, whereas the “temporary entrepreneurs” will be back home in a couple days with a tidy profit and either a slightly guilty conscience or pride in their efforts to help improve the allocation of scarce resources, depending on their point of view. But firms don’t always get these things right. The fact that my MBA students think it is perfectly fine to raise the price of snow shovels after a blizzard should be a warning to all business executives that their intuitions about what seems fair to their customers and employees might need some fine-tuning.

There is clear evidence that people dislike unfair offers and are willing to take a financial hit to punish those who make them. It is less clear that people feel morally obliged to make fair offers. Although it is true that in the Ultimatum Game the most common offer is often 50%, one cannot conclude that Proposers are trying to be fair. Instead, they may be quite rationally worried about being rejected. Given the empirical evidence on respondents’ behavior, the profit-maximizing strategy in the Ultimatum Game is for the Proposer to offer about 40% of the pie. Lower offers start to run the risk of being rejected, so a 50% offer is not far from the rational selfish strategy. Whether the offers made by Proposers are driven by fairness or selfish concerns, the outcomes of the Ultimatum Game appear to be quite robust. Proposers make offers of close to half the pie, and Responders tend to reject offers of less than 20%.


pages: 550 words: 89,316

The Sum of Small Things: A Theory of the Aspirational Class by Elizabeth Currid-Halkett

assortative mating, back-to-the-land, barriers to entry, Bernie Sanders, BRICs, Capital in the Twenty-First Century by Thomas Piketty, clean water, cognitive dissonance, David Brooks, deindustrialization, Deng Xiaoping, discrete time, disruptive innovation, Downton Abbey, East Village, Edward Glaeser, en.wikipedia.org, Etonian, Geoffrey West, Santa Fe Institute, income inequality, iterative process, knowledge economy, longitudinal study, Mason jar, means of production, NetJets, new economy, New Urbanism, plutocrats, Plutocrats, post scarcity, post-industrial society, profit maximization, Richard Florida, selection bias, Silicon Valley, The Design of Experiments, the High Line, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, Thorstein Veblen, Tony Hsieh, Tyler Cowen: Great Stagnation, upwardly mobile, Veblen good, women in the workforce

As Bowman of Altadena Farmers Market remarked, “We are turning Karl Marx on his head. The farmer or the craftsman is now connected to his labor. We are connected to the good.” In fighting alienated labor (even if most of the conspicuous producers interviewed did not call it such, nor reference Marx), conspicuous producers give up another tenet of modern capitalism: profit maximization. In neoclassical economics, the general theory is that firms work to the goal of profit maximization above all others. Yet, every single one of the conspicuous producers I interviewed, from food to fashion to farmers’ markets, admitted they are making very little profit (if any at all) or they are giving up the chance to make real money given the expense and time it takes to produce their socially conscious goods. Gerscovich of IOAN plainly admitted, “For our company, almost no profit.”

Unlike Morris and his followers, who were ultimately trying to do away with capitalism rather than work with it, the conspicuous producers are working within the system, not against it. Those who conspicuously produce are still operating within a market economy, but with different motivations and rules. Money is exchanged for goods, rarity is prized, and yet some of the other hallmarks of capitalism, namely exploitation, Marx’s alienated labor, and the neoclassical theory of profit maximization, have been shunned to create a whole new economic ethos working with a capitalistic framework. As the Industry of All Nations’ website defines itself, “I.O.A.N. is pure capitalism. We don’t seek people in need; we seek productive people. There is nothing noble about suffering, there is nothing courageous about poverty; but industriousness, working for a better life, it is the bravest thing in the world.

See also motherhood peer-to-peer e-commerce companies, 130–31 Peet’s, 142 pensions, 29, 72, 74f personal insurance, 29, 72, 74f personal saving, 190–91 Peterson, Richard, 54 Philadelphia, 162–64, 168 Physique 57, 102 Piketty, Thomas, 188 Pollan, Michael, The Omnivore’s Dilemma, 125, 137 Polo, 11 the poor and low-income group: conspicuous consumption of, 24, 25, 31; education expenditures of, 69–70; inconspicuous consumption of, 62; status markers for, 25; things bought by, 33–34 Pop Physique, 102 Portland, 180 postmodern values, 135–37 power elite, 16 preschool tuition, 108 Probat, 114 productive conspicuous leisure, 100–109 productive leisure, 22, 98–109 profit maximization, 142 Protestant work ethic, 99 Pump Station, 82 Quakerism, 138 quality of life, 61, 153, 158, 189 race/ethnicity: breastfeeding by, 225n6; consumption influenced by, 34, 37, 38t; of farm employees, 124; suburbanization and, 152–53 Raffaelli, Ryan, 184 Ralph Lauren, 11–12 Ramney, Garey and Valerie, 96 recreation, 67, 68t red wine, 81 Reich, Robert, 17 rent, 166–67 Rent-the-Runway, 12 Replogle, John, 144 retirement expenditures, 29–30, 72, 74f, 75 the rich: conspicuous consumption expenditures of, 26, 30, 32, 35–36, 38, 61, 63f; education expenditures of, 69–70; inconspicuous consumption expenditures, 38–39, 61–77, 63f; status markers for, 32, 175; things bought by, 32.


pages: 414 words: 101,285

The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It by Ian Goldin, Mike Mariathasan

"Robert Solow", air freight, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bretton Woods, BRICs, business cycle, butterfly effect, clean water, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, connected car, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, discovery of penicillin, diversification, diversified portfolio, Douglas Engelbart, Douglas Engelbart, Edward Lorenz: Chaos theory, energy security, eurozone crisis, failed state, Fellow of the Royal Society, financial deregulation, financial innovation, financial intermediation, fixed income, Gini coefficient, global pandemic, global supply chain, global value chain, global village, income inequality, information asymmetry, Jean Tirole, John Snow's cholera map, Kenneth Rogoff, light touch regulation, Long Term Capital Management, market bubble, mass immigration, megacity, moral hazard, Occupy movement, offshore financial centre, open economy, profit maximization, purchasing power parity, race to the bottom, RAND corporation, regulatory arbitrage, reshoring, Silicon Valley, six sigma, Stuxnet, supply-chain management, The Great Moderation, too big to fail, Toyota Production System, trade liberalization, transaction costs, uranium enrichment

In this book we recognize that globalization is a double-edged sword that can be a force for progress as well as a source of great harm. There are numerous reasons to be concerned about globalization. Our focus is on the systemic risk that is embedded in the current wave of globalization and the complexity it engenders, which give rise to uncertainty and unintended consequences, including the erosion of the responsibilities of individuals and firms. These unintended outcomes are “externalities” because profit-maximizing agents do not incorporate these social costs in their cost–benefit analyses. Systemic risks may thus be considered a contemporary manifestation of the tragedy of the commons. Exploiting Ricardo’s comparative advantage creates efficiency gains but simultaneously fosters interdependence.55 Using the benefits of trade leads to output growth but also to inequality. The Internet has increased transparency and the flow of information but equally has the potential to facilitate the spread of rumors and panics as well as cybercrime and aggression.

Although this section focuses on how the rise of international trade created longer and deeper supply networks, it is important to remember that these networks, in turn, fuel globalization. In this chapter we diagnose the risks of supply chain management and of global business management more generally. As in the case of the financial sector, we show that the efficiency benefits of globalization have associated risks and that profit-maximizing behavior can create negative externalities. We start by noting the rise of international trade in the twenty-first century. We examine how political changes and technological innovation gave rise to global supply chains. An analysis of “best practices” in supply chain management shows how these supply networks are vulnerable to systemic risk. We then seek to identify ways to make supply networks more resilient.

The steering system producer is likely to depend on his own network of suppliers, and failure by any of them affects world auto production. A real-world example of such risks can be seen in table 3.1, which shows sourcing for the manufacture of Apple products worldwide. The company assembles parts delivered from producers around the globe. Under normal circumstances, these parts arrive just in time, resulting in profit-maximizing efficiency for the final producer, here Apple. Under adverse circumstances, however, the fragmentation of supply chains leaves firms exposed to risks beyond their control. In the case of Apple, quality problems and a strike at the Foxconn production plant in Zhengzhou, Taiwan, for example, caused delays in the delivery of the iPhone 5 during October 2012.27 TABLE 3.1 APPLE SUPPLIERS, 2011 AAC Technologies Holdings Inc.


pages: 453 words: 111,010

Licence to be Bad by Jonathan Aldred

"Robert Solow", Affordable Care Act / Obamacare, Albert Einstein, availability heuristic, Ayatollah Khomeini, Benoit Mandelbrot, Berlin Wall, Black Swan, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, clean water, cognitive dissonance, corporate governance, correlation does not imply causation, cuban missile crisis, Daniel Kahneman / Amos Tversky, Donald Trump, Douglas Engelbart, Douglas Engelbart, Edward Snowden, Fall of the Berlin Wall, falling living standards, feminist movement, framing effect, Frederick Winslow Taylor, From Mathematics to the Technologies of Life and Death, full employment, George Akerlof, glass ceiling, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jeff Bezos, John Nash: game theory, John von Neumann, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, meta analysis, meta-analysis, Mont Pelerin Society, mutually assured destruction, Myron Scholes, Nash equilibrium, Norbert Wiener, nudge unit, obamacare, offshore financial centre, Pareto efficiency, Paul Samuelson, plutocrats, Plutocrats, positional goods, profit maximization, profit motive, race to the bottom, RAND corporation, rent-seeking, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Skype, Social Responsibility of Business Is to Increase Its Profits, spectrum auction, The Nature of the Firm, The Wealth of Nations by Adam Smith, transaction costs, trickle-down economics, Vilfredo Pareto, wealth creators, zero-sum game

And astonishing because, at least initially, we invited them to do so. This kind of absurd invitation violates common sense so, unsurprisingly, its genesis lies in economic theory. In textbook economics, a prerequisite for successful capitalism is that firms seek to maximize profits. But profit-maximizing firms are unlikely in reality, because profits traditionally go to shareholders, whereas the CEO and senior managers who make the decisions are more likely to be interested in enlarging their own salary or status. Economists proposed ‘optimal contracting’ as the way to make firms more like the profit-maximizing textbook ‘ideal’: give senior managers a relatively modest basic salary, along with the opportunity to earn a substantial bonus contingent on good profits (or some other outcome serving the interests of investors, such as a rising share price).

air travel, commercial, 63–4 Akerlof, George, 223, 237, 248 altruism, 150–51, 159, 162–4 game theory’s denial of, 31–2, 41, 42–3 misunderstanding of, 13–14, 25, 31–2, 41–3, 112, 178–9 as not depleted through use, 14 seen as disguised selfishness, 11–12, 25, 112, 178–9 Amazon, 155, 178, 208 American Economic Association, 257, 258 Angrist, Joshua, 249 antitrust regulation, 56–8 Apple, 222–3 Aristotle, 14 Arrow, Ken awarded Nobel Prize, 71 and blood donations, 14, 163 at City College, New York, 74–5, 91 collective preference, 73–4, 75–7, 78–82 and democracy, 72–4, 75–7, 78–83, 95, 97 framework presented as scientific, 81–2, 124–5 and free marketeers, 78–9, 82 Impossibility Theorem, 72, 73–4, 75–7, 78–83, 89, 97 and mathematics, 71, 72, 73–5, 76–7, 82–3, 97 and Mont Pèlerin Society, 9 preference satisfaction’, 80–82, 97, 124–5, 129 and Ramsey, 189 at RAND, 70–71, 72–3, 74, 75–6, 77, 78 top-secret-level security clearance, 71–2 ‘A Cautious Case for Socialism’ (1978), 83 ‘On the Optimal Use of Winds for Flight Planning’, 71 Social Choice and Individual Values (1951), 71, 72, 75–7, 78–80, 97 artificial intelligence, 214, 242 Atlas Economic Research Foundation, 7–8 Austen, Jane, 134 austerity policies, recent, 258 Axelrod, Robert, 41 Babbage, Charles, 222 baby-market idea, 61, 138, 145, 146 Bachelier, Louis, 193 Baird, Douglas, 58–9 bandwagon effect, 110 Bank of England, 96, 120, 185, 211–12, 258 bankers excuse/permission to be greedy, 1–2, 204, 238 and Keynesian economics, 5 performance as wholly relative, 204 quantification and recklessness, 213 rigged pay-for-performance contracts, 229–30, 238 role in 2007 crisis, 1–2, 57, 182, 192 as serial offenders over uncertainty, 201 see also financial markets Barro, Josh, 63, 64 Bateson, Gregory, 28 battery-chicken farming, 7 Baumol, William, 90–92, 93, 94 BBC, 48, 98 Beaverbrook, Lord, 157 Becker, Gary amoral understanding of crime, 137, 152 and citizenship rights, 146 and Coase, 69 Freakonomics followers of, 130, 134, 148–9, 156 and Friedman, 126, 131 hidden assumptions of, 130–31, 133–4 human capital idea, 149 and individualism, 134, 135–8 and maximization, 129–31, 133–4, 147 as outsider, 50 and Posner, 56 rejects need for realistic assumptions, 132, 133–4, 148 and sale of body parts, 147–8 sees poor health as just a preference, 135, 136, 140 sees values as mere tastes, 136–8, 140 theories as deeply controversial, 127–9, 130 theories as slippery, 129, 133–4 and ‘universality’ of economics, 125, 126–31, 133–4, 135–8, 147–8 version of ‘rational’ behaviour, 128–9, 135, 140, 151 De Gustibus Non Est Disputandum (with Stigler, 1977), 135–6 The Economic Approach to Human Behavior (1976), 130 The Economics of Discrimination (1957), 126–7 A Treatise on the Family (1981), 127–8, 130–31, 133 behaviourism, 154–8, 237 behavioural economics context and culture, 175–6 framing effects, 170–71, 259 and incentives, 160, 171, 175, 176–7 methods from psychology, 170–71 and Nudge, 171–2 and orthodox economics, 173, 174–5, 247, 255 and physics envy, 175–6 problems with, 173–5, 250–51 ‘self-command’ strategies, 140 theory of irrationality, 12, 171, 250–51 and welfare maximization, 149 Bell, Alexander Graham, 222 bell curve distribution, 191–4, 195, 196, 201, 203–4, 218–19, 257 Bentham, Jeremy, 102 Berlin, Isiah, 166, 167–8 Beveridge Report (1942), 4 Bezos, Jeff, 208 Black, Duncan, 77–8, 95 Blackstone (private equity firm), 235 black swans, 192, 194, 201, 203–4 Blinder, Alan, The Economics of Brushing Teeth (1974), 136 blood donors, 14, 112, 162–3, 164, 169, 176 Borel, Émile, 185* Brennan, William, 56 broadcasting, 48–50, 98 spectrum auctions, 39–40, 47, 49–50 Buchanan, James McGill, 8, 83–5, 87–8, 89, 95, 115 Buffett, Warren, 229, 230, 236 Calcraft, John, 120, 121 Cameron, David, 172 Caplan, Brian, The Myth of the Rational Voter, 245–6 carbon markets, 47, 65–7 Carlson, Jack, 141–2 Carroll, Lewis (Charles Lutwidge Dodgson), 72, 77 cartels and monopolies, 101, 102, 103–4 Cheney, Dick, 232–3 Chicago, University of, 2, 4, 34, 40, 49–51 antitrust ideas, 56–8 Buchanan at, 84 and Coase, 49–52, 53–4, 55, 56–7, 61, 68–9, 132 Friedman’s dominance, 50, 132 law and economics movement, 40, 55, 56–63, 64–7 revolution of 1968 at, 56, 58–9 zero-transaction-costs assumption, 51–2, 68–9 Chicago law school, 55, 56, 58–9 child labour, 124, 146 China, 65 City College, New York, 74–5, 91 climate change average temperature rises, 205–6, 207 and carbon markets, 47, 65–6 ‘cashing in’ on carbon markets, 67 Coasean worldview on pollution, 65–7, 68 denialists, 8 ‘discount rate’ on future costs, 208–9, 212 discrimination against future generations, 208–9 and free-riding theory, 2, 99, 113–17, 120 Intergovernmental Panel on, 207 measurement in numerical terms, 206–11, 213 and precautionary principle, 211–12 premature deaths due to, 207–9 and Prisoner’s Dilemma, 27 Stern Review, 206, 209–10 threat to economic growth, 209 Coase, Ronald argument given status of theorem, 51–2, 67 awarded Nobel Prize, 52 background of, 47–8 and Chicago School, 49–52, 53–4, 56–7, 61, 68–9, 132 and created markets, 47, 65–7 dismissal of ‘blackboard economics’, 48, 54, 64, 67–9 on Duncan Black, 77 evening at Director’s house (early 1960), 49–51, 132 fundamental misunderstanding of work of, 51, 52–3, 67–9 hypothetical world invoked by, 50–51, 52, 54–5, 62, 68 as Illinois resident, 46–7 and Mont Pèlerin Society, 8 and public-sector monopolies, 48–51 and transaction costs, 51–3, 54–5, 61, 62, 63–4, 68 ‘The Nature of the Firm’ (1932 paper), 48 The Problem of Social Cost’ (1960 paper), 47, 48, 50–51, 52, 54–5, 59 cognitive dissonance, 113–14 Cold War, 18–19, 20, 21–2, 24, 27, 181 Cuban Missile Crisis (1962), 33–4, 140 and Ellsberg, 184, 197, 198, 200 and game theory, 18, 20, 21–2, 24, 27, 33–4, 35, 70, 73, 198 and Impossibility Theorem, 75–6 RAND and military strategy, 18, 20, 21–2, 24, 27, 33–4, 70, 73, 75–6, 141, 200, 213 and Russell’s Chicken, 33 and Schelling, 138, 139–40 Washington–Moscow hotline installed, 139–40 collective preference and Ken Arrow, 73–4, 75–7, 78–82 Black’s median voter theorem, 77, 95–6 Sen’s mathematical framework, 80–81 communism, 82, 84, 101, 104, 237 Compass Lexecon, 58, 68 Condorcet Paradox, 76, 77 conspiracy theories, 3, 8, 9 cooperation cartels, monopolies, price-fixing, 101, 102, 103–4 and decision-making processes, 108–10 and free-riding theory, 2, 101, 102, 103–10 office teamwork, 109–10, 112 older perspective on, 100–102, 108, 111, 122 and Scandinavian countries, 103 view of in game theory, 21–2, 23, 25–32, 36–8, 41–3 corporate culture and antitrust regulation, 57–8 changes due to Friedman, 2, 152 Chicago approach to regulation, 40 and climate change, 113, 114, 115 executive pay, 215–16, 219, 224, 228–30, 234, 238 Jensen and Murphy’s article, 229 ‘optimal contracting’/pay-for-performance, 228–30, 238 predatory pricing, 57 and tax evasion/avoidance, 105–6 cost disease, 90–92, 93, 94 Cowles Commission in Chicago, 78 CP/M (Control Program for Microcomputers), 222 criminal responsibility, 111, 137, 152 Cuban Missile Crisis (1962), 33–4, 140 Damasio, Antonio, 14 data geeks, 248–50 ‘dead peasants insurance’, 124 decision-making processes, 108–10, 122, 170–71 ‘anchoring effect’, 212 authority figure–autonomy contradiction, 180 avoidance of pure uncertainty, 198–9 axioms (abstract mathematical assumptions), 198 Ellsberg Paradox, 184, 199–200 Ellsberg’s experiment (1961), 182–4, 187, 197, 198–200, 205 Linda Problem, 202–3 orthodox decision theory, 183–4, 185–6, 189–91, 193–4, 198–200, 201–2, 203–5, 211, 212–14 and the Savage orthodoxy, 190–91, 197, 198–200, 203 scenario planning as crucial, 251 Von Neumann’s theory of decision-making, 189, 190, 203 see also probability; risk and uncertainty democracy and Ken Arrow, 72–4, 75–7, 78–83, 95, 97 Black’s median voter theorem, 77, 95–6 and crises of the 1970s, 85–6 and economic imperialism, 145–7 equal citizenship principle at heart of, 145–6, 151 free-riding view of voting, 99, 110, 112, 115–16, 120–21 marketing by political parties, 95–6 modern cynicism about politics, 94–7 paradox of voter turnout, 88–9, 95–6, 115–16 paradox of voting, 75–7 politicians’ support for depoliticization, 96–7 post-war scepticism about, 78–9 and public choice theory, 85–6, 95–7 replacing of with markets, 79 Sen’s mathematical framework, 80–81 voter turnout, 88–9, 95–6, 115–16, 120–21 see also voting systems Dennison, Stanley, 13 dentistry, 258–9, 261 Depression (1930s), 3 digital technology, 68, 214, 222–3 data revolution, 247–50 and rising inequality, 215, 220, 242 Director, Aaron, 4–5, 49–51, 132 Disney World, 123 Dodd–Frank Act, 256 Dodgson, Charles Lutwidge (Lewis Carroll), 72, 77 dot.com bubble, 192, 201 Douglas Aircraft Corporation, 18 Downs, Anthony, An Economic Theory of Democracy (1957), 86, 89, 95 Dr Strangelove (Kubrick film, 1964), 19, 35, 139 DreamTours Florida, 123 Drucker, Peter, 153 Dulles, John Foster, 20 Dundee School of Economics, 48, 77–8 Dürrenmatt, Friedrich, The Visit of the Old Lady, 166 earthquakes, 194–5 Econometrica (journal), 77–8 economic imperialism arrogance of, 246–7 auctioning of university places, 124, 149–50 continuing damage wrought by, 151–2 and democracy, 145–7 emerges into the limelight, 130 Freakonomics, followers of, 130, 134, 148–9, 156 and inequality, 145–7, 148, 151, 207 markets in citizenship duties, 146 origins of term, 125 price as measure of value, 149, 150, 151 purchase of immigration rights, 125, 146 and sale of body parts, 123, 124, 145, 147–8 sidelining of moral questions, 125–9, 135–8, 141–5, 146–7, 148–9, 151–2, 207 value of human life (‘statistical lives’), 141–5, 207 welfare maximization, 124–5, 129–31, 133–4, 146–7, 148–9 see also Becker, Gary economic theory Arrow establishes benchmark for, 71 Baumol’s cost disease, 90–92, 93, 94 Coase Theorem, 45–7, 48–55, 56–7, 61, 63–6 and data revolution, 247–50 exclusion of by data geeks, 248–50 and financial markets, 9, 12–13, 182, 253 as focus of economics courses, 260 Kahneman and Tversky’s theory of irrationality, 12, 171, 250–51 of labour, 237 marginal productivity theory, 223–4, 228 Pareto efficiency, 217–18, 256* perfect competition, 103, 193–4 profit-maximizing firms, 228–9 rent-seeking, 230, 238 theory of motivation, 157–8, 164, 166–7, 168–70, 178–9 see also game theory; homo economicus; public choice theory; social choice theory economics accidental economists, 47–8 and Arrow’s framework, 78–9, 82 causes of growth, 223, 239 created markets, 47, 65–7 crises of the 1970s, 85–6 digital technology, 68, 214 efficiency as fundamental, 63, 64–5, 141, 153, 155, 193–4, 201, 211, 217–18, 255 empirical research as still rare, 247–8 extension into non-economic aspects of life, 40, 54–60, 65, 123–31, 132–4, 135–6, 145–50 gulf between reality and theory, 10–13, 31–2, 41–3, 51–3, 64–9, 86–9, 133, 136, 144–5, 228–30, 250–53, 260–61 history of, 260 lack of objective ‘facts’, 253 modern debate on, 9 and Olson’s analysis, 104 our love–hate relationship with, 3, 245 as partially self-fulfilling, 12–13, 14, 159, 253 percentage of GDP impact of climate change, 206–11, 213 positional goods, 239–41 Posner’s wealth-maximization principle, 57–63, 64–7, 137 predatory pricing, 57 principles for new relationship with, 251–61 privatization, 50, 54, 88, 93–4 rise of game theory, 40–41 Smith’s enlightened self-interest, 11 value of human life (‘statistical lives’), 141–5, 207 vocational role of, 260 see also behavioural economics; free-market economics economics, aims/pretensions to be science arrogance of, 205, 245–7, 258 Arrow’s framework presented as scientific, 72, 81–2, 124–5 attitude to value judgements, 10, 60–61, 64–9, 112, 136–8, 173–4, 204–5, 218, 247 claims of game theory, 21, 24–6, 28–9, 32, 34, 35, 38, 41 and data revolution, 247–50 desire for neutral science akin to physics, 9–10, 20–21, 34–5, 41, 116, 125, 132–3, 151, 175–6, 187–90, 212, 217–18, 246–56 desire for science of social control, 153, 154, 155, 164, 167 Friedman’s ‘The Methodology of Positive Economics’, 132–3 hidden political/ethical agendas, 10, 213, 253, 255–8 measurement of risk in numerical terms, 181–4, 187, 189, 190–94, 196–7, 201–2, 203–5, 212–13 natural experiments, 248–50 Pareto improvements, 217–18 and physics envy, 9, 20–21, 41, 116, 175–6, 212, 247 and public choice theorists, 88 quantification of all risks and values, 201–2, 203, 212–13 real world as problem for, 10–13, 31–2, 42–3, 51–3, 64–9, 86–9, 133, 136, 144–5, 228–30, 250–53, 260–61 ‘some number is better than no number’ mantra, 212–13 uncertainty as obstacle to, 190–91, 212–13 and use of mathematics, 9–10, 26, 72, 247, 248, 255, 259 use of term ‘rational’, 12 Von Neumann and Morgenstern’s grand project, 20–21, 24–5, 26, 35, 125, 151, 189 and wealth-maximization approach, 58, 60 economists advice to former Soviet Bloc nations, 257 conflicts of interest, 256–7, 258 data geeks, 248–50 economics curriculum reform needed, 259–60 errors and misjudgements, 13–14, 16, 132–3, 144–5, 256*, 257–8, 260–61 failure to explain ideas, 254–5 insularity of, 246–7 Keynes’ dentistry comparison, 258–9, 261 lack of ethics codes, 257–8 misunderstanding of altruism, 13–14, 25, 31–2, 41–3, 112, 178–9 need to show more humility, 258–9, 260–61 as not separate from economy, 251–3 and ordinary people, 245–6, 254–5, 258, 261 self-image as unsentimental and honest, 10 sneering descriptions of virtuous behaviour, 112 stating of the obvious by, 134, 259 education auctioning of university places, 124, 149–50 Baumol’s cost disease, 91, 92, 93, 94 incentivization as pervasive, 156, 169 value of, 150, 169, 170 ‘efficient market hypothesis’, 193–4, 201, 255 Einstein, Albert, 17, 22, 33, 213 Eisenhower, Dwight D., 19, 20, 231 Ellsberg, Daniel, 182–4, 187, 197–8 Ellsberg Paradox, 184, 199–200 and the ‘Pentagon Papers’, 200 probability experiment (1961), 182–4, 187, 197, 198–200 ‘Risk, Ambiguity and the Savage Axioms’ (paper, 1961), 198–9, 200 Engelbart, Douglas, 222–3 Engels, Friedrich, 223 English, Bill, 222–3 Enlightenment thinking, 11, 185 Epstein, Richard, 127 ethics and morality and autonomy, 164, 165–6, 168, 169–70, 180 bad behaviour redefined as rational, 12 and blame for accidents, 55, 60–61 and Coase Theorem, 46–7, 54–5, 56–7, 61, 63–6 Coasean worldview on pollution, 66–7, 68 as conditioned and limited by economics, 3, 10, 15, 43, 55, 60–61, 64–5, 179, 204–5, 218, 247 cooperative behaviour in game theory, 29, 30–32 core principles of current economic orthodoxy, 253 distinction between values and tastes, 136–8 economists’ language on virtuous behaviour, 112 inequality as moral issue, 242–3 influence of recent economic ideas, 1–3, 15–16 Keynes on economics as moral science, 252–3 law and economics movement, 40, 55, 56–63, 64–7 moral disengagement, 162, 163, 164, 166 morally wrong/corrupting incentives, 168–9 and Nash program, 25 Nudge economists, 173–4, 251 Posner’s wealth-maximization principle, 57–63, 64–7, 137 Puzzle of the Harmless Torturers, 118–19 Ramsey Rule on discounting, 208–9, 212 sale of body parts, 123, 124, 145, 147–8 sidelined by economic imperialism, 125–9, 135–8, 141–5, 146–7, 148–9, 151–2, 207 small contributions as important, 110, 114–15, 122 Smith’s enlightened self-interest, 11 value of human life (‘statistical lives’), 141–5, 207 see also altruism; free-riding behaviour European Commission, 96 Facebook UK, 99 fairness, 1, 149, 218, 228, 253 and Coase, 54, 55 and free-riding behaviour, 107 and game theory, 43 and incentives, 177, 179 and lucky geniuses, 221–3 and Posner’s wealth-maximization principle, 60, 61, 62 see also inequality family life, 127–8, 130–31, 133, 156 famine relief, 99, 114–15 Farmer, Roger, 259 Federal Communications Commission (FCC), 48–9 Ferdinand, Archduke Franz, 185 financial crisis, global (2007–10) Becker on, 128–9 and bell curve thinking, 192, 193–4, 196, 257 ‘blame the regulators’ argument, 1–2 and financial economists, 9, 88, 260–61 persuasive power of extreme numbers, 181–2 and Posner’s wealth-maximization principle, 57 underlying maths of, 194, 195–6 financial markets Bachelier’s theory of speculation, 193 bell curve thinking, 192, 193–4, 195, 196–7, 201, 203–4, 257 benchmarking against the market, 204 Black Monday (1987), 192 deregulation of US banks, 194 derivatives, 253 dot.com bubble, 192, 201 East Asian crisis (1997), 192 and economic theory, 9, 12–13, 182, 253 economists’ ignorance of, 260–61 and First World War, 185 and fractals (scale-invariance), 194, 195–6, 201 orthodox decision theory, 190–91, 193–4, 201 persuasive power of extreme numbers, 181–2, 191, 192 and rent-seekers, 230, 238 rigged pay-for-performance contracts, 229–30, 238 First World War, 185, 210, 211–12 Fisher, Antony, 6–8 Forster, E.

objection, 107, 119–20 Friedman, Milton, 4–5, 56, 69, 84, 88, 126, 189 awarded Nobel Prize, 132 and business responsibility, 2, 152 debate with Coase at Director’s house, 50, 132 as dominant Chicago thinker, 50, 132 on fairness and justice, 60 flawed arguments of, 132–3 influence on modern economics, 131–2 and monetarism, 87, 132, 232 at Mont Pèlerin, 5, 132 rejects need for realistic assumptions, 132–3 Sheraton Hall address (December 1967), 132 ‘The Methodology of Positive Economics’ (essay, 1953), 132–3 ‘The Social Responsibility of Business is to Increase Its Profits’ (article, 1970), 2, 152 Frost, Gerald, Antony Fisher: Champion of Liberty (2002), 7* Galbraith, John Kenneth, 242–3 game theory assumptions of ‘rational behaviour’, 18, 28, 29–32, 35–8, 41–3, 70, 124 Axelrod’s law of the instrument, 41 backward induction procedure, 36–7, 38 and Cold War nuclear strategy, 18, 20, 21–2, 24, 27, 33–4, 35, 70, 73, 198 focus on consequences alone, 43 as form of zombie science, 41 and human awareness, 21–3, 24–32 and interdependence, 23 limitations of, 32, 33–4, 37–40, 41–3 minimax solution, 22 multiplicity problem, 33–4, 35–7, 38 Nash equilibrium, 22–3, 24, 25, 27–8, 33–4, 41–2 the Nash program, 25 and nature of trust, 28–31, 41 the Prisoner’s Dilemma, 26–8, 29–32, 42–3 real world as problem for, 21–2, 24–5, 29, 31–2, 37–8, 39–40, 41–3 rise of in economics, 40–41 and Russell’s Chicken, 33–4 and Schelling, 138–9 and spectrum auctions, 39–40 theory of repeated games, 29–30, 35 tit-for-tat, 30–31 and trust, 29, 30–31, 32, 41 uses of, 23–4, 34, 38–9 view of humanity as non-cooperative/distrustful, 18, 21–2, 25–32, 36–8, 41–3 Von Neumann as father of, 18, 19, 20–22, 25, 26, 28, 30, 34, 41 zero-sum games, 21–2 Gates, Bill, 221–2 Geithner, Tim, 105 gender, 127–8, 130–31, 133, 156 General Electric, 159 General Motors (GM), 215–16 George, Prince of Cambridge, 98 Glass–Steagall Act, repeal of, 194 globalization, 215, 220 Goldman Sachs, 182, 184, 192 Google, 105 Gore, Al, 39 Great Reform Act (1832), 120 greed, 1–2, 196, 197, 204, 229, 238 Greenspan, Alan, 57, 203 Gruber, Jonathan, 245 Haifa, Israel, 158, 161 Harper, ‘Baldy’, 7 Harsanyi, John, 34–5, 40 Harvard Business Review, 153 Hayek, Friedrich and Arrow’s framework, 78–9 economics as all of life, 8 and Antony Fisher, 6–7 influence on Thatcher, 6, 7 and Keynesian economics, 5–6 and legal frameworks, 7* at LSE, 4 at Mont Pèlerin, 4, 5, 6, 15 and Olson’s analysis, 104 and public choice theory, 89 rejection of incentive schemes, 156 ‘spontaneous order’ idea, 30 The Road to Serfdom (1944), 4, 5, 6, 78–9, 94 healthcare, 91–2, 93, 178, 230, 236 hedge funds, 201, 219, 243–4 Heilbroner, Robert, The Worldly Philosophers, 252 Heller, Joseph, Catch-22, 98, 107, 243–4 Helmsley, Leona, 105 hero myths, 221–3, 224 Hewlett-Packard, 159 hippie countercultural, 100 Hoffman, Abbie, Steal This Book, 100 Holmström, Bengt, 229–30 homo economicus, 9, 10, 12, 140, 156–7 and Gary Becker, 126, 129, 133, 136 and behaviour of real people, 15, 136, 144–5, 171, 172, 173, 250–51 and behavioural economics, 170, 171, 172, 255 long shadow cast by, 248 and Nudge economists, 13, 172, 173, 174–5, 177 Hooke, Robert, 223 housing market, 128–9, 196, 240–41 separate doors for poor people, 243 Hume, David, 111 Huxley, Thomas, 114 IBM, 181, 222 identity, 32, 165–6, 168, 180 Illinois, state of, 46–7 immigration, 125, 146 Impossibility Theorem, 72, 73–4, 75, 89, 97 Arrow’s assumptions, 80, 81, 82 and Duncan Black, 77–8 and free marketeers, 78–9, 82 as misunderstood and misrepresented, 76–7, 79–82 ‘paradox of voting’, 75–7 as readily solved, 76–7, 79–80 Sen’s mathematical framework, 80–81 incentives adverse effect on autonomy, 164, 165–6, 168, 169–70, 180 authority figure–autonomy contradiction, 180 and behavioural economics, 171, 175, 176–7 cash and non-cash gifts, 161–2 context and culture, 175–6 contrast with rewards and punishments, 176–7 ‘crowding in’, 176 crowding out of prior motives, 160–61, 162–3, 164, 165–6, 171, 176 impact of economists’ ideas, 156–7, 178–80 and intrinsic motivations, 158–60, 161–3, 164, 165–6, 176 and moral disengagement, 162, 163, 164, 166 morally wrong/corrupting, 168–9 origins in behaviourism, 154 and orthodox theory of motivation, 157–8, 164, 166–7, 168–70, 178–9 payments to blood donors, 162–3, 164, 169, 176 as pervasive in modern era, 155–6 respectful use of, 175, 177–8 successful, 159–60 as tools of control/power, 155–7, 158–60, 161, 164, 167, 178 Indecent Proposal (film, 1993), 168 India, 123, 175 individualism, 82, 117 and Becker, 134, 135–8 see also freedom, individual Industrial Revolution, 223 inequality and access to lifeboats, 150–51 and climate change, 207–9 correlation with low social mobility, 227–8, 243 and demand for positional goods, 239–41 and economic imperialism, 145–7, 148, 151, 207 and efficiency wages, 237–8 entrenched self-deluding justifications for, 242–3 and executive pay, 215–16, 219, 224, 228–30, 234, 238 as falling in 1940–80 period, 215, 216 Great Gatsby Curve, 227–8, 243 hero myths, 221–3, 224 increases in as self-perpetuating, 227–8, 230–31, 243 as increasing since 1970s, 2–3, 215–16, 220–21 and lower growth levels, 239 mainstream political consensus on, 216, 217, 218, 219–21 marginal productivity theory, 223–4, 228 new doctrine on taxation since 1970s, 232–5 and Pareto, 217, 218–19, 220 poverty as waste of productive capacity, 238–9 public attitudes to, 221, 226–8 rises in as not inevitable, 220, 221, 242 role of luck downplayed, 222, 224–6, 243 scale-invariant nature of, 219, 220 ‘socialism for the rich’, 230 Thatcher’s praise of, 216 and top-rate tax cuts, 231, 233–5, 239 trickle-down economics, 232–3 US and European attitudes to, 226–7 ‘you deserve what you get’ belief, 223–6, 227–8, 236, 243 innovation, 222–3, 242 Inside Job (documentary, 2010), 88 Institute of Economic Affairs, 7–8, 15, 162–3 intellectual property law, 57, 68, 236 Ishiguro, Kazuo, Never Let Me Go, 148 Jensen, Michael, 229 Journal of Law and Economics, 49 justice, 1, 55, 57–62, 125, 137 Kahn, Herman, 18, 33 Kahneman, Daniel, 170–72, 173, 179, 202–3, 212, 226 Kennedy, President John, 139–40 Keynes, John Maynard, 11, 21, 162, 186, 204 and Buchanan’s ideology, 87 dentistry comparison, 258–9, 261 on economics as moral science, 252–3 Friedman’s challenge to orthodoxy of, 132 Hayek’s view of, 5–6 massive influence of, 3–4, 5–6 on power of economic ideas, 15 and probability, 185, 186–7, 188–9, 190, 210 vision of the ideal economist, 20 General Theory (1936), 15, 188–9 Khomeini, Ayatollah, 128 Khrushchev, Nikita, 139–40, 181 Kilburn Grammar School, 48 Kildall, Gary, 222 Kissinger, Henry, 184 Knight, Frank, 185–6, 212 Krugman, Paul, 248 Kubrick, Stanley, 35*, 139 labour child labour, 124, 146 and efficiency wages, 237–8 labour-intensive services, 90, 92–3 lumpenproletariat, 237 Olson’s hostility to unions, 104 Adam Smith’s ‘division of labour’ concept, 128 Laffer, Arthur, 232–3, 234 Lancet (medical journal), 257 Larkin, Philip, 67 law and economics movement, 40, 55, 56–63, 64–7 Lazear, Edward, ‘Economic Imperialism’, 246 legal system, 7* and blame for accidents, 55, 60–61 and Chicago School, 49, 50–52, 55 and Coase Theorem, 47, 49, 50–55, 63–6 criminal responsibility, 111, 137, 152 economic imperialist view of, 137 law and economics movement, 40, 55, 56–63, 64–7 ‘mimic the market’ approach, 61–3, 65 Posner’s wealth-maximization principle, 57–63, 64–7, 137 precautionary principle, 211–12, 214 transaction costs, 51–3, 54–5, 61, 62, 63–4, 68 Lehmann Brothers, 194 Lexecon, 58, 68 Linda Problem, 202–3 LineStanding.com, 123 Little Zheng, 123, 124 Lloyd Webber, Andrew, 234–5, 236 lobbying, 7, 8, 88, 115, 123, 125, 146, 230, 231, 238 loft-insulation schemes, 172–3 logic, mathematical, 74–5 The Logic of Life (Tim Harford, 2008), 130 London School of Economics (LSE), 4, 48 Long-Term Capital Management (LTCM), 201, 257 Machiavelli, Niccoló, 89, 94 Mafia, 30 malaria treatments, 125, 149 management science, 153–4, 155 Mandelbrot, Benoît, 195, 196, 201 Mankiw, Greg, 11 marginal productivity theory, 223–4 Markowitz, Harry, 196–7, 201, 213 Marx, Karl, 11, 101, 102, 104, 111, 223 lumpenproletariat, 237 mathematics, 9–10, 17–18, 19, 21–4, 26, 247, 248, 255, 259 of 2007 financial crash, 194, 195–6 and Ken Arrow, 71, 72, 73–5, 76–7, 82–3, 97 axioms (abstract assumptions), 198 fractals (scale-invariance), 194, 195–6, 201, 219 and orthodox decision theory, 190–91, 214 Ramsey Rule on discounting, 208–9, 212 and Savage, 189–90, 193, 197, 198, 199, 205 and Schelling, 139 Sen’s framework on voting systems, 80–81 standard deviation, 182, 192, 194 and stock market statistics, 190–91, 195–6 use of for military ends, 71–2 maximizing behaviour and Becker, 129–31, 133–4, 147 and catastrophe, 211 and Coase, 47, 55, 59, 61, 63–9 economic imperialism, 124–5, 129–31, 133–4, 147, 148–9 Posner’s wealth-maximization principle, 57–63, 64–7, 137 profit-maximizing firms, 228 see also wealth-maximization principle; welfare maximization McCluskey, Kirsty, 194 McNamara, Robert, 138 median voter theorem, 77, 95–6 Merton, Robert, 201 Meucci, Antonio, 222 microeconomics, 9, 232, 259 Microsoft, 222 Miles, David, 258 Mill, John Stuart, 102, 111, 243 minimum wage, national, 96 mobility, economic and social correlation with inequality, 226–8, 243 as low in UK, 227 as low in USA, 226–7 US–Europe comparisons, 226–7 Modern Times (Chaplin film, 1936), 154 modernism, 67 Moivre, Abraham de, 193 monetarism, 87, 89, 132, 232 monopolies and cartels, 101, 102, 103–4 public sector, 48–9, 50–51, 93–4 Mont Pèlerin Society, 3–9, 13, 15, 132 Morgenstern, Oskar, 20–22, 24–5, 28, 35, 124, 129, 189, 190 Mozart, Wolfgang Amadeus, 91, 92–3 Murphy, Kevin, 229 Mussolini, Benito, 216, 219 Nash equilibrium, 22–3, 24, 25, 27–8, 33–4, 41–2 Nash, John, 17–18, 22–3, 24, 25–6, 27–8, 33–4, 41–2 awarded Nobel Prize, 34–5, 38, 39, 40 mental health problems, 25, 26, 34 National Health Service, 106, 162 ‘neoliberalism’, avoidance of term, 3* Neumann, John von ambition to make economics a science, 20–21, 24–5, 26, 35, 125, 151, 189 as Cold War warrior, 20, 26, 138 and expansion of scope of economics, 124–5 as father of game theory, 18, 19, 20–22, 25, 26, 28, 30, 34, 41 final illness and death of, 19, 34, 35, 43–4 genius of, 19–20 as inspiration for Dr Strangelove, 19 and Nash’s equilibrium, 22–3, 25, 38* simplistic view of humanity, 28 theory of decision-making, 189, 190, 203 neuroscience, 14 New Deal, US, 4, 194, 231 Newton, Isaac, 223 Newtonian mechanics, 21, 24–5 Nixon, Richard, 56, 184, 200 NORAD, Colorado Springs, 181 nuclear weapons, 18–19, 20, 22, 27, 181 and Ellsberg, 200 and game theory, 18, 20, 21–2, 24, 27, 33–4, 35, 70, 73, 198 MAD (Mutually Assured Destruction), 35, 138 and Russell’s Chicken, 33–4 and Schelling, 138, 139 Nudge economists, 13, 171–5, 177–8, 179, 180, 251 Oaten, Mark, 121 Obama, Barack, 110, 121, 157, 172, 180 Olson, Mancur, 103, 108, 109, 119–20, 122 The Logic of Collective Action (1965), 103–4 On the Waterfront (Kazan film, 1954), 165 online invisibility, 100* organs, human, trade in, 65, 123, 124, 145, 147–8 Orwell, George, Nineteen Eighty-Four, 42–3 Osborne, George, 233–4 Packard, David, 159 Paine, Tom, 243 Pareto, Vilfredo 80/20 rule’ 218 and inequality, 217, 218–19, 220 life and background of, 216–17 Pareto efficiency, 217–18, 256* Paul the octopus (World Cup predictor, 2010), 133 pensions, workplace, 172, 174 physics envy, 9, 20–21, 41, 116, 175–6, 212, 247 Piketty, Thomas, 234, 235 plastic shopping bag tax, 159–60 Plato’s Republic, 100–101, 122 political scientists and Duncan Black, 78, 95–6 Black’s median voter theorem, 95–6 Buchanan’s ideology, 84–5 crises of the 1970s, 85–6 influence of Arrow, 72, 81–2, 83 see also public choice theory; social choice theory Posner, Richard, 54, 56–63, 137 ‘mimic the market’ approach, 61–3, 65 ‘The Economics of the Baby Shortage’ (1978), 61 precautionary principle, 211–12, 214 price-fixing, 101, 102, 103–4 Princeton University, 17, 19–20 Prisoner’s Dilemma, 26–8, 29–32, 42–3 prisons, cell upgrades in, 123 privatization, 50, 54, 88, 93–4 probability, 182–4 and Keynes, 185, 186–7, 188–9, 210 Linda Problem, 202–3 modern ideas of, 184–5 Ramsey’s personal probabilities (beliefs as probabilities), 187–8, 190, 197, 198, 199, 204–5 and Savage, 190, 193, 197, 198, 199, 203, 205 ‘Truth and Probability’ (Ramsey paper), 186–8, 189, 190 see also risk and uncertainty Proceedings of the National Academy of Sciences, 22 productivity Baumol’s cost disease, 90–92, 93, 94 and efficiency wages, 237–8 improvement in labour-intensive services, 92–3 labour input, 92 protectionism, 246, 255 psychology availability heuristic, 226 behaviourism, 154–8, 237 and behavioural economics, 12, 170–71 cognitive dissonance, 113–14 and financial incentives, 156–7, 158–60, 163–4, 171 framing effects, 170–71, 259 of free-riding, 113–14, 115 intrinsic motivations, 158–60, 161–3, 164, 165–6, 176 irrational behaviour, 12, 15, 171 learning of social behaviour, 163–4 moral disengagement, 162, 163, 164, 166 motivated beliefs, 227 ‘self-command’ strategies, 140 view of in game theory, 26–31 view of in public choice theory, 85–6 and welfare maximization, 149 ‘you deserve what you get’ belief, 223–6, 227–8, 236, 243 public choice theory as consensus view, 84–5 and crises of the 1970s, 85–6 foolish voter assumption, 86–8 ‘paradox of voter turnout’, 88–9, 95–6, 115–16 partial/self-contradictory application of, 86, 87–9 ‘political overload’ argument, 85, 86–7 ‘public bad, private good’ mantra, 93–4, 97 and resistance to tax rises, 94, 241 self-fulfilling prophecies, 95–7 and selfishness, 85–6, 87–8, 89, 94, 95–7 as time-bomb waiting to explode, 85 public expenditure in 1970s and ’80s, 89 Baumol’s cost disease, 90–92, 93, 94 and Keynesian economics, 4 and public choice theory, 85–8, 89, 241 and tax rises, 241–2 public-sector monopolies, 48–9, 50–51, 93–4 Puzzle of the Harmless Torturers, 118–19 queue-jumping, 123, 124 QWERTY layout, 42 racial discrimination, 126–7, 133, 136, 140 Ramsey, Frank, 186–8, 189, 190, 205, 208 Ramsey Rule, 208–9, 212 RAND Corporation, 17, 41, 103, 138, 139 and Ken Arrow, 70–71, 72–3, 74, 75–6, 77, 78 and behaviourism, 154 and Cold War military strategy, 18, 20, 21–2, 24, 27, 33–4, 70, 73, 75–6, 141, 200, 213 and Ellsberg, 182–4, 187, 197–8, 200 and Russell’s Chicken, 33 Santa Monica offices of, 18 self-image as defender of freedom, 78 rational behaviour assumptions in game theory, 18, 28, 29–32, 35–8, 41–3, 70, 124 axioms (abstract mathematical assumptions), 198 Becker’s version of, 128–9, 135, 140, 151 behavioural economics/Nudge view of, 173, 174–5 distinction between values and tastes, 136–8 economic imperialist view of, 135, 136–8, 140, 151 and free-riding theory, 100–101, 102, 103–4, 107–8, 109–10, 115–16 and orthodox decision theory, 198, 199 public choice theory relates selfishness to, 86 term as scientific-sounding cover, 12 see also homo economicus Reader’s Digest, 5, 6 Reagan, Ronald, 2, 87–8, 89, 104, 132 election of as turning point, 6, 216, 220–21 and top-rate tax cuts, 231, 233 regulators, 1–2 Chicago view of, 40 Reinhart, Carmen, 258 religion, decline of in modern societies, 15, 185 renewable energy, 116 rent-seeking, 230, 238 ‘right to recline’, 63–4 risk and uncertainty bell curve distribution, 191–4, 195, 196–7, 201, 203–4, 257 catastrophes, 181–2, 191, 192, 201, 203–4, 211–12 delusions of quantitative ‘risk management’, 196, 213 Ellsberg’s experiment (1961), 182–4, 187, 197, 198–200 errors in conventional thinking about, 191–2, 193–4, 195–7, 204–5, 213 financial orthodoxy on risk, 196–7, 201–2 and First World War, 185 and fractals (scale-invariance), 194, 195–6, 201 hasard and fortuit, 185* ‘making sense’ of through stories, 202–3 ‘measurable’ and ‘unmeasurable’ distinction, 185–6, 187–9, 190, 210–11, 212–13 measurement in numerical terms, 181–4, 187, 189, 190–94, 196–7, 201–2, 203–5, 212–13 orthodox decision theory, 183–4, 185–6, 189–91, 193–4, 201–2, 203–5, 211, 212–14 our contemporary orthodoxy, 189–91 personal probabilities (beliefs as probabilities), 187–8, 190, 197, 198, 199, 204–5 precautionary principle, 211–12, 214 pure uncertainty, 182–3, 185–6, 187–9, 190, 197, 198–9, 210, 211, 212, 214, 251 redefined as ‘volatility’, 197, 213 the Savage orthodoxy, 190–91, 197, 198–200, 203, 205 scenario planning as crucial, 251 Taleb’s black swans, 192, 194, 201, 203–4 ‘Truth and Probability’ (Ramsey paper), 186–8, 189, 190 urge to actuarial alchemy, 190–91, 197, 201 value of human life (‘statistical lives’), 141–5, 207 see also probability Robertson, Dennis, 13–14 Robinson, Joan, 260 Rodrik, Dani, 255, 260–61 Rogoff, Ken, 258 Rothko, Mark, 4–5 Rumsfeld, Donald, 232–3 Russell, Bertrand, 33–4, 74, 97, 186, 188 Ryanair, 106 Sachs, Jeffrey, 257 Santa Monica, California, 18 Sargent, Tom, 257–8 Savage, Leonard ‘Jimmie’, 189–90, 193, 203, 205scale-invariance, 194, 195–6, 201, 219 Scandinavian countries, 103, 149 Schelling, Thomas, 35* on access to lifeboats, 150–51 awarded Nobel Prize, 138–9 and Cold War nuclear strategy, 138, 139–40 and economic imperialism, 141–5 and game theory, 138–9 and Washington–Moscow hotline, 139–40 work on value of human life, 141–5, 207 ‘The Intimate Contest for Self-command’ (essay, 1980), 140, 145 ‘The Life You Save May be Your Own’ (essay, 1968), 142–5, 207 Schiphol Airport, Amsterdam, 172 Schmidt, Eric, 105 Scholes, Myron, 201 Schwarzman, Stephen, 235 Second World War, 3, 189, 210 selfishness, 41–3, 178–9 and Becker, 129–30 and defence of inequality, 242–3 as free marketeers’ starting point, 10–12, 13–14, 41, 86, 178–9 and game theory, 18 and public choice theory, 85–6, 87–8, 89, 94, 95–7 Selten, Reinhard, 34–5, 36, 38, 40 Sen, Amartya, 29, 80–81 service sector, 90–93, 94 Shakespeare, William, Measure for Measure, 169 Shaw, George Bernard, 101 Shiller, Robert, 247 Simon, Herbert, 223 Skinner, Burrhus, 154–5, 158 Smith, Adam, 101, 111, 122 The Wealth of Nations (1776), 10–11, 188–9 snowflakes, 195 social choice theory, 72 and Ken Arrow, 71–83, 89, 95, 97, 124–5, 129 and Duncan Black, 78, 95 and free marketeers, 79, 82 Sen’s mathematical framework, 80–81 social media, 100* solar panels, 116 Solow, Bob, 163, 223 Sorites paradox, 117–18, 119 sovereign fantasy, 116–17 Soviet Union, 20, 22, 70, 73, 82, 101, 104, 167, 237 spectrum auctions, 39–40, 47, 49 Stalin, Joseph, 70, 73, 101 the state anti-government attitudes in USA, 83–5 antitrust regulation, 56–8 dismissal of almost any role for, 94, 135, 235–6, 241 duty over full employment, 5 economic imperialist arguments for ‘small government’, 135 increased economic role from 1940s, 3–4, 5 interventions over ‘inefficient’ outcomes, 53 and monetarism, 87, 89 and Mont Pèlerin Society, 3, 4, 5 and privatization, 50, 54, 88, 93–4 public-sector monopolies, 48–50, 93–4 replacing of with markets, 79 vital role of, 236 statistical lives, 141–5, 207 Stern, Nick, 206, 209–10 Stigler, George, 50, 51, 56, 69, 88 De Gustibus Non Est Disputandum (with Becker, 1977), 135–6 Stiglitz, Joseph, 237 stock markets ‘Black Monday’ (1987), 192 and fractals (scale-invariance), 194, 195–6, 201 orthodox decision theory, 190–91, 193–4, 201 Strittmatter, Father, 43–4 Summers, Larry, 10, 14 Sunstein, Cass, 173 Nudge (with Richard Thaler, 2008), 171–2, 175 Taleb, Nassim, 192 Tarski, Alfred, 74–5 taxation and Baumol’s cost disease, 94 and demand for positional goods, 239–41 as good thing, 231, 241–2, 243 Laffer curve, 232–3, 234 new doctrine of since 1970s, 232–4 property rights as interdependent with, 235–6 public resistance to tax rises, 94, 239, 241–2 and public spending, 241–2 revenue-maximizing top tax rate, 233–4, 235 tax avoidance and evasion, 99, 105–6, 112–13, 175, 215 ‘tax revolt’ campaigns (1970s USA), 87 ‘tax as theft’ culture, 235–6 top-rate cuts and inequality, 231, 233–5, 239 whines from the super-rich, 234–5, 243 Taylor, Frederick Winslow, 153–4, 155, 167, 178, 237 Thaler, Richard, 13 Nudge (with Cass Sunstein, 2008), 171–2, 175 Thatcher, Margaret, 2, 88, 89, 104, 132 election of as turning point, 6, 216, 220–21 and Hayek, 6, 7 and inequality, 216, 227 privatization programme, 93–4 and top-rate tax cuts, 231 Theory of Games and Economic Behavior (Von Neumann and Morgenstern, 1944), 20, 21, 25, 189 Titanic, sinking of (1912), 150 Titmuss, Richard, The Gift Relationship, 162–3 tobacco-industry lobbyists, 8 totalitarian regimes, 4, 82, 167–8, 216, 219 see also Soviet Union trade union movement, 104 Tragedy of the Commons, 27 Truman, Harry, 20, 237 Trump, Donald, 233 Tucker, Albert, 26–7 Tversky, Amos, 170–72, 173, 202–3, 212, 226 Twitter, 100* Uber, 257 uncertainty see risk and uncertainty The Undercover Economist (Tim Harford, 2005), 130 unemployment and Coase Theorem, 45–7, 64 during Great Depression, 3–4 and Keynesian economics, 4, 5 United Nations, 96 universities auctioning of places, 124, 149–50 incentivization as pervasive, 156 Vietnam War, 56, 198, 200, 249 Villari, Pasquale, 30 Vinci, Leonardo da, 186 Viniar, David, 182, 192 Volkswagen scandal (2016), 2, 151–2 Vonnegut, Kurt, 243–4 voting systems, 72–4, 77, 80, 97 Arrow’s ‘Independence of Irrelevant Alternatives’, 81, 82 Arrow’s ‘Universal Domain’, 81, 82 and free marketeers, 79 ‘hanging chads’ in Florida (2000), 121 recount process in UK, 121 Sen’s mathematical framework, 80–81 Waldfogel, Joel, 161* Wanniski, Jude, 232 Watertown Arsenal, Massachusetts, 153–4 Watson Jr, Thomas J., 181 wealth-maximization principle, 57–63 and Coase, 47, 55, 59, 63–9 as core principle of current economics, 253 created markets, 65–7 extension of scope of, 124–5 and justice, 55, 57–62, 137 and knee space on planes, 63–4 practical problems with negotiations, 62–3 and values more important than efficiency, 64–5, 66–7 welfare maximization, 124–5, 129–31, 133–4, 148–9, 176 behavioural economics/Nudge view of, 173 and vulnerable/powerless people, 146–7, 150 welfare state, 4, 162 Wilson, Charlie, 215 Wittgenstein, Ludwig, 186, 188 Wolfenschiessen (Swiss village), 158, 166–7 Woolf, Virginia, 67 World Bank, 96 World Cup football tournament (2010), 133 World Health Organization, 207 Yale Saturday Evening Pest, 4–5 Yellen, Janet, 237 THE BEGINNING Let the conversation begin … Follow the Penguin twitter.com/penguinukbooks Keep up-to-date with all our stories youtube.com/penguinbooks Pin ‘Penguin Books’ to your pinterest.com/penguinukbooks Like ‘Penguin Books’ on facebook.com/penguinbooks Listen to Penguin at soundcloud.com/penguin-books Find out more about the author and discover more stories like this at penguin.co.uk ALLEN LANE UK | USA | Canada | Ireland | Australia India | New Zealand | South Africa Allen Lane is part of the Penguin Random House group of companies whose addresses can be found at global.penguinrandomhouse.com First published 2019 Copyright © Jonathan Aldred, 2019 The moral right of the author has been asserted Jacket photograph © Getty Images ISBN: 978-0-241-32544-5 This ebook is copyright 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pages: 306 words: 78,893

After the New Economy: The Binge . . . And the Hangover That Won't Go Away by Doug Henwood

"Robert Solow", accounting loophole / creative accounting, affirmative action, Asian financial crisis, barriers to entry, borderless world, Branko Milanovic, Bretton Woods, business cycle, capital controls, corporate governance, corporate raider, correlation coefficient, credit crunch, deindustrialization, dematerialisation, deskilling, ending welfare as we know it, feminist movement, full employment, gender pay gap, George Gilder, glass ceiling, Gordon Gekko, greed is good, half of the world's population has never made a phone call, income inequality, indoor plumbing, intangible asset, Internet Archive, job satisfaction, joint-stock company, Kevin Kelly, labor-force participation, liquidationism / Banker’s doctrine / the Treasury view, manufacturing employment, means of production, minimum wage unemployment, Naomi Klein, new economy, occupational segregation, pets.com, post-work, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, statistical model, structural adjustment programs, Telecommunications Act of 1996, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, total factor productivity, union organizing, War on Poverty, women in the workforce, working poor, zero-sum game

But another function of the New Economy discourse was apologetic and/or disciplinary. In an article on union battles with Verizon Communications over the growth of the firm's nonunion operations, particularly in wireless, New York Times reporter Steven Greenhouse (2000) described it as "a struggle, stripped to its essentials, [that] pits old-line labor against the New Economy." That's one way to read it. You could also read it as a classic labor-management battle, with a profit-maximizing firm favoring a new nonunion subsidiary over an old, unionized one. But Greenhouse's interpretation—assisted by the phrase "stripped to its essentials," which is pretty devious, given that he's adding spin, not stripping anything away— gives the nonunion strategy the cachet of newness and the inevitabiHty of technological progress, making the unions seem Hke stodgy holdovers. And, as Adrian Lucas of the Zurich-based financial software house Actant AG put it in an unpublished interview with the Dutch journalist Geert Lovink, the New^ Economy discourse "is primarily a form of disciplining entrants to the labour market.

Firms operating internationally show a lower return on assets and a lower stock market value relative to assets than do otherwise similar domestic firms. Companies that export from their home base, however, show superior performance. In this analysis, multinationahzation looks Hke a poor substitute for old-fashioned exports. Reasons are unclear, but it may be that managers of MNCs are more interested in empire-building than in profit maximization. Even if this conclusion is overstated, there's Httle evidence that going worldwide is the profit-sweUing strategy that both antiglobalizers and business ideologues assume. On the facing page is a table showing the location and profitabihty of foreign investments by U.S. multinationals. A couple of points stand out from the colorless mass of numbers. First, such investments are overwhelmingly located in rich countries.

Galbraith's stockholders were almost vestigial, a "purely pecuniary association" divorced from management, too numerous and dispersed to have any influence. When displeased with "their" corporation, they would sell the stock rather than pick a fight wdth management. Stockholder rebellion among large corporations was "so rare that it can be ignored," because trouble-free profitabihty was the norm. Galbraith's corporation was run by a "technostructure" of suits and geeks. Profit maximization was a thing of the 1960s past. To Galbraith, high profits would only be passed along to shareholders and would undoubtedly come only with an increase in risk. Pay was relatively modest and unconnected to the stock price. Secure mediocrity was the goal. Galbraith's corporation had become subservient to the larger society and the state, with the state providing economic stabilization and an educated workforce.


pages: 457 words: 125,329

Value of Everything: An Antidote to Chaos The by Mariana Mazzucato

"Robert Solow", activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, bank run, banks create money, Basel III, Berlin Wall, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, business cycle, butterfly effect, buy and hold, Buy land – they’re not making it any more, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, cleantech, Corn Laws, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, European colonialism, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, full employment, G4S, George Akerlof, Google Hangouts, Growth in a Time of Debt, high net worth, Hyman Minsky, income inequality, index fund, informal economy, interest rate derivative, Internet of things, invisible hand, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour market flexibility, laissez-faire capitalism, light touch regulation, liquidity trap, London Interbank Offered Rate, margin call, Mark Zuckerberg, market bubble, means of production, money market fund, negative equity, Network effects, new economy, Northern Rock, obamacare, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, peer-to-peer lending, Peter Thiel, profit maximization, quantitative easing, quantitative trading / quantitative finance, QWERTY keyboard, rent control, rent-seeking, Sand Hill Road, shareholder value, sharing economy, short selling, Silicon Valley, Simon Kuznets, smart meter, Social Responsibility of Business Is to Increase Its Profits, software patent, stem cell, Steve Jobs, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, transaction costs, two-sided market, very high income, Vilfredo Pareto, wealth creators, Works Progress Administration, zero-sum game

In sharp contrast to Friedman and Michael Jensen, who advocated strongly that a company succeeds simply through profit maximization, a stakeholder view emphasizes the social relationships between management and employees, between the company and the community, the quality of the products produced, and so on. These relationships give the company social goals as well as financial ones. Together they can create more sustainable ‘competitive advantage'. And because value is created collectively, through investments of resources by a multitude of actors, it should also be distributed more collectively - not just to the shareholders. In contrast to MSV and its goal of short-term profit maximization and its marginalization of human capital and R&D, stakeholder value sees people not just as inputs but as essential contributors who need to be nurtured.

In 1970, Milton Friedman published in the New York Times Magazine an article which became the founding text of the shareholder value movement and, in many ways, of corporate management in general. Titled ‘The Social Responsibility of Business Is to Increase its Profits', Friedman's article advanced the idea that America's economic performance was declining because a cardinal principle of mainstream economics - that firms maximize profits - was being violated. There was no longer any punishment for managers who failed to profit-maximize. Shareholders could not inflict such punishment because they were too dispersed and uncoordinated; and markets could not do so, because listed companies had monopoly power and would not be assailed by new competitors if their costs and prices drifted upwards. Some 1960s economists had viewed ‘managerialism' as potentially good for society, if bosses allowed profit to be eroded by paying better wages to employees, meeting higher environmental or health and safety standards and investing more in new products.

But this is almost impossible in a context in which government ‘failure' is deemed the worst of all sins, and in which the guns are loaded, waiting for government to make the slightest mistake. This does not of course mean that mistakes should be welcome under any conditions. Mistakes that arise from rent-seeking behaviour can lead to vested interests influencing government. As we know, rent occurs when value is extracted through special privileges, for example a subsidy or tax break, and when a company or individual grabs a large share of wealth without having created it. Profit-maximizing firms can try to increase their profits by soliciting special policy-related favours, and are often successful because politicians and policymakers are open to influence and even corruption. The possibility of this sort of capture (of government by vested interests) is a problem, but it becomes even more acute when there is no clear appreciation of government value. If the state is seen as irrelevant, it will over time also become less confident and more easily corrupted by the so-called ‘wealth creators' - who can then convince policymakers to hand out favours which increase their wealth and power.


Financial Statement Analysis: A Practitioner's Guide by Martin S. Fridson, Fernando Alvarez

business cycle, corporate governance, credit crunch, discounted cash flows, diversification, Donald Trump, double entry bookkeeping, Elon Musk, fixed income, information trail, intangible asset, interest rate derivative, interest rate swap, negative equity, new economy, offshore financial centre, postindustrial economy, profit maximization, profit motive, Richard Thaler, shareholder value, speech recognition, statistical model, time value of money, transaction costs, Y2K, zero-coupon bond

At such times, organizations rationalize their behavior by persuading themselves that the principles of interpreting financial statements have fundamentally changed. Analysts need not go to the extreme of resigning in protest, but they will benefit if they can avoid getting caught up in the prevailing delusion. To be sure, organizational behavior has not been entirely overlooked up until now in the literature of financial statement analysis. Typically, academic studies depict issuers as profit-maximizing firms, inclined to overstate their earnings if they can do so legally and if they believe it will boost their equity market valuation. This model lags behind the portrait of the firm now prevalent in other branches of finance.16 Instead of a monolithic organization that consistently pursues the clear-cut objective of share price maximization, the corporation is now viewed more realistically as an aggregation of individuals with diverse motivations.

To say that no perfect system can be designed, however, is quite different from saying that existing provisions for issuing financial accounting standards, conducting audits, and policing fraud are as good as real-world conditions permit. The present system is not the product of objective analysis by panels of experts driven solely by a desire to provide accurate and transparent financial statements to the public. On the contrary, the design of the rule-making bodies and the rules they issue are outcomes of fierce political struggles. Auditing firms are profit-maximizing businesses that face unavoidable conflicts between upholding professional standards, on the one hand, and retaining clients and controlling costs, on the other. Given these facts, individual cases of audit failure cannot be viewed as isolated incidents. A systematic component perpetuates financial misreporting, despite reforms that periodically emerge in reaction to exceptionally shocking accounting scandals.

As the reform process drags on, popular anger over accounting issues tends to subside, as the public's attention shifts to new controversies in other areas of legislation and regulation. With attention diverted from reform of the accounting system, persistent lobbying by corporations and auditors waters down the original sweeping proposals. Systematic problems in the audit process arise not only from the regulatory structure but also from the business strategies of profit-maximizing accounting firms.14 The problem dates back to the 1970s, when the American Institute of Certified Public Accountants lifted a ban on auditors advertising their services, soliciting rival firms’ clients unless invited, and participating in competitive bids for business. This change resulted from a federal government crackdown on such rules within professions, deeming them anticompetitive and threatening to launch antitrust suits to abolish them.


pages: 386 words: 122,595

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated) by Charles Wheelan

"Robert Solow", affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, business cycle, buy and hold, capital controls, Cass Sunstein, central bank independence, clean water, collapse of Lehman Brothers, congestion charging, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, Daniel Kahneman / Amos Tversky, David Brooks, demographic transition, diversified portfolio, Doha Development Round, Exxon Valdez, financial innovation, fixed income, floating exchange rates, George Akerlof, Gini coefficient, Gordon Gekko, greed is good, happiness index / gross national happiness, Hernando de Soto, income inequality, index fund, interest rate swap, invisible hand, job automation, John Markoff, Joseph Schumpeter, Kenneth Rogoff, libertarian paternalism, low skilled workers, Malacca Straits, market bubble, microcredit, money market fund, money: store of value / unit of account / medium of exchange, Network effects, new economy, open economy, presumed consent, price discrimination, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, race to the bottom, RAND corporation, random walk, rent control, Richard Thaler, rising living standards, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Sam Peltzman, school vouchers, Silicon Valley, Silicon Valley startup, South China Sea, Steve Jobs, The Market for Lemons, the rule of 72, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, transcontinental railway, trickle-down economics, urban sprawl, Washington Consensus, Yogi Berra, young professional, zero-sum game

Instead, the Gap, like most other firms, has some degree of market power, which means very simply that the Gap has some control over what it can charge. The Gap could sell sweatshirts for $9.99, eking out a razor-thin profit on each. Or it could sell far fewer sweatshirts for $29.99, but make a hefty profit on each. If you were in the mood to do calculus at the moment, or I had any interest in writing about it, then we would find the profit-maximizing price right now. I’m pretty sure I had to do it on a final exam once. The basic point is that the Gap will attempt to pick a price that leads to the quantity of sales that earn the company the most money. The marketing executives may err either way: They may underprice the items, in which case they will sell out; or they may overprice the items, in which case they will have a warehouse full of sweatshirts.

Al Gore complained during the 2000 presidential campaign that his mother and his dog were taking the same arthritis medication but that his mother paid much more for her prescription. Never mind that he made up the story after reading about the pricing disparity between humans and canines. The example is still perfect. There is nothing surprising about the fact that the same medicine will be sold to dogs and people at different prices. It’s airline seats all over again. People will pay more for their own medicine than they will for their pet’s. So the profit-maximizing strategy is to charge one price for patients with two legs and another price for patients with four. Price discrimination will become even more prevalent as technology enables firms to gather more information about their customers. It is now possible, for example, to charge different prices to customers ordering on-line rather than over the phone. Or, a firm can charge different prices to different on-line customers depending on the pattern of their past purchases.

Try explaining the benefits of globalization to shoe workers in Maine who have lost jobs because their plant moved to Vietnam. (Remember, I was the speechwriter for the governor of Maine; I have tried to explain that.) Trade, like technology, can destroy jobs, particularly low-skilled jobs. If a worker in Maine earns $14 an hour for something that can be done in Vietnam for $1 an hour, then he had better be 14 times as productive. If not, a profit-maximizing firm will choose Vietnam. Poor countries lose jobs, too. Industries that have been shielded from international competition for decades, and have therefore adopted all the bad habits that come from not having to compete, can be crushed by ruthlessly efficient competition from abroad. How would you like to have been the producer of Thumbs-Up Cola in India when Coca-Cola entered the market in 1994?


pages: 596 words: 163,682

The Third Pillar: How Markets and the State Leave the Community Behind by Raghuram Rajan

activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, airline deregulation, Albert Einstein, Andrei Shleifer, banking crisis, barriers to entry, basic income, battle of ideas, Bernie Sanders, blockchain, borderless world, Bretton Woods, British Empire, Build a better mousetrap, business cycle, business process, capital controls, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, computer vision, conceptual framework, corporate governance, corporate raider, corporate social responsibility, creative destruction, crony capitalism, crowdsourcing, cryptocurrency, currency manipulation / currency intervention, data acquisition, David Brooks, Deng Xiaoping, desegregation, deskilling, disruptive innovation, Donald Trump, Edward Glaeser, facts on the ground, financial innovation, financial repression, full employment, future of work, global supply chain, high net worth, housing crisis, illegal immigration, income inequality, industrial cluster, intangible asset, invention of the steam engine, invisible hand, Jaron Lanier, job automation, John Maynard Keynes: technological unemployment, joint-stock company, Joseph Schumpeter, labor-force participation, low skilled workers, manufacturing employment, market fundamentalism, Martin Wolf, means of production, moral hazard, Network effects, new economy, Nicholas Carr, obamacare, Productivity paradox, profit maximization, race to the bottom, Richard Thaler, Robert Bork, Robert Gordon, Ronald Reagan, Sam Peltzman, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South China Sea, South Sea Bubble, Stanford marshmallow experiment, Steve Jobs, superstar cities, The Future of Employment, The Wealth of Nations by Adam Smith, trade liberalization, trade route, transaction costs, transfer pricing, Travis Kalanick, Tyler Cowen: Great Stagnation, universal basic income, Upton Sinclair, Walter Mischel, War on Poverty, women in the workforce, working-age population, World Values Survey, Yom Kippur War, zero-sum game

Yet, when an enormous source of independent power, the private sector, is passive, or worse, rendered suspect in the eyes of the community because its every action has to be in pursuit of corporate profits, there are fewer checks on the arbitrary power of the state. Clearly, corporations are not meant to be political organizations, and should not attempt to be so. Nevertheless, they ought to stand up and be counted when the fundamental tenets of society are at risk, for in the long run, this will affect everyone’s ability to make profits. An overly narrow focus on firm profit maximization will ensure that when needed, many will be missing in action. The renewed emphasis on individualism, on profits, and on rolling back the state, as exemplified by Friedman’s dictum, certainly raised efficiency initially. The roll back has been selective, though, typically favoring powerful large private players at the expense of weaker smaller ones. This could affect economic dynamism in the longer run, further exacerbating inequality of opportunity and outcomes.

Finally, we should also note that the somewhat more diffused management incentives in Europe relative to the United States have not helped it avoid scandals. Volkswagen doctored emission test results for its diesel cars, while many European banks were also fined for misleading customers. In an integrated world, behavioral norms do spill over between leading firms. The larger difference between the Anglo-American economies and continental Europe is that the former elevated the deregulated profit-maximizing free market onto a pedestal, while the latter has been more skeptical of its behavioral aberrations. Europe has not gotten all the efficiency benefits that it could from the unfettered market, but neither has society been undermined as much by the accompanying ideology. AND MISTAKES MADE . . . Perhaps the most important mistakes Europe made were where it took the largest steps—on integration.

Competition today in an industry is the best way to guarantee society is benefited, not just today but also in the future. We have to examine and reduce barriers to competition, including new forms of incumbent property rights that have built up in recent years. Finally, policies can help jump-start adjustment but both the market and the community will also adjust on their own over time. They should be given the space and time to do so. CHANGING FROM PROFIT MAXIMIZATION TO VALUE MAXIMIZATION We have seen that along with the search for more productive efficiency, shareholder value maximization also encourages aberrant behavior, such as violating implicit contracts with employees. Can corporations not do better? If the private sector is to be trusted by the community, and if it is to be a reliable check on the state, it does not just have to be well behaved, it has to be seen to be well behaved.


pages: 607 words: 133,452

Against Intellectual Monopoly by Michele Boldrin, David K. Levine

"Robert Solow", accounting loophole / creative accounting, agricultural Revolution, barriers to entry, business cycle, cognitive bias, creative destruction, David Ricardo: comparative advantage, Dean Kamen, Donald Trump, double entry bookkeeping, en.wikipedia.org, endogenous growth, Ernest Rutherford, experimental economics, financial innovation, informal economy, interchangeable parts, invention of radio, invention of the printing press, invisible hand, James Watt: steam engine, Jean Tirole, John Harrison: Longitude, Joseph Schumpeter, Kenneth Arrow, linear programming, market bubble, market design, mutually assured destruction, Nash equilibrium, new economy, open economy, peer-to-peer, pirate software, placebo effect, price discrimination, profit maximization, rent-seeking, Richard Stallman, Silicon Valley, Skype, slashdot, software patent, the market place, total factor productivity, trade liberalization, transaction costs, Y2K

It is a different and arguably more pernicious source of social inefficiency than the previous three, as it operates invisibly: how much innovation and productivity growth could have taken place in the software industry if Microsoft had not succeeded in stifling innovation is very hard to imagine, let alone quantify. This form of inefficiency is specific to the kind of monopoly power that patents and copyrights bring about. Being its “discoverers,” we will christen it “IP-inefficiency” and illustrate its working by means of a few significant examples. The theory of why IP-efficiency comes about is rather simple: like every profit maximizing entrepreneur, monopolists are willing and able to do anything legally and technically feasible to retain their monopoly profits. Later in the book, we talk about the Schumpeterian model of dynamic efficiency via creative destruction. This model dreams of a continuous flow of innovation due to new entrants overtaking incumbents and becoming monopolists until new innovators quickly take their place.

Lo himself points out that the main channel through which the Taiwanese reform had a positive effect was by fostering foreign direct investment in Taiwan, especially in those sectors in which patents are widely used. This is an important point, which deserves a separate comment. In a world in which strong patent protection in some countries coexists with weak protection in others, a country that increases patent protection should observe an increase in the inflow of foreign investment, especially in those sectors where patented technologies are used. Profit-maximizing entrepreneurs always choose to operate in those legal environments where their rights are the strongest. In the United States, for example, economists and people with common sense alike have long argued that the policy of offering tax incentives and subsidies to companies that relocate in one state or another is not a good policy for the United States as a whole. Nobody denies that if you provide a company with high-enough subsidies and tax incentives, it will probably take them and relocate to your state, at least temporarily.

The argument goes as follows: monopoly power allows price discrimination – that is, the sale of the same good for a high price to people valuing it a lot (usually people richer than average) and for a low price to people valuing it little (usually people poorer than average). As a result of the absence of patent protection, there are very many new drugs that are not marketed in poor countries by their original producer, as the latter is not protected by reliable patents in that country. If it were, the profit-maximizing monopolist would have an incentive to quickly introduce those drugs, at prices lower than in rich countries, also in poor countries. This would increase the welfare of the poor country’s residents, as they would receive the medicine earlier rather than later. Although the argument sounds perfectly logical (leave aside the issue of how large the gains from this earlier marketing of new medicines would be), there are two points its advocates either do not notice or underplay.


pages: 165 words: 48,594

Democracy at Work: A Cure for Capitalism by Richard D. Wolff

asset-backed security, Bernie Madoff, business cycle, collective bargaining, Credit Default Swap, declining real wages, feminist movement, financial intermediation, Howard Zinn, income inequality, John Maynard Keynes: technological unemployment, laissez-faire capitalism, means of production, moral hazard, mortgage debt, Occupy movement, Ponzi scheme, profit maximization, quantitative easing, race to the bottom, Ronald Reagan, too big to fail, trickle-down economics, wage slave, women in the workforce, Works Progress Administration

It does this by taxing their activities (earning income, owning wealth, spending money, and so on) and by making rules governing those activities. However, the real contents and effects of government regulations depend on the interests that govern their design and implementation. The New Deal–era taxes on business and the rich and regulations of enterprise behavior proved vulnerable and unsustainable. The enemies of the New Deal had the incentives (profit maximization) and the resources (their returns on investments) to undo many of its reforms after World War II, with ever-greater effect in the period since the 1970s. They systematically evaded, then weakened, the taxes and regulations of the New Deal, and eventually, when politically possible, eliminated them altogether. Business profits funded the parties, politicians, public relations campaigns, and professional think tanks that together shaped the real social effects and historical decline of government economic regulation.

The vast preponderance of political, media, and intellectual discussions swirled around the pros and cons of programs to stimulate or encourage or provide incentives for private employers to hire more people. The fact that from 2009 to 2012, such programs failed to diminish unemployment in any serious way (let alone end it) did not lead to proposals to fashion contemporary equivalents of Roosevelt’s federal employment program. Capitalist economies, including that of the United States, have a long history of limiting, regulating, or socializing enterprises and industries whose profit-maximizing strategies risk undermining those of capitalist enterprises collectively. Thus, to take but a few examples, transportation and communication industries have been managed in this way across many societies. In the United States, every one of the fifty states has an insurance commission to monitor and regulate profits of enterprises in that industry—after a long experience of its negative consequences for other capitalist industries and society as a whole generated outcries and alliances strong enough to impose commissions on the insurance industry.


pages: 167 words: 50,652

Alternatives to Capitalism by Robin Hahnel, Erik Olin Wright

affirmative action, basic income, crowdsourcing, inventory management, iterative process, Kickstarter, loose coupling, means of production, Pareto efficiency, profit maximization, race to the bottom, transaction costs

The Solidarity Economy The “solidarity economy” goes beyond other forms of social empowerment by constituting an alternative way of directly organizing economic activity that is distinct from capitalist market production, state organized production, and household production (Figure 11).6 Its hallmark is production organized by collectivities directly to satisfy human needs not subject to the discipline of profit-maximization or state-technocratic rationality. The state may be involved in funding these collectivities, but it does not directly organize them or their services.7 The system of child daycare provision in Quebec is a good example. In 2008 parents only paid seven Canadian dollars per day for full-time daycare for preschool children provided by community-based nonprofit daycare center, but provincial government subsidies ensured that providers were paid a living wage.

What sustainability requires is that the participants’ commitment to the institutions is not undermined by the effects of its operation. 4Throughout this paper I will address my comments strictly to Robin’s writing on participatory economics. I recognize, of course, that many of the ideas were developed jointly with Michael Albert. 5Like Robin, I reject the narrow meaning of efficiency adopted by many economists as the profit-maximizing use of resources in a market. Rather, efficiency refers to the allocation of all resources (including the time of all participants) that best reflects the optimal trade-offs for alternative uses of those resources. Efficiency must include a full account of positive and negative externalities. 6I don’t think my lack of intuition here is because I have not read the technical economic papers that Robin refers to in his essay, papers which he describes as proving that his planning mechanism generates optimal outcomes.


The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities by Mancur Olson

"Robert Solow", barriers to entry, British Empire, business cycle, California gold rush, collective bargaining, correlation coefficient, David Ricardo: comparative advantage, full employment, income per capita, Kenneth Arrow, market clearing, Norman Macrae, Pareto efficiency, price discrimination, profit maximization, rent-seeking, Sam Peltzman, selection bias, Simon Kuznets, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, urban decay, working poor

Britain, by contrast, is supposed to have been cursed with a large inheritance of capital that was not up-to-date. A moment's reflection will, however, make it clear that a profit-maximizing firm that owns plant and equipment that is not up-to-date will be either better off for owning the old capital or alternatively no worse off than if it had no capital left at all. If the use of the old capital will generate receipts in excess of average variable costs, the firm will profit from using the old capital and be better off than if it did not own this capital. Should the use of the capital not generate a return above average variable costs, the profit-maximizing firm will not use it, and will be in essentially the same position as it would have been had this old capital been destroyed. The most that bombing of old capital could do is to save a country some wrecking costs of capital goods it needed to tear down, and this hardly could be quantitatively important.

The fact remains that a sufficiently powerful union could, if bargaining costs and delays are ignored, serve its members' interests by encouraging the firm with which it bargains to adopt any innovations that increased the total surplus available for profits and wages in the aggregate. 23. This special case occurs when there is such an underutilization of labor in relation to the amount of other factors that the average product of labor would increase if another laborer were added. But the profit-maximizing firm could never be in this range. 24. Sir John Hicks, "Structural Unemployment and Economic Growth: A 'Labor Theory of Value' Model," in Mueller, The Political Economy of Growth. 25. Strictly speaking, Hicks's proof applies only to a two-sector economy with labor as the only factor of production. The essence of this argument is, however, applicable to economies with any number of industries and factors of production. 26.


pages: 577 words: 149,554

The Problem of Political Authority: An Examination of the Right to Coerce and the Duty to Obey by Michael Huemer

Cass Sunstein, Chelsea Manning, cognitive dissonance, cuban missile crisis, Daniel Kahneman / Amos Tversky, en.wikipedia.org, Eratosthenes, experimental subject, framing effect, Gini coefficient, illegal immigration, impulse control, Isaac Newton, Julian Assange, laissez-faire capitalism, Machinery of Freedom by David Friedman, Milgram experiment, moral hazard, Phillip Zimbardo, profit maximization, profit motive, Ralph Nader, RAND corporation, rent-seeking, Ronald Coase, Stanford prison experiment, The Wealth of Nations by Adam Smith, unbiased observer, uranium enrichment, WikiLeaks

Economic theory teaches that a monopoly will restrict output to socially suboptimal levels while raising prices to levels that maximize its own profits but lower the total utility of society. If, for example, a company held a monopoly on shoe production, there would be too few shoes, and they would be too expensive.33 That is the problem with a rationally self-interested monopolist. But matters are worse than this, because we cannot even assume that a monopolist will be rational. Competition makes firms act as something approximating rational profit maximizers by eliminating those who do not behave in that way. In the absence of competitive pressures, a firm has much more leeway. Optimists may observe that an organization with a robust monopoly can survive while magnanimously sacrificing profits for the good of society, if it happens to be so inclined. But it can also survive while clinging to inefficient production methods and resisting innovation; rewarding well-connected but incompetent people; wasting money on half-baked, ideologically motivated plans; ignoring evidence of customer dissatisfaction; and so on.

Even in this case, insisting that all disputes should be resolved via Susan is not Sally’s best option for taking advantage of that leeway. The reason is that customers are likely to place a greater negative value on Sally’s dispute resolution procedure than the positive value that Sally places on it, because customers tend to place negative value on perceived unfairness in addition to the potential monetary costs of unfair procedures. Instead, Sally’s best (profit-maximizing) option is simply to raise her price by $50. The same principles apply to employer-employee relationships. There is an optimal wage for an employer to pay such that, if the employer pays more than that, he lowers his total profits due to increased labor costs, but if he pays less, he lowers his total profits due to difficulty in attracting desirable employees. Any provision in an employment contract that employees regard as unfair or simply disadvantageous amounts to an extra cost of accepting a job with this employer or, equivalently, a decline in the rewards of the job.

Eventually, either all firms would go out of business, in which case society would devolve into a state of chaos, or the last firm able to hold out would acquire a monopoly on the industry, whereupon it would evolve into a state. There are several reasons why the foregoing scenario is unlikely to transpire: i) The argument unrealistically assumes that actual and potential crime victims favor unlimited compensation. This assumption may be driven by a conception of human beings as homo economicus, pure profit maximizers: since higher compensation equals higher profit, crime victims will favor unlimited increases in compensation. Normal human beings, however, do not see criminal victimization as an opportunity to get rich; that sort of thinking is generally reserved for scam artists. Most normal people wish to avoid being crime victims, if possible, and to secure justice in the event that they are victimized.


pages: 424 words: 115,035

How Will Capitalism End? by Wolfgang Streeck

accounting loophole / creative accounting, Airbnb, basic income, Ben Bernanke: helicopter money, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, creative destruction, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, disruptive innovation, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, fixed income, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, information asymmetry, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, liberal capitalism, market bubble, means of production, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, The Future of Employment, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, Vilfredo Pareto, winner-take-all economy, Wolfgang Streeck

Societies are complex entities that do not die in the way organisms do: with the rare exception of total extinction, discontinuity is always embedded in some continuity. If we say that a society has ended, we mean that certain features of its organization that we consider essential to it have disappeared; others may well have survived. I propose that to determine if capitalism is alive, dying or dead, we define it as a modern society17 that secures its collective reproduction as an unintended side-effect of individually rational, competitive profit maximization in pursuit of capital accumulation, through a ‘labour process’ combining privately owned capital with commodified labour power, fulfilling the Mandevillean promise of private vices turning into public benefits.18 It is this promise, I maintain, that contemporary capitalism can no longer keep – ending its historical existence as a self-reproducing, sustainable, predictable and legitimate social order.

Taking class and power into consideration, one can see the state, government and politics in democratic-capitalist societies being fundamentally exposed to continuous pressures to accommodate contradictory needs and demands – pressures that permanently produce new constraints and opportunities for revision of the institutions governing the political economy. On the one hand, it is only by political intervention into the free play of market forces that the collective benefits that a democratic society expects from a capitalist economy can be extracted from it – that, in other words, the private vice of profit maximization may be converted into the public benefit of social progress, to sustain a political equilibrium helping the sitting government to build political legitimacy. On the other hand, except in special situations of very high economic growth, it would appear that the social corrections of the market that are needed to achieve political equilibrium in a democracy tend to undermine the confidence of capital owners and investors, thereby upsetting the economic equilibrium that is equally essential for capitalist-democratic stability.

Rather than the straightforward functionalism of much of the ‘new economic sociology’, the approach I propose features a dialectical version of it, one under which the functioning of capitalism depends vitally on the presence, essential but never guaranteed, of effective opposition to it. Whether such opposition can arise and do its work depends, in turn, on the existence of political resources that allow for the mobilization of countervailing power, a condition that cannot fundamentally be entrusted to the self-interest of capitalist profit maximizers. Capitalism entails, in addition to whatever else it may entail, an ever-present possibility of self-destructive destruction of its social containment, in the course of a politics of liberalization conceived as progressive removal of boundaries of all sorts, towards a final triumph of collectively irresponsible individual interests. Preventing this requires a non-capitalist politics capable of defining and enforcing general interests in the sustainability of human society, bringing capitalist actors to their senses and forcing them to act in line with their better insights, whether they already have them or not.


pages: 421 words: 125,417

Common Wealth: Economics for a Crowded Planet by Jeffrey Sachs

agricultural Revolution, air freight, back-to-the-land, British Empire, business process, carbon footprint, clean water, colonial rule, corporate social responsibility, correlation does not imply causation, creative destruction, demographic transition, Diane Coyle, Edward Glaeser, energy security, failed state, Gini coefficient, global pandemic, Haber-Bosch Process, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), intermodal, invention of agriculture, invention of the steam engine, invisible hand, Joseph Schumpeter, knowledge worker, labor-force participation, low skilled workers, mass immigration, microcredit, oil shale / tar sands, old age dependency ratio, peak oil, profit maximization, profit motive, purchasing power parity, road to serfdom, Ronald Reagan, Simon Kuznets, Skype, statistical model, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, unemployed young men, War on Poverty, women in the workforce, working-age population

Forests downwind of these factories were being destroyed by the resulting acid rain. Smokestack scrubbers can remove the sulfur dioxide from the flue gas by mixing the gas with lime to produce calcium sulfate, thereby preventing the acid rain. The flue gas desulfurization represents an added cost for the factory, but a cost that is much less than the benefit of saving the forests. The problem is that in a free and unregulated market, each profit-maximizing power plant lacks the incentive to buy a scrubber. Despite the large social benefits, the firm itself would reduce its profits by investing in the scrubber. A public policy to correct the market prices is needed to give the power plants the incentive to buy the smokestack scrubbers. Four types of policies can be used to align private incentives and society’s environmental interests. The simplest is a tax on the environmental harm, in this case a tax on sulfur emissions.

Since money in the pocket today is worth more than the same amount in the future (because money today can be invested at the market interest rate and thereby grow over time), the decision will be to keep the fish in the lake only if the market value of the fish stock is expected to increase more rapidly than the rate of interest. If the price of the fish per ton is expected to remain unchanged, and if the fish is a slow-growing species, then the value of the fish in the lake will grow less rapidly than the rate of interest. The profit-maximizing owner will deplete the fish stock and perhaps drive a rare species to extinction, rather than wait to sell more fish in the future. Private (or community) ownership alone will not save the species. Two subtle issues are at work in this example. The first is that the market price of a species will generally not reflect the species’ societal value as part of Earth’s biodiversity. Market prices do not reflect the value that society puts on avoiding the extinction of other species, only the direct consumption value of those species (for food, aphrodisiacs, pets, hunting trophies, or ornaments).

History has shown otherwise, however. Privatization, if done in a sloppy manner, can result in the changeover from a public monopoly to a private monopoly, with the private monopolist not even constrained by the need to win the next election. Private monopolies may have no interest whatsoever in ensuring access for the poor, specifically those households which are unable to pay the monopolist’s profit-maximizing price of water. One effective compromise between public ownership and privatization can be the insistence that private providers offer a lifeline tariff, which guarantees to each household a free fixed amount of water each day for uses that the household needs to stay alive (drinking, cooking, and hygiene). Water use above the minimum is charged by the meter, at the market rate, but in this way everybody, even the most indigent, is guaranteed a lifeline.


pages: 482 words: 121,672

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition) by Burton G. Malkiel

accounting loophole / creative accounting, Albert Einstein, asset allocation, asset-backed security, beat the dealer, Bernie Madoff, bitcoin, butter production in bangladesh, buttonwood tree, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, Detroit bankruptcy, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial innovation, financial repression, fixed income, framing effect, George Santayana, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Long Term Capital Management, loss aversion, margin call, market bubble, money market fund, mortgage tax deduction, new economy, Own Your Own Home, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, stocks for the long run, survivorship bias, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond, zero-sum game

If they see a price about to break through a resistance area, they tend to buy before, not after, it breaks through. This suggests that others will try to anticipate the signal still earlier. Of course, the earlier they anticipate, the less certain they are that the signal will occur and that the trade will be profitable. Perhaps the most telling argument against technical methods comes from the logical implications of profit-maximizing behavior. Suppose that Universal Polymers is selling at around 20 when Sam, the chief research chemist, discovers a new production technique that promises to double the company’s earnings. Sam is convinced that the price of Universal will hit 40 when the news of his discovery comes out. Because any purchases below 40 will provide a swift profit, he may well buy up all the stock he can until the price hits 40, a process that could take no longer than a few minutes.

“If it was really a $100 bill, it wouldn’t be there.” Perhaps a better version of the story would be to remember that if any $100 bills are lying around, they will not be there for long. As long as there are stock markets, mistakes will be made by the collective judgment of investors. And undoubtedly, some market participants are demonstrably less than rational. But even if price setting was always determined by rational profit-maximizing investors, prices can never be “correct.” Suppose that stock prices are rationally determined as the discounted present value of all future cash flows. Future cash flows can only be estimated and are never known with certainty. There will always be errors in the forecasts of future sales and earnings. Moreover, equity risk premiums are unlikely to be stable over time. Prices are, therefore, likely to be “wrong” all the time.

., 233 Pets.com, 84 Philadelphia 76ers, 145 Phillips, Don, 400 Phoenix, University of, 169 Pittsburgh Steelers, 148 Polaroid, 68, 69, 161 Ponzi schemes: Internet investment as, 80, 242 of Madoff, 258–59 ZZZZ Best as, 74 portfolio management, 66, 160–61, 164, 170, 174–84, 261, 349–50, 351, 361–62, 366–67, 389, 398 see also “smart beta” Portfolio Selection (Markowitz), 197 portfolio theory, see modern portfolio theory positive feedback loops, 80 Pound, John, 253 PowerShares, 270, 281 Prechter, Robert, 151–52 present value, 32, 125n price-dividend multiples, 330, 340, 341, 343 price-earnings (P/E) multiples, 57, 64, 65, 126, 264, 274, 336, 344, 346–47, 394–95 of blue-chip stocks, 68 crash in (1970s), 340 cyclically adjusted (CAPE), 347, 387 of growth stocks, 121–23, 130–33, 406 of high-tech stocks, 81 inflation of, 64 performance and, 263, 396 see also performance, of common stocks (1970s); performance, of concept stocks Priceline.com, 83 price stability, 54 price-to-book value (P/BV) ratios, of stocks, 264, 270, 274 price-volume systems, 143–44 Price Waterhouse, 153 Princeton University, 161 probability judgments, 233–34, 238 Producers, The, 166 product asset valuation, 72 professional investors: limitations of, 162–63 profit-maximizing behavior, as argument against technical analysis, 116–17 profits, 339 in inflation, 339 measurement of, 339 profit-sharing plans, 304 Prohibition, 52 property taxes, 314 prospect theory, 243–45 prospectuses, warnings on, 59 PSI Net, 90 psychological factors in stock valuation, see castle-in-the-air theory; technical analysis Puckle Machine Company, 45 Puerto Rico, 404 purchasing power, effects of inflation on, 28–29, 125n, 307, 315 Purdue University, 82 Quandt, Richard, 140 quant, defined, 221n Quinn, Jane Bryant, 91 Qwest, 166 Radio Corporation of America (RCA), 48, 53 railroad industry, 91, 96 RAND Corporation, 197 Randell, Cortes W., 66–68 random events, forecasting influenced by, 164–65, 176 random walk: defined, 26–28, 139, 140 difficult acceptance of, 145–46 fundamental conclusion of, 154 summarized, 35–36 random-walk theory, 105–6, 266–67 assumptions of, 190, 229, 230 fundamental analysis and, 182–84 guide for, 291 and housing bubble, 105–6 index funds and, 379–80 role of arbitrage in, 248–49 semi-strong form of EMH, 26, 182–84 strong (broad) form of EMH, 26, 182–84 technical analysis and, 137–41, 154–57 weak (narrow) form of EMH, 26, 140, 183 Raptor, 94 rate of return: after inflation, 338 for bonds, 194–96, 307, 315–21, 342–43, 344, 345 in CAPM, 213–19 for common stocks, 194–96, 307 compounded, 351 diversification and, 198–200 expected, see expected rate of return future events and, 30, 343–48 high, for bearing greater risk, 194–96, 212–13, 350, 408 investment objectives and, 306–13 negative, 196 for real estate, 313 rebalancing to, 360 risk-free, 215–18 “small caps” vs.


pages: 7,371 words: 186,208

The Long Twentieth Century: Money, Power, and the Origins of Our Times by Giovanni Arrighi

anti-communist, Asian financial crisis, barriers to entry, Bretton Woods, British Empire, business climate, business process, colonial rule, commoditize, Corn Laws, creative destruction, cuban missile crisis, David Ricardo: comparative advantage, declining real wages, deindustrialization, double entry bookkeeping, European colonialism, financial independence, financial intermediation, floating exchange rates, income inequality, informal economy, invisible hand, joint-stock company, Joseph Schumpeter, late capitalism, London Interbank Offered Rate, means of production, money: store of value / unit of account / medium of exchange, new economy, offshore financial centre, oil shock, Peace of Westphalia, profit maximization, Project for a New American Century, RAND corporation, reserve currency, spice trade, the market place, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, trade route, transaction costs, transatlantic slave trade, transcontinental railway, upwardly mobile, Yom Kippur War

This combination of circumstances leads some (mostly capitalist) agencies to divert their cash flows from the trading to the credit system, thereby increasing the supply of loanable funds, and other (mostly territorialist) agencies to seek through borrowing the additional financial resources needed to survive in the more competitive environment, thereby increasing the demand for loanable funds. It follows that the revenue-maximizing and profit-maximizing branches into which logistics of world economic expansion are assumed to bifurcate do not describe actual trajectories. Rather, they describe a field of forces defined by the coexistence of two alternative and mutually exclusive ideotypical paths of capital accumulation, the unity and opposition of which is the source of turbulence and instability in the world system of trade and accumulation. A single path means that the profit-maximizing logic of capital accumulation and the revenue-maximizing logic of trade expansions coincide and sustain one another. The world-economy can count for its expansion on the ever-growing volume of money and other means of payments that seeks investment in trade.

In short, when capital accumulation enters a (CM ') phase of financial expansion its trajectory does not follow a steady path but becomes subject to more or less violent downswings and upswings which recreate and destroy over and over again the profitability of capital invested in trade. This instability of processes of capital accumulation may be merely local and temporary, or it may be systemic and permanent. In the pattern shown in figure 3.8, the downswings and upswings in the amount of capital invested in trade are confined to the range of values enclosed by the revenue-maximizing and the profit-maximizing paths of expansion, and eventually bring the world-economy back on a path of stable expansion. In the pattern shown in figure 3.9, in contrast, the downswings and upswings are not confined to the range of values enclosed by the two ideotypical paths and they do not bring the worldeconomy back on a path of stable expansion. In this second pattern instability is self-reinforcing and brings the expansion of the worldeconomy, as instituted at that particular time, to a permanent end, even if in principle stable expansion could resume, as shown by the dotted lines in figure 3.9.

The difference between a true supersession and a mere suspension of the process of world market formation can be elucidated by recasting in world system perspective John K. Galbraith’s discussion of the various ways in which large-scale, bureaucratically managed, industrial organizations (his “technostructures”) can protect themselves from the disruptions of price-making markets. Like Veblen, Galbraith detects a fundamental contradiction between the pecuniary rationality involved in profit-maximization in a self-regulating market and the technological rationality involved in the use of expensive and specialized industrial facilities and personnel: The market has only one message for the business firm. That is the promise of more money. If the firm has no influence on its prices . . . it has no options as to the goals that it pursues. It must try to make money, and, as a practical matter, it must try to make as much as possible.


pages: 733 words: 179,391

Adaptive Markets: Financial Evolution at the Speed of Thought by Andrew W. Lo

"Robert Solow", Albert Einstein, Alfred Russel Wallace, algorithmic trading, Andrei Shleifer, Arthur Eddington, Asian financial crisis, asset allocation, asset-backed security, backtesting, bank run, barriers to entry, Berlin Wall, Bernie Madoff, bitcoin, Bonfire of the Vanities, bonus culture, break the buck, Brownian motion, business cycle, business process, butterfly effect, buy and hold, capital asset pricing model, Captain Sullenberger Hudson, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Daniel Kahneman / Amos Tversky, delayed gratification, Diane Coyle, diversification, diversified portfolio, double helix, easy for humans, difficult for computers, Ernest Rutherford, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, Fall of the Berlin Wall, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, Fractional reserve banking, framing effect, Gordon Gekko, greed is good, Hans Rosling, Henri Poincaré, high net worth, housing crisis, incomplete markets, index fund, interest rate derivative, invention of the telegraph, Isaac Newton, James Watt: steam engine, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, Louis Pasteur, mandelbrot fractal, margin call, Mark Zuckerberg, market fundamentalism, martingale, merger arbitrage, meta analysis, meta-analysis, Milgram experiment, money market fund, moral hazard, Myron Scholes, Nick Leeson, old-boy network, out of africa, p-value, paper trading, passive investing, Paul Lévy, Paul Samuelson, Ponzi scheme, predatory finance, prediction markets, price discovery process, profit maximization, profit motive, quantitative hedge fund, quantitative trading / quantitative finance, RAND corporation, random walk, randomized controlled trial, Renaissance Technologies, Richard Feynman, Richard Feynman: Challenger O-ring, risk tolerance, Robert Shiller, Robert Shiller, Sam Peltzman, Shai Danziger, short selling, sovereign wealth fund, Stanford marshmallow experiment, Stanford prison experiment, statistical arbitrage, Steven Pinker, stochastic process, stocks for the long run, survivorship bias, Thales and the olive presses, The Great Moderation, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Triangle Shirtwaist Factory, ultimatum game, Upton Sinclair, US Airways Flight 1549, Walter Mischel, Watson beat the top human players on Jeopardy!, WikiLeaks, Yogi Berra, zero-sum game

Instead of a bell curve, the distribution of Fama’s stock returns showed what are now known as fat tails, as though a teacher grading on a curve gave the top 10 percent of students an A instead of the Gaussian 2.5 percent.24 In 1965, with the publication of his Ph.D. thesis, Fama explained his growing theory of random walks to the financial analyst community, introducing the term efficient market into the financial lexicon for the very first time: An “efficient” market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants. . . . In an efficient market, on the average, competition will cause the full effects of new information on intrinsic values to be reflected “instantaneously” in actual prices.25 Are We All Homo economicus Now?

If you recall, the Psychic Hotline game involves asking subjects to predict whether the letter “A” or “B” will appear on a computer screen. Let’s choose the variation where “A” is randomly displayed 75 percent of the time and “B” is displayed 25 percent of the time. Humans will choose a suboptimal strategy: we will match probabilities and choose “A” around 75 percent of the time, and choose “B” around 25 percent of the time— meaning that we would win on average 62.5 percent of the time. A purely rational, profit-maximizing individual would choose “A” consistently and win 75 percent of the time. Michael Gazzaniga, Sperry’s former student, and his colleagues discovered something very peculiar about the Psychic Hotline game. The simplified popular left-brain/right-brain model claims the left hemisphere is the intelligent, “rational” half, and the right hemisphere is the intuitive, “emotional” half. However, when this game was displayed to just the right eye of split-brain subjects, they matched probabilities, and when it was displayed to just the left eye, the subjects deduced the optimal strategy and picked “A” 100 percent of the time.19 This is exactly the opposite outcome you would expect from the popular model.

When you use the phrase “conspicuous consumption” to describe an especially ostentatious display of wealth, you’re using one of Veblen’s concepts. Today, Veblen is viewed as one of the great sociologists of the twentieth century, but during his life, he was considered something of a renegade economist. Veblen believed that economics needed to be remade into an evolutionary science. He felt that economics was too preoccupied with the “hedonistic”—but here we should think of profit-maximizing Homo economicus rather than a partygoer on Spring Break. In Veblen’s words, “The economists have accepted the hedonistic preconceptions concerning human nature and human action, and the conception of the economic interest which a hedonistic psychology gives does not afford material for a theory of the development of human nature. . . . It is therefore not readily apprehended or appreciated in terms of a cumulative growth of habits of thought, and does not provoke, even if it did lend itself to, treatment by the evolutionary method.”25 Apart from the formal academicspeak, this should sound very familiar.


pages: 206 words: 9,776

Rebel Cities: From the Right to the City to the Urban Revolution by David Harvey

Bretton Woods, business cycle, collateralized debt obligation, commoditize, creative destruction, David Graeber, deindustrialization, financial innovation, Guggenheim Bilbao, Hernando de Soto, housing crisis, illegal immigration, indoor plumbing, invisible hand, Jane Jacobs, late capitalism, Long Term Capital Management, market bubble, market fundamentalism, means of production, moral hazard, mortgage debt, mortgage tax deduction, New Urbanism, Ponzi scheme, precariat, profit maximization, race to the bottom, Robert Shiller, Robert Shiller, special economic zone, the built environment, the High Line, The Wealth of Nations by Adam Smith, transcontinental railway, urban planning, We are the 99%, William Langewiesche, Works Progress Administration

Hernando de Soto argues influen­ tially that it is the lack of cle ar property rights that holds the poor down in misery in so much of the global south (ignoring the fact that poverty is abundantly in evidence in societies where clear prop erty rights are readily established). To be sure, there will be instances where the grant­ ing of such rights in Rio's favelas or in Lima's slums l ib erates individual energies and entrepreneurial endeavors leading to personal advance­ m ent. But the concomitant effect is often to destroy collective and non-profit-maximizing modes of social solidarity and mutual support, while any aggregate effect w ill almost certainly be nullifi ed in the absence of secure and adequately remunerative employment. In Cairo, Elya char, for example, notes how these seemingly progressive policies create a "market of d ispossession" that in effect seeks to suck value out of a moral THE RIGHT TO THE CITY 21 economy based o n mutual respect and re ciprocity, t o the advantage of capitalist institu tions. 19 Much the same commentary applies to the m icro-credit and m icro­ finance solutions to global poverty now touted so persuasively among the Washington financial institu tions.

Th is is, surely, a far better tale by which to explicate the true tragedy of the urban commons for o ur times. Th ose who create an interesting and stimulating everyday neighborhood life lose it to the predatory practices of the real estate entrepreneurs, the financiers and upper class consumers bereft of any urban social imagination. The better the common qualities a social group creates, the more likely it is to be raided and appropriated by private profit-maximizing interests. But there is a further analytic point here that must be remarked. Th e collective labor that Marx envisaged was for the most part confined t o th e factory. What if we broaden that conception to think, as H ardt and Negri suggest, that it is the metropolis that now constitutes a vast common pro­ duced by the collective labor expended on and in the city? The right to use that common must surely then be accorded to all those who have had a part in producing it.


pages: 209 words: 80,086

The Global Auction: The Broken Promises of Education, Jobs, and Incomes by Phillip Brown, Hugh Lauder, David Ashton

active measures, affirmative action, barriers to entry, Branko Milanovic, BRICs, business process, business process outsourcing, call centre, collective bargaining, corporate governance, creative destruction, credit crunch, David Ricardo: comparative advantage, deindustrialization, deskilling, disruptive innovation, Frederick Winslow Taylor, full employment, future of work, glass ceiling, global supply chain, immigration reform, income inequality, industrial cluster, industrial robot, intangible asset, job automation, Joseph Schumpeter, knowledge economy, knowledge worker, low skilled workers, manufacturing employment, market bubble, market design, neoliberal agenda, new economy, Paul Samuelson, pensions crisis, post-industrial society, profit maximization, purchasing power parity, QWERTY keyboard, race to the bottom, Richard Florida, Ronald Reagan, shared worldview, shareholder value, Silicon Valley, sovereign wealth fund, stem cell, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, transaction costs, trickle-down economics, winner-take-all economy, working poor, zero-sum game

Just as the breakdown of national barriers exposed workers to the full force of the global auction, erstwhile national champions were similarly exposed to foreign competition. When one firm acts to take advantage of lower costs offshore, it often leads their competitors to follow, unless they can create a particular niche advantage by remaining at home. Those corporations that exist just for profit—maximizing returns to shareholders—are more likely to strip out costs within global operations by taking advantage of differences in wage rates and cultural differences in social expectations. As we were told in more that one company interview, “In China, they’re hungry to work.” Such companies are at the forefront of the trends toward offshoring high-value activities to low-cost locations. According to Japanese management guru Kenichi Ohmae, the value of global networks is giving companies the freedom to drive down costs while maintaining quality through the threat, or use, of exit strategies, given a choice of providers.

It is the societal, state, or local capacity to exploit the collective intelligence of workers, sometimes in collaboration with those living in other countries, in the production of goods and services that people want. This is what counts rather than merely increasing the supply of college graduates.23 However, rebuilding a productive economy that contributes to the quality of people’s lives is difficult to envisage within a model of shareholder capitalism that rewards senior executives for short-term profit maximization based on driving down labor costs both at home and overseas. It has been too easy for the short-term interests of corporate managers and shareholders to be put before those of American workers and the longer-term interests of the nation’s economy. Companies need to operate within a regulatory framework where they are encouraged to balance immediate competitive pressures to reduce costs and increase profits with an eye on the medium term and the interests of employees and local communities.


pages: 511 words: 132,682

Competition Overdose: How Free Market Mythology Transformed Us From Citizen Kings to Market Servants by Maurice E. Stucke, Ariel Ezrachi

affirmative action, Airbnb, Albert Einstein, Andrei Shleifer, Bernie Sanders, Boeing 737 MAX, Cass Sunstein, choice architecture, cloud computing, commoditize, corporate governance, Corrections Corporation of America, Credit Default Swap, crony capitalism, delayed gratification, Donald Trump, en.wikipedia.org, George Akerlof, gig economy, Goldman Sachs: Vampire Squid, Google Chrome, greed is good, hedonic treadmill, income inequality, income per capita, information asymmetry, invisible hand, job satisfaction, labor-force participation, late fees, loss aversion, low skilled workers, Lyft, mandatory minimum, Mark Zuckerberg, market fundamentalism, mass incarceration, Menlo Park, meta analysis, meta-analysis, Milgram experiment, mortgage debt, Network effects, out of africa, payday loans, Ponzi scheme, precariat, price anchoring, price discrimination, profit maximization, profit motive, race to the bottom, Richard Thaler, ride hailing / ride sharing, Robert Bork, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Shoshana Zuboff, Silicon Valley, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Stanford prison experiment, Stephen Hawking, The Chicago School, The Market for Lemons, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Davenport, Thorstein Veblen, Tim Cook: Apple, too big to fail, transaction costs, Uber and Lyft, uber lyft, ultimatum game, Vanguard fund, winner-take-all economy

Overall, 92.3 percent of UK forensic scientists predicted that closing the FSS and turning over forensic work to private companies—and in-house police labs—would have a mostly negative impact on criminal justice, and 76.4 percent predicted it would lead to an increase in miscarriages of justice.50 Why weren’t the pessimistic forensic scientists blinded by the competition ideology? FIRST, they were aware that crime had declined in the United Kingdom, which meant that private sector forensic companies would be operating in an industry that was shrinking. Profit-maximizing firms would therefore have much less incentive to make significant investments in research and development, which would add to their costs but not, given the decrease in crime, to their bottom line. Innovation and progress would suffer, and a field in which the United Kingdom had long been a global leader in making groundbreaking discoveries would fall into decline.51 SECOND, they were concerned that private firms, under the pressure of toxic competition, might compromise the integrity of their analysis.

Moreover, about half the time recipients will reject low offers (generally less than 20 percent of the total amount available), even if it means they will get nothing at all.38 So if you offer $20 and try to keep $80 for yourself, the perception of unfairness and the desire to retaliate against that unfairness are likely to cause the other person to say no.39 The willingness of players to make a fair offer cannot be explained as the result of wanting to maintain their reputation or goodwill, since the Ultimatum Game and other iterations of it are often exercises in which you play anonymously (or only once so you don’t have to worry about playing again with the same person).40 Knowing this, even a savvy Chicago School economist would ditch the assumption of “cold” self-interest, and offer far more than the nominal, profit-maximizing amount of one penny. Now, let us turn to another recent experiment, in which the researchers used the Ultimatum Game (along with two other games, Public Goods and Dictator) to study fifteen small-scale economies in twelve countries on five continents.41 The groups studied were diverse—three foraging groups (East Africa’s Hadza, Papua New Guinea’s Au and Gnau, and Indonesia’s Lamalera), six slash-and-burn horticulturists (the Aché, Machiguenga, Quichua, and Achuar of South America and East Africa’s Tsimané and Orma), four nomadic herding groups (the Torguud, Mongols, and Kazakhs of Central Asia, and East Africa’s Sangu), and two sedentary, small-scale agricultural societies (South America’s Mapuche and Africa’s Zimbabwe farmers).

Schroeder, “The Midas Touch: The Lethal Effect of Wealth Maximization,” Wisconsin Law Review 1999, no. 4 (1999): 687, 754–60. 31.George J. Stigler, “Economics or Ethics?,” in The Tanner Lectures on Human Values, ed. Sterling M. McMurrin (Salt Lake City, UT: University of Utah Press, 1981), 143, 176; see also Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself (New York: Basic Books, 1978), 119 (reasoning profit-maximization assumption is “crucial” to the Chicago School’s theories); Richard A. Posner, Economic Analysis of Law, 3rd ed. (Boston: Little, Brown 1986), 3 (“The task of economics . . . is to explore the implications of assuming that man is a rational maximizer of his ends in life, his satisfactions—what we shall call his ‘self-interest’”); Robert A. Prentice, “Chicago Man, K-T Man, and the Future of Behavioral Law and Economics,” Vanderbilt Law Review 56, no. 6 (November 2003): 1663, 1665 n.4, https://researchers.dellmed.utexas.edu/en/publications/chicago-man-k-t-man-and-the-future-of-behavioral-law-and-economic. 32.Karl Marx and Friedrich Engels, “Manifesto of the Communist Party,” in Basic Writings on Politics and Philosophy, ed.


pages: 716 words: 192,143

The Enlightened Capitalists by James O'Toole

activist fund / activist shareholder / activist investor, anti-communist, Ayatollah Khomeini, Bernie Madoff, British Empire, business cycle, business process, California gold rush, carbon footprint, City Beautiful movement, collective bargaining, corporate governance, corporate social responsibility, Credit Default Swap, crowdsourcing, cryptocurrency, desegregation, Donald Trump, double entry bookkeeping, end world poverty, equal pay for equal work, Frederick Winslow Taylor, full employment, garden city movement, germ theory of disease, glass ceiling, God and Mammon, greed is good, hiring and firing, income inequality, indoor plumbing, inventory management, invisible hand, James Hargreaves, job satisfaction, joint-stock company, Kickstarter, knowledge worker, Lao Tzu, longitudinal study, Louis Pasteur, Lyft, means of production, Menlo Park, North Sea oil, passive investing, Ponzi scheme, profit maximization, profit motive, Ralph Waldo Emerson, rolodex, Ronald Reagan, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, Socratic dialogue, sovereign wealth fund, spinning jenny, Steve Jobs, Steve Wozniak, stocks for the long run, stocks for the long term, The Fortune at the Bottom of the Pyramid, The Wealth of Nations by Adam Smith, Tim Cook: Apple, traveling salesman, Uber and Lyft, uber lyft, union organizing, Vanguard fund, white flight, women in the workforce, young professional

Indeed, had he then continued to concentrate his efforts on running the mills, it seems possible that the practices he pioneered might have been adopted by at least a few other industrialists. But his optimism proved misplaced, and the outcome he so desired was not to be. Instead of diffusion of the knowledge he created, he was met with a barrage of criticism from left and right and, ultimately, near total public rejection. Owen was attacked as a socialist by his fellow industrialists, on the grounds that he broke two sacred laws of economics: profit maximization and the iron law of wages. Nonetheless, he was, in fact, a believer in Adam Smith’s free market, arguing, “The natural course of trade, manufactures and commerce should not be disturbed except when it interferes with measures affecting the well-being of the whole community.”33 Acting on that belief, he twice led the efforts of British industrial free-traders to put an end to mercantilist tariffs.

In order to fully integrate ethical practices, social responsibility, and environmental sustainability in Unilever’s corporate strategies, CEO Polman has pledged to create an organizational culture built on “doing the right thing,” rather than viewing such behavior as an inessential add-on. Perhaps the most radical aspect of Unilever’s transformation is its decision to abandon the traditional goal of short-term profit maximization. Polman acknowledged that transforming the culture of a £50 billion company with a thousand brands sold in 190 countries would not be easily accomplished. For example, the company has vowed to make the production of its Hellmann’s mayonnaise certifiably sustainable. In an interview with the New York Times, Unilever managers illustrated how difficult reaching that seemingly simple goal will be.30 For starters, there is no independent certification program for the soybeans used in the product, nor is there a standard measure of farm sustainability.

Instead of having a low-skilled, undereducated workforce, the company now employs educated designers, marketers, buyers, and managers in well-paying jobs. The downside of hiring such people has been that many are not fully committed to the company’s historic values. As early as the 1990s, when I spoke with the company’s chief operating officer—who had been brought in from the outside—I was surprised to discover that he believed profit maximization was the only legitimate business goal, privately confessing his discomfort with many of the company’s enlightened practices. Nonetheless, he assured me that, when needed, he was willing to publicly pay lip service to the stated values! At the time, it probably made little difference how he felt about the company’s values, because Bob Haas was on the scene to reinforce them. However, in 2016 Levi Strauss was being led by its third nonfamily CEO, and responsibility for managing the company was completely in the hands of its professional executives, although it was still owned by the Haas family.


pages: 237 words: 72,716

The Inequality Puzzle: European and US Leaders Discuss Rising Income Inequality by Roland Berger, David Grusky, Tobias Raffel, Geoffrey Samuels, Chris Wimer

Branko Milanovic, business cycle, Celtic Tiger, collective bargaining, corporate governance, corporate social responsibility, double entry bookkeeping, equal pay for equal work, fear of failure, financial innovation, full employment, Gini coefficient, hiring and firing, illegal immigration, income inequality, invisible hand, Long Term Capital Management, microcredit, offshore financial centre, principal–agent problem, profit maximization, rent-seeking, shareholder value, Silicon Valley, Silicon Valley startup, time value of money, very high income

Wimer into college,4 while the demand for college students is kept artificially low because, in at least some countries, elite private and public schools engage in explicit rationing of their available slots. It’s not as if Oxford University, for example, is meeting the rising interest in its degrees by selling some profit-maximizing number of them. If top universities did meet the demand in this way, the excessive returns to a high-prestige education would disappear. But instead they’ve decided to ration. When, by contrast, the demand for hybrid cars increased dramatically in the U.S., car manufacturers responded by ramping up production to a profit-maximizing level, not by setting up hybrid-car “admissions committees,” not by carefully interviewing and testing prospective buyers, not by asking them to submit detailed resumes and statements about how the hybrid-owning experience will change their lives.


pages: 317 words: 87,566

The Happiness Industry: How the Government and Big Business Sold Us Well-Being by William Davies

1960s counterculture, Airbnb, business intelligence, corporate governance, dematerialisation, experimental subject, Exxon Valdez, Frederick Winslow Taylor, Gini coefficient, income inequality, intangible asset, invisible hand, joint-stock company, lifelogging, market bubble, mental accounting, nudge unit, Panopticon Jeremy Bentham, Philip Mirowski, profit maximization, randomized controlled trial, Richard Thaler, road to serfdom, Ronald Coase, Ronald Reagan, science of happiness, selective serotonin reuptake inhibitor (SSRI), sentiment analysis, sharing economy, Slavoj Žižek, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, social intelligence, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Chicago School, The Spirit Level, theory of mind, urban planning, Vilfredo Pareto

But if this sounds like the recipe for inclusive community, it isn’t. Hsieh advises businesses to identify the 10 per cent of employees who are least enthusiastic towards the happiness agenda, and then lay them off.18 Once this is done, the remaining 90 per cent will apparently become ‘super-engaged’, a finding which is open to more than one psychological interpretation. As the science of happiness has moved closer to the front line of profit-maximizing business, something curious has happened to it. For Bentham, happiness was something which resulted from certain activities and choices. Neo-classical economists such as Jevons and behaviourist psychologists such as Watson assumed something similar, implying that individuals could be lured to make certain choices by dangling a pleasurable carrot in front of them. But in the context of business consultancy and individual coaching, happiness looks altogether different.

Slogans such as these, belonging to Nike and McDonald’s respectively, offer the ethical injunctions of the post-1960s neoliberal era. They are the last transcendent moral principles for a society which rejects moral authority. As Slavoj Žižek has argued, enjoyment has become an even greater duty than to obey the rules. Thanks to the influence of the Chicago School over government regulators, the same is true for corporate profitability. The entanglement of psychic maximization and profit maximization has grown more explicit over the course of the neoliberal era. This is partly due to the infiltration of corporate interests into the APA. In the run up to the DSM-V, published in 2013, it was reported that the pharmaceutical industry was responsible for half of the APA’s $50 million budget, and that eight of the eleven-strong committee which advised on diagnostic criteria had links to pharmaceutical firms.33 The ways in which we describe ourselves and our mental afflictions are now shaped partly by the financial interests of big pharma.


Green Economics: An Introduction to Theory, Policy and Practice by Molly Scott Cato

Albert Einstein, back-to-the-land, banking crisis, banks create money, basic income, Bretton Woods, Buy land – they’re not making it any more, carbon footprint, central bank independence, clean water, Community Supported Agriculture, congestion charging, corporate social responsibility, David Ricardo: comparative advantage, deskilling, energy security, food miles, Food sovereignty, Fractional reserve banking, full employment, gender pay gap, income inequality, informal economy, Intergovernmental Panel on Climate Change (IPCC), job satisfaction, land reform, land value tax, Mahatma Gandhi, market fundamentalism, mortgage debt, passive income, peak oil, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, reserve currency, the built environment, The Spirit Level, Tobin tax, University of East Anglia, wikimedia commons

The problem with this is for the water companies, who make their profits by charging us for delivery and removal of water. 50 GREEN ECONOMICS In the years since the Second World War in the more developed economies of the world the exploitation of land for growing food has gradually been organized more along the lines of a capitalist business, demonstrated by the use of the term ‘agribusiness’ to describe it. The culture of competitiveness, profit maximization and short-term thinking has replaced the traditional values of land management.25 This has had horrendous consequences for the natural world that we are part of: species have become extinct, soil fertility has declined, and the landscape has been turned into a monocultural wilderness that fails to feed us both literally and figuratively.26 A green economist might suggest that we reverse the process – not only should we relearn the culture of care for the land, but we might also use an approach of care and protection for our industries.

The ‘natural capitalism’ school builds on earlier work by the Rocky Mountain Institute which suggested that, with more efficient energy use, twice as much value could be produced for half as much energy.5 Lovins and Lovins gave the example of improving a pipe system by straightening the pipe and enlarging its diameter, thus reducing the energy needed to pump fluid through it. Few green economists would argue with the idea of maximizing the efficient use of energy, but there is unlikely to be agreement about whether profit-maximization is compatible with a sustainable future. Issues of scale and ownership The issue of the increasing power of the larger multinational corporations in the globalized economy will be discussed elsewhere (see Chapter 8). Combined with the removal of political restraints on the movement of capital this has allowed owners of production facilities to dictate environmental standards as well as rates of pay.6 The decentralized nature of production allows them to operate with much less concern for social responsibility.


pages: 306 words: 85,836

When to Rob a Bank: ...And 131 More Warped Suggestions and Well-Intended Rants by Steven D. Levitt, Stephen J. Dubner

Affordable Care Act / Obamacare, Airbus A320, airport security, augmented reality, barriers to entry, Bernie Madoff, Black Swan, Broken windows theory, Captain Sullenberger Hudson, creative destruction, Daniel Kahneman / Amos Tversky, deliberate practice, feminist movement, food miles, George Akerlof, global pandemic, information asymmetry, invisible hand, loss aversion, mental accounting, Netflix Prize, obamacare, oil shale / tar sands, Pareto efficiency, peak oil, pre–internet, price anchoring, price discrimination, principal–agent problem, profit maximization, Richard Thaler, Sam Peltzman, security theater, Ted Kaczynski, the built environment, The Chicago School, the High Line, Thorstein Veblen, transaction costs, US Airways Flight 1549

Here is how perch is priced: 2-piece perch meal: $3.58 3-piece perch meal: $4.69 4-piece perch meal: $6.45 So you get that third piece of perch cheap, but they nail you on the fourth piece. This certainly hints at Harold’s thinking there is some logic to this sort of pricing. Ultimately, though, my guess is that the person who chose these prices was just confused. One thing I have realized as I have worked more with businesses is that they are far from the idealized profit-maximizing automatons of economic theory. Confusion is endemic to firms. After all, firms are made up of people, and if people are confused most of the time by economics, why wouldn’t that carry over to firms? Why Are Kiwifruits So Cheap? (SJD) I’ve been eating a lot of kiwifruits lately. (You may also know them as the Chinese gooseberry.) At the corner deli near my home on the West Side of Manhattan, I can buy three for a dollar.

Maybe this really did have something to do with a world record bid. A quick Google search, however, revealed that the Postal Service isn’t condoning the chain mail. Actually, the explanation for why the letter got delivered without postage is even more interesting to me: apparently the automated mail-sorting machines fail to catch many letters that are missing a stamp. On reflection, this does make sense—profit maximization requires setting the marginal cost of an action equal to the marginal benefit. If almost all letters have stamps, then the benefit of checking each one with 100 percent accuracy is infinitesimal, so it makes sense to let some unstamped letters through. (The same idea holds for catching people who don’t pay their train fare.) Now, I am curious to know exactly how lax the Postal Service is.


pages: 353 words: 81,436

Buying Time: The Delayed Crisis of Democratic Capitalism by Wolfgang Streeck

activist fund / activist shareholder / activist investor, banking crisis, basic income, Bretton Woods, business cycle, capital controls, Carmen Reinhart, central bank independence, collective bargaining, corporate governance, creative destruction, David Graeber, deindustrialization, Deng Xiaoping, Eugene Fama: efficient market hypothesis, financial deregulation, financial repression, fixed income, full employment, Gini coefficient, Growth in a Time of Debt, income inequality, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labour market flexibility, labour mobility, late capitalism, liberal capitalism, means of production, moral hazard, Myron Scholes, Occupy movement, open borders, open economy, Plutonomy: Buying Luxury, Explaining Global Imbalances, profit maximization, risk tolerance, shareholder value, too big to fail, union organizing, winner-take-all economy, Wolfgang Streeck

Contrary to neo-Marxist theories, a legitimation crisis may therefore also grow out of discontent on the part of ‘capital’ with democracy and its associated obligations – hence without a progressive, system-transcending evolution of the demands of society on economic and social life, such as many thought to lie ahead in the 1970s. A legitimation crisis theory that starts with capital treats firms and their owners and managers as advantage-seeking profit maximizers rather than as prosperity machines, or functionaries obediently carrying out government economic policy. ‘Capital’ will appear in it as a self-willed and self-interested collective actor, strategic and capable of communication but only to a limited extent predictable, which may be dissatisfied and express itself accordingly. In a class theory modelled on classical political economy, who or what belongs to capital may be determined by its main form of income.

Kalecki, ‘Political Aspects of Full Employment’, Political Quarterly, vol. 14/4, 1943, pp. 322–31). 41 Hence it is that employers and economists axiomatically suspect workers of ‘shirking’ – and insist that, because of their ‘opportunism with guile’, they need to be kept under effective supervision or ‘monitoring’. 42 Of course there is a grey area where the categories mix, today more than ever. In it we find various forms of payment by results, akin to piece-rates for manual industrial workers; small savers who rely on both wage and capital income; and the proceeds from so-called ‘human capital’, which may be regarded as income from both labour and capital. What matters here is the analytical distinction between the dynamic of capital accumulation geared to open-ended profit maximization and the traditionalism of a secure livelihood at a given, or predictably rising, level of income. Both economic cultures exist alongside each other in capitalism as different action orientations, represented by different social groups and institutions with conflicting, and partly overlapping, expectations and requirements (W. Streeck, ‘Taking Capitalism Seriously: Towards an Institutional Approach to Contemporary Political Economy’, Socio-Economic Review, vol. 9/1, 2011, pp. 137–67). 43 This was a common term in the 1970s critiques of capitalism.


pages: 636 words: 140,406

The Case Against Education: Why the Education System Is a Waste of Time and Money by Bryan Caplan

affirmative action, Affordable Care Act / Obamacare, assortative mating, conceptual framework, correlation does not imply causation, deliberate practice, deskilling, disruptive innovation, en.wikipedia.org, endogenous growth, experimental subject, fear of failure, Flynn Effect, future of work, George Akerlof, ghettoisation, hive mind, job satisfaction, Kenneth Arrow, Khan Academy, labor-force participation, longitudinal study, low skilled workers, market bubble, mass incarceration, meta analysis, meta-analysis, Peter Thiel, price discrimination, profit maximization, publication bias, risk tolerance, Robert Gordon, Ronald Coase, school choice, selection bias, Silicon Valley, statistical model, Steven Pinker, The Bell Curve by Richard Herrnstein and Charles Murray, the scientific method, The Wisdom of Crowds, trickle-down economics, twin studies, unpaid internship, upwardly mobile, women in the workforce, yield curve, zero-sum game

Perhaps most importantly, they know and do what’s expected, even when articulating social norms is difficult or embarrassing. Employers don’t have to tell a modern model worker what’s socially acceptable case by case. Now we’re up to three broad traits that education signals: intelligence, conscientiousness, and conformity. We could easily extend this list: education also signals a prosperous family, cosmopolitan attitudes, and fondness for foreign films.21 For a profit-maximizing employer, however, the extensions are a distraction. The road to academic success is paved with the trinity of intelligence, conscientiousness, and conformity.22 The stronger your academic record, the greater employers’ confidence you have the whole package. Why do employers seek this package? Because the road to academic success and the road to job success are paved with the same materials.

By 1988, two-thirds of Egypt’s male college graduates and 80% of its female college graduates worked in the public sector.55 Throughout the world, public-sector workers tend to be more educated than private-sector workers.56 In the United States, 52% of government employees have a bachelor’s degree or more, versus 34% for private employees.57 Government positions for high school dropouts have all but vanished; between 1960 and 2000, the fraction of American public sector workers who hadn’t finished high school dropped from 34% to 3%.58 If government credentialism really explained the payoff for useless education, we would expect the education premium to be higher in the public than the private sector. When government pays the educated more than they’re worth, private employers need not follow suit. Business could instead scoff, “If government wants credentialed workers so badly, it can have them.” Indeed, if government credentialism artificially inflates the education premium, refusing to match inflated government salaries is the profit-maximizing response. In the real world, however, the private sector values education more than the public sector. Researchers consistently find that government pay scales are “compressed”: governments overpay the least-educated workers and underpay the most-educated workers.59 The U.S. federal government is a case in point (see Table 3.3). Table 3.3: U.S. Education Premium, Public vs. Private Sector Federal Government Private Sector Average Total Compensation ($/hour) Raise Education Premium over H.S.

Jones 2016 reports that IQ, like test scores, yields much bigger payoffs for nations than individuals. Schmidt 2009 documents the robust connection between intelligence and job performance. 96. Hanushek 2003, Hanushek, Schwerdt, et al. 2015. 97. Sociology has a long “credentialist” tradition—the idea that firms focus on formal credentials rather than skill. But sociologists tend to treat this focus as costly snobbery rather than a profit-maximizing response to imperfect information (Berg 1970, R. Collins 1979). Economists’ signaling models steered sociologists in a new direction; see, e.g., Labaree 1997, 2012, Bills 1988, 2003, 2004, David Brown 2001, 1995, Rosenbaum and Jones 2000, Kerckhoff 2000, and Spilerman and Lunde 1991. Thurow 1972, which actually slightly predates both Arrow and Spence, straddles the economic and sociological approaches.


pages: 348 words: 99,383

The Financial Crisis and the Free Market Cure: Why Pure Capitalism Is the World Economy's Only Hope by John A. Allison

Affordable Care Act / Obamacare, American ideology, bank run, banking crisis, Bernie Madoff, business cycle, clean water, collateralized debt obligation, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, fiat currency, financial innovation, Fractional reserve banking, full employment, high net worth, housing crisis, invisible hand, life extension, low skilled workers, market bubble, market clearing, minimum wage unemployment, money market fund, moral hazard, negative equity, obamacare, Paul Samuelson, price mechanism, price stability, profit maximization, quantitative easing, race to the bottom, reserve currency, risk/return, Robert Shiller, Robert Shiller, The Bell Curve by Richard Herrnstein and Charles Murray, too big to fail, transaction costs, yield curve, zero-sum game

Because it is extremely difficult to compete with Freddie and Fannie (as the government guarantees their liabilities), a large portion of BB&T’s mortgage originations business was sold to Freddie and Fannie. We retained the servicing to ensure a high level of customer satisfaction. There were times when, from an interest-rate risk and loan demand perspective, we would have liked to hold the loans in our own portfolio. However, the front-end accounting cost was so large that we sometimes kept selling the mortgages even though we did not think it was an economic profit-maximizing strategy. You may say that we were maximizing short-term profit. However, the income from holding mortgages would be spread over seven or eight years rather than being recognized in the current quarter. It is impossible to explain this difference to even sophisticated investors because it does not make sense. Why did an accounting system that treats such similar transactions so differently and creates a strong incentive for banks to securitize instead of portfolio (hold on its books) home mortgages get created?

In fact, the rating agencies have indicated that the credit ratings of these giant financial institutions are several grades higher than they would be without the implied government guarantee post-Dodd-Frank. This situation creates a major competitive advantage for these giant firms in the long term. When times are good again and the regulators look away (because of political pressure created by the massive lobbying efforts of these crony capitalist/socialist firms), the companies will be back taking irrational risk, with the goal of short-term profit maximizing. A zebra does not change its stripes. In my career, Citigroup has been saved by the government three times. Each time, it has afterward become bigger and worse. This is an almost certain outcome of the distorted incentive system that keeps incompetent companies in business. In the meantime, these government-supported companies will develop strategies that involve terribly risky investments and that will drive their remaining midsize competitors out of whole market segments.


pages: 354 words: 92,470

Grave New World: The End of Globalization, the Return of History by Stephen D. King

9 dash line, Admiral Zheng, air freight, Albert Einstein, Asian financial crisis, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Sanders, bilateral investment treaty, bitcoin, blockchain, Bonfire of the Vanities, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collateralized debt obligation, colonial rule, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, debt deflation, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Snowden, eurozone crisis, facts on the ground, failed state, Fall of the Berlin Wall, falling living standards, floating exchange rates, Francis Fukuyama: the end of history, full employment, George Akerlof, global supply chain, global value chain, hydraulic fracturing, Hyman Minsky, imperial preference, income inequality, income per capita, incomplete markets, inflation targeting, information asymmetry, Internet of things, invisible hand, joint-stock company, Kickstarter, Long Term Capital Management, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, moral hazard, Nixon shock, offshore financial centre, oil shock, old age dependency ratio, paradox of thrift, Peace of Westphalia, plutocrats, Plutocrats, price stability, profit maximization, quantitative easing, race to the bottom, rent-seeking, reserve currency, reshoring, rising living standards, Ronald Reagan, Scramble for Africa, Second Machine Age, Skype, South China Sea, special drawing rights, technology bubble, The Great Moderation, The Market for Lemons, the market place, The Rise and Fall of American Growth, trade liberalization, trade route, Washington Consensus, WikiLeaks, Yom Kippur War, zero-sum game

The authors of Basel I, signed in 1988 and enforced in 1992, regarded corporate lending as more risky than mortgage lending, and mortgage lending, in turn, as more risky than lending via investments in triple-A-ranked mortgage-backed securities. The regulators took the – superficially sensible – view that the riskier the class of asset, the more capital a bank would have to hold. But Basel I was indifferent about the quality of lending within asset classes (prompting profit-maximizing banks to lend more in any one category to riskier customers, who would pay higher interest rate spreads) and it was overly dependent on the judgements of ratings agencies, which, on too many occasions, had no more understanding of the inherent riskiness of innovative financial assets – collateralized debt obligations, for example – than anybody else. The architects of Basel II, produced in 2004 but still not fully implemented as the global financial crisis got going, were more sceptical about the value that ratings agencies could add.

In her monumental trilogy examining the economic and social success of the ‘bourgeoisie’, Deirdre McCloskey argues that the importance of institutions is hugely overrated. In her view, the key driver of economic advance is ‘trade-tested betterment’, an ethical approach to economic exchange first elucidated by – in their very different ways – Adam Smith, Jane Austen and Benjamin Franklin.8 In McCloskey’s world, the ethics of good business revolves around the idea that human beings are not merely profit-maximizing or utility-maximizing drones, but instead people capable of integrity, trust, respect, prudence, thrift, affection and the other ‘bourgeois virtues’. Seen in this light, institutions may only serve to restrict the beneficial economic exchanges that ultimately have allowed so many billions of people to escape grinding poverty. McCloskey makes a powerful point. After all, the existence of institutions says little about their effectiveness.


pages: 295 words: 90,821

Fully Grown: Why a Stagnant Economy Is a Sign of Success by Dietrich Vollrath

"Robert Solow", active measures, additive manufacturing, American Legislative Exchange Council, barriers to entry, business cycle, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, creative destruction, Deng Xiaoping, endogenous growth, falling living standards, hiring and firing, income inequality, intangible asset, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, labor-force participation, light touch regulation, low skilled workers, manufacturing employment, old age dependency ratio, patent troll, Peter Thiel, profit maximization, rising living standards, Robert Gordon, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, The Rise and Fall of American Growth, total factor productivity, women in the workforce, working-age population

That would make sense, as high-productivity establishments are also more likely to be profitable establishments, and it would be odd if firms left open unprofitable establishments or added establishments that were not profitable to begin with. It would be odd, but before I was an economist I worked for several large corporations, and I had plenty of bosses who made decisions that were anything but profit maximizing. So it’s possible that the slower turnover of establishments was good for productivity growth, but it seems more likely that slower turnover was a drag on productivity growth. What I’ll show you at the end of this chapter, though, is some evidence that in fact slower turnover of firms did contribute to slower productivity growth. Job Turnover Slowed Also The same kind of evidence, and a similar story, can be seen in data on the number of jobs created and destroyed year by year.

This N could be the number of people (so the more people, the more demand there is for a good), or N could be something like total income (so the richer everyone is, the more demand there is). Either way, it tells us something about the scale of the market the firm operates in. Turning this around, you get P = Y−1/ϵN1/ϵ. Finally, let the firm produce output using Y = AL. Put this together with the profit function above, and you get . (A.56) Do the profit maximization problem here, and you get that , (A.57) which is just that the marginal cost of labor should equal the marginal revenue product of labor. Note that the tax rate doesn’t affect this. Solve this for labor and you get . (A.58) If you use this answer for L*, the assumption that Y = AL*, and the demand Y = NP−ϵ, you can solve for the price that the firm charges: , (A.59) which says that the price is a markup over the marginal cost, w/A.


pages: 98 words: 27,201

Are Chief Executives Overpaid? by Deborah Hargreaves

banking crisis, Big bang: deregulation of the City of London, bonus culture, business climate, corporate governance, Donald Trump, G4S, Jeff Bezos, loadsamoney, Mark Zuckerberg, Martin Wolf, performance metric, principal–agent problem, profit maximization, Ronald Reagan, shareholder value, Snapchat, trade liberalization, trickle-down economics, wealth creators

But if executives and shareholders are given different objectives and companies are constructed in new ways, we could achieve a radical transformation of the business world. Whether we call this a stakeholder approach or caring capitalism, it is nothing short of a new corporate ethos. We are starting to see some tentative steps emerging. For example, the Benefit Corporation movement that started in the US gives for-profit corporate entities new legal goals. These include a positive impact on society, workers, community and the environment, rather than just profit maximization for shareholders. Other smaller companies – often technology firms – are introducing low pay ratios or getting their employees to vote on the right level of pay for the boss. A Canadian initiative, Wagemark, was set up in 2014 to give an endorsement to companies with fair pay ratios. It aims to set a kitemark for best practice in pay. Similarly, the Living Wage Foundation in Britain endorses employers that pay the living, rather than minimum wage.


pages: 581 words: 162,518

We the Corporations: How American Businesses Won Their Civil Rights by Adam Winkler

1960s counterculture, affirmative action, Affordable Care Act / Obamacare, anti-communist, Bernie Sanders, British Empire, Cass Sunstein, clean water, collective bargaining, corporate governance, corporate personhood, corporate social responsibility, desegregation, Donald Trump, financial innovation, glass ceiling, income inequality, invisible hand, joint-stock company, laissez-faire capitalism, land reform, obamacare, offshore financial centre, plutocrats, Plutocrats, Powell Memorandum, profit maximization, profit motive, race to the bottom, Ralph Nader, Ralph Waldo Emerson, refrigerator car, Robert Bork, Ronald Reagan, Rosa Parks, shareholder value, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, the scientific method, too big to fail, trade route, transcontinental railway, Unsafe at Any Speed, Upton Sinclair, yellow journalism

Nonetheless, today nearly every law student reads the Ford case and learns that, by law, a corporation exists to further the interests of stockholders, not the interests of employees, customers, or the larger community. For those who believe that corporations should be more than profit-maximizing automatons, Dodge v. Ford Motor Company, writes Greenfield, is “corporate law’s original sin.”30 * * * IN THE LOUISIANA ADVERTISING tax case, Eberhard P. Deutsch and Esmond Phelps, the lawyers for the newspaper companies, sought to portray their clients as being fundamentally different from ordinary profit-maximizing corporations. These companies played a special role in a democratic society. They were an essential part of “the press” protected by the Constitution, and their unique mission was “to gather and disseminate information” in order to educate voters and keep the government in check.

Patterson, Marshall and Carter argued that forcing the NAACP to reveal its membership list would violate the constitutional rights of both the corporation and its members. The organization claimed that the NAACP had “its own right of freedom of association” that would be infringed by the mandated disclosure. Like the Louisiana newspaper companies that distinguished themselves from ordinary business corporations by citing the special role of the press in a democracy, Carter and Marshall argued that the NAACP was unique too. Unlike a profit-maximizing business, the NAACP was a “political organization” that “seeks to influence public opinion and affect the political structure to achieve its objectives.” Although a corporation, the NAACP was truly a voluntary membership organization operating in the public interest.10 THURGOOD MARSHALL (FOURTH FROM LEFT) AND ROBERT CARTER’S (SECOND FROM LEFT) FIGHT AGAINST RACIAL SEGREGATION LED THEM TO DEFEND THE RIGHTS OF NONPROFIT CORPORATIONS.


pages: 304 words: 22,886

Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler, Cass R. Sunstein

Al Roth, Albert Einstein, asset allocation, availability heuristic, call centre, Cass Sunstein, choice architecture, continuous integration, Daniel Kahneman / Amos Tversky, desegregation, diversification, diversified portfolio, endowment effect, equity premium, feminist movement, fixed income, framing effect, full employment, George Akerlof, index fund, invisible hand, late fees, libertarian paternalism, loss aversion, Mahatma Gandhi, Mason jar, medical malpractice, medical residency, mental accounting, meta analysis, meta-analysis, Milgram experiment, money market fund, pension reform, presumed consent, price discrimination, profit maximization, rent-seeking, Richard Thaler, Right to Buy, risk tolerance, Robert Shiller, Robert Shiller, Saturday Night Live, school choice, school vouchers, transaction costs, Vanguard fund, Zipcar

After all, managers in the public sector have to answer to voters, and managers in the private sector have as their mandate the job of maximizing profits and share prices, not consumer welfare. Indeed, some of those who are most suspicious of governments think that the only responsibility of private managers is to maximize share prices. As we have emphasized, the invisible hand will, in some circumstances, lead those trying to maximize profits to maximize consumer welfare too. But when consumers are confused about the features of the products they are buying, it can be profit maximizing to exploit their confusion, especially in the short run but possibly in the long run too. The invisible hand works best when products are simple and purchased frequently. We worry very little about consumers being ripped off by their dry cleaners. A dry cleaner who loses shirts or suddenly doubles prices will not be in business long. But a mortgage broker who fails to point out that the teaser rate will disappear quickly is long gone by the time the customer gets the bad news.

In the environmental domain, we have suggested that disclosure can be an effective, and low-cost, monitoring device. We would love to see similar principles used to monitor governments. Require government officials to put all their votes, earmarks, and contributions from lobbyists on their Web sites. Require those determining the future of energy policy (to cite a random example) to reveal which profit-maximizing firms were invited to lend their all-too-invisible hands to the process of designing the rules. Require those determining the future of educational policy to reveal which interest groups, and which unions, gave them money in the most recent campaign. Require government agencies, not merely the private sector, to disclose their contributions to air and water pollution, and their greenhouse gas emissions.


pages: 377 words: 97,144

Singularity Rising: Surviving and Thriving in a Smarter, Richer, and More Dangerous World by James D. Miller

23andMe, affirmative action, Albert Einstein, artificial general intelligence, Asperger Syndrome, barriers to entry, brain emulation, cloud computing, cognitive bias, correlation does not imply causation, crowdsourcing, Daniel Kahneman / Amos Tversky, David Brooks, David Ricardo: comparative advantage, Deng Xiaoping, en.wikipedia.org, feminist movement, Flynn Effect, friendly AI, hive mind, impulse control, indoor plumbing, invention of agriculture, Isaac Newton, John von Neumann, knowledge worker, Long Term Capital Management, low skilled workers, Netflix Prize, neurotypical, Norman Macrae, pattern recognition, Peter Thiel, phenotype, placebo effect, prisoner's dilemma, profit maximization, Ray Kurzweil, recommendation engine, reversible computing, Richard Feynman, Rodney Brooks, Silicon Valley, Singularitarianism, Skype, statistical model, Stephen Hawking, Steve Jobs, supervolcano, technological singularity, The Coming Technological Singularity, the scientific method, Thomas Malthus, transaction costs, Turing test, twin studies, Vernor Vinge, Von Neumann architecture

Why, then, does Robin think that the population increase will exceed the gains from innovation? To understand his reasoning, let’s delve into a simple economic scenario: Pretend that someone emulates Robin and places the software in the public domain. Anyone can now freely copy e-Robin, although it still costs something to buy enough computing power to run him on, say a hundred thousand dollars a year. A profit-maximizing business would employ an e-Robin if the e-Robin brought the business more than $100,000 a year in revenue. After Moore’s law pushes the annual hardware costs of an e-Robin down to a mere $1, then a company would hire e-Robins as long as each brought the business more than $1 per annum. What happens to the salary of bio-Robin if you can hire an e-Robin for only a dollar? David Ricardo implicitly knew the answer to that question.

Here we would run into many of the problems that I discussed in chapters 3 and 4 when I explained the difficulties of creating a friendly artificial intelligence. In a world of trillions of emulations in which we attempt to rule, our existence would depend on maintaining control of the entire group, something that at least intuitively appears to be exponentially more difficult than coding one ultra-AI to like us. A business certainly wouldn’t want rebellious emulations. But a profit-maximizing company wouldn’t be too bothered by creating a group of emulations that had a one-in-a-million chance of rebelling because compared to all the other risks that normal companies face, this danger would be trivial. But, of course, if enough organizations each create a small risk of something very bad happening, then that very bad thing becomes very likely to happen. Maintaining control of a huge number of emulations would probably require that bio-humans create emulations whose task would be to prevent other emulations from rising up against us.


pages: 402 words: 98,760

Deep Sea and Foreign Going by Rose George

Admiral Zheng, air freight, Airbus A320, Albert Einstein, bank run, cable laying ship, Captain Sullenberger Hudson, Costa Concordia, Edward Lloyd's coffeehouse, Exxon Valdez, failed state, Filipino sailors, global supply chain, Google Earth, intermodal, Jones Act, London Whale, Malacca Straits, Panamax, pattern recognition, profit maximization, Skype, trade route, UNCLOS, UNCLOS, urban planning, WikiLeaks, William Langewiesche

They operate according to understandable business norms. I read studies that analyse piracy as a ‘market-dependent crime’. They decide that it operates best in a stable environment, not anarchy, which is why many pirates come from the less chaotic areas of Somalia like Puntland. Stability is needed to get supplies. I read that the average profit margin for piracy in 2010 was 25–30 per cent, that pirates are ‘the very essence of rational, profit-maximizing entrepreneurs described in classical economics’. In 2010, Harvard Business School chose Somali piracy as the best business model of the year. Breakdowns of the pirate economic model have been done. One suggests that it costs $300,000 to kit out a pirate attack, including $2000 for weapons and ammunition; $14,000 for skiffs and outboards; $1200 for curved ladders; $4000 for GPS receivers and radios; $7000 for food; $30,000 for miscellaneous equipment; $180,000 for bribes.

id=10PORTLOUIS44&q=high-seas-affairs Chapter 7: No Man’s Land 1 None of these is piracy Hugh Williamson, ‘Piracy at Sea: The Humanitarian Impact’, presentation given at International Conference on Piracy at Sea, 16–18 October 2011, Malmo, Sweden. 2 Yo-Ho-Toe David Willetts, ‘Yo-ho-toe: Navy nab pirate with 24 digits’, Sun, 6 February, 2012. – A thin Somali in a yellow jumpsuit Indian Ocean with Simon Reeve, Kenya and the Horn of Africa, BBC, released 22 April 2012. – Profit-maximizing entrepreneurs ‘The Economics of Piracy: pirate ransoms and livelihoods off the coast of Somalia’, Geopolicity, May 2011, p.ii. – $300,000 to kit out a pirate attack Pelton, op. cit. 3 100 most important people in shipping ‘4. Garaad Mohammed, Pirate, Somalia Inc.’, Lloyd’s List, 14 December 2010, http://www.lloydslist.com /ll/incoming/article351642.ece – Hostages killed in 2011 ‘A Moment for Victims of Piracy At Sea’, OceanusLive. org, 1 January 2012, http://www.oceanuslive.org/Main/ ViewNews.aspx?


pages: 104 words: 30,990

The Centrist Manifesto by Charles Wheelan

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, affirmative action, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, Bernie Madoff, Bretton Woods, centre right, clean water, creative destruction, David Brooks, delayed gratification, demand response, Home mortgage interest deduction, housing crisis, income inequality, invisible hand, obamacare, profit maximization, Ralph Nader, rent-seeking, Report Card for America’s Infrastructure, Ronald Reagan, Ronald Reagan: Tear down this wall, stem cell, the scientific method, transcontinental railway, Walter Mischel

Success or failure can be measured with a single metric: profits. If the aforementioned block party were run like a business, all of the complexity of the decision-making would be solved with one simple analytical exercise: Which option makes us the most money? If that is a steak dinner followed by an adult-film marathon, then that is what the block party will look like. Too bad for the vegetarian families with kids. The profit-maximizing approach is fine for Starbucks; people who do not like coffee can spend their money elsewhere. It does not work for any shared endeavor in which those who disapprove of some course of action cannot simply go elsewhere. Public policy involves two inexorable realities: 1) We have no objective measure of the “best” course of action in many situations. 2) In such situations, many stakeholders have significantly different opinions on what the best course of action ought to be.


pages: 112 words: 30,160

The Gated City (Kindle Single) by Ryan Avent

big-box store, carbon footprint, deindustrialization, edge city, Edward Glaeser, income inequality, industrial cluster, labor-force participation, low skilled workers, manufacturing employment, offshore financial centre, profit maximization, rent-seeking, Silicon Valley, Thorstein Veblen, transit-oriented development, Tyler Cowen: Great Stagnation, Veblen good, white picket fence, zero-sum game

A worker thinking about taking a position that pays twice his current wage in a city that's three times as expensive will quickly realize that this means a reduction in his real earnings, and he'll think twice before accepting. Employers in high cost areas must pay wages that are high relative to those in other cities if they’re to have any workers at all. But these employers are, in most cases, profit-maximizing firms. They're not going to pay higher wages if they don't have to. Say you're a software entrepreneur who sells products to companies all over the world, and who locates in Silicon Valley. The Valley is very expensive; the rent is high and it takes high wages to lure workers. Those costs eat into your profits. A rational business owner would look the numbers over and quickly conclude that the smart decision is to move to a cheaper location, where workers don't need to be paid as much.


pages: 380 words: 109,724

Don't Be Evil: How Big Tech Betrayed Its Founding Principles--And All of US by Rana Foroohar

"side hustle", accounting loophole / creative accounting, Airbnb, AltaVista, autonomous vehicles, banking crisis, barriers to entry, Bernie Madoff, Bernie Sanders, bitcoin, book scanning, Brewster Kahle, Burning Man, call centre, cashless society, cleantech, cloud computing, cognitive dissonance, Colonization of Mars, computer age, corporate governance, creative destruction, Credit Default Swap, cryptocurrency, data is the new oil, death of newspapers, Deng Xiaoping, disintermediation, don't be evil, Donald Trump, drone strike, Edward Snowden, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Etonian, Filter Bubble, future of work, game design, gig economy, global supply chain, Gordon Gekko, greed is good, income inequality, informal economy, information asymmetry, intangible asset, Internet Archive, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, job satisfaction, Kenneth Rogoff, life extension, light touch regulation, Lyft, Mark Zuckerberg, Marshall McLuhan, Martin Wolf, Menlo Park, move fast and break things, move fast and break things, Network effects, new economy, offshore financial centre, PageRank, patent troll, paypal mafia, Peter Thiel, pets.com, price discrimination, profit maximization, race to the bottom, recommendation engine, ride hailing / ride sharing, Robert Bork, Sand Hill Road, search engine result page, self-driving car, shareholder value, sharing economy, Shoshana Zuboff, Silicon Valley, Silicon Valley startup, smart cities, Snapchat, South China Sea, sovereign wealth fund, Steve Jobs, Steven Levy, subscription business, supply-chain management, TaskRabbit, Telecommunications Act of 1996, The Chicago School, the new new thing, Tim Cook: Apple, too big to fail, Travis Kalanick, trickle-down economics, Uber and Lyft, Uber for X, uber lyft, Upton Sinclair, WikiLeaks, zero-sum game

The notion of “shareholder value” is shorthand for this idea.12 The maximization of shareholder value is part of the larger process of “financialization,” which I covered in my previous book, Makers and Takers.13 It’s a process that has risen, in tandem with the Chicago School of thinking, since the 1980s, and has created a situation in which markets have become not a conduit for supporting the real economy, as Adam Smith would have said they should be, but rather, the tail that wags the dog. “Consumer welfare,” rather than citizen welfare, is our primary concern. We assume that rising share prices signify something good for the economy as a whole, as opposed to merely increasing wealth for those who own them. In this process, we’ve moved from being a market economy to being what Harvard law professor Michael Sandel would call a “market society,” obsessed with profit maximization in every aspect of our lives. Our access to the basics—healthcare, education, justice—is determined by wealth. Our experiences of ourselves and those around us are thought of in transactional terms, something that is reflected in the language of the day (we “maximize” time and “monetize” relationships). Now, with the rise of the surveillance capitalism practiced by Big Tech, we ourselves are maximized for profit.

But you could argue that, in a deeper way, Silicon Valley—not the old Valley that was full of garage start-ups and true innovators, but the financially driven Valley of today—represents the apex of the shift toward financialization. Today the large tech companies are run by a generation of business leaders who came of age and started their firms at a time when government was viewed as the enemy, and profit maximization was universally seen as the best way to advance the economy, and indeed society. Regulation or limits on corporate behavior have been viewed as tyrannical or even authoritarian. “Self-regulation” has become the norm. “Consumers” have replaced citizens.16 All of it is reflected in the Valley’s “move fast and break things” mentality, which the tech titans view as a fait accompli. As Eric Schmidt and Jared Cohen wrote in an afterword to the paperback edition of their book, “Bemoaning the inevitable increase in the size and reach of the technology sector distracts us from the real question….Many of the changes that we discuss are inevitable.


pages: 416 words: 112,268

Human Compatible: Artificial Intelligence and the Problem of Control by Stuart Russell

3D printing, Ada Lovelace, AI winter, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Alfred Russel Wallace, Andrew Wiles, artificial general intelligence, Asilomar, Asilomar Conference on Recombinant DNA, augmented reality, autonomous vehicles, basic income, blockchain, brain emulation, Cass Sunstein, Claude Shannon: information theory, complexity theory, computer vision, connected car, crowdsourcing, Daniel Kahneman / Amos Tversky, delayed gratification, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Ernest Rutherford, Flash crash, full employment, future of work, Gerolamo Cardano, ImageNet competition, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of the wheel, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, Law of Accelerating Returns, Mark Zuckerberg, Nash equilibrium, Norbert Wiener, NP-complete, openstreetmap, P = NP, Pareto efficiency, Paul Samuelson, Pierre-Simon Laplace, positional goods, probability theory / Blaise Pascal / Pierre de Fermat, profit maximization, RAND corporation, random walk, Ray Kurzweil, recommendation engine, RFID, Richard Thaler, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Rodney Brooks, Second Machine Age, self-driving car, Shoshana Zuboff, Silicon Valley, smart cities, smart contracts, social intelligence, speech recognition, Stephen Hawking, Steven Pinker, superintelligent machines, Thales of Miletus, The Future of Employment, Thomas Bayes, Thorstein Veblen, transport as a service, Turing machine, Turing test, universal basic income, uranium enrichment, Von Neumann architecture, Wall-E, Watson beat the top human players on Jeopardy!, web application, zero-sum game

The prologue to Max Tegmark’s Life 3.0 describes in some detail a scenario in which a superintelligent machine gradually assumes economic and political control over the entire world while remaining essentially undetected. The Internet and the global-scale machines that it supports—the ones that already interact with billions of “users” on a daily basis—provide the perfect medium for the growth of machine control over humans. I don’t expect that the purpose put into such machines will be of the “take over the world” variety. It is more likely to be profit maximization or engagement maximization or, perhaps, even an apparently benign goal such as achieving higher scores on regular user happiness surveys or reducing our energy usage. Now, if we think of ourselves as entities whose actions are expected to achieve our objectives, there are two ways to change our behavior. The first is the old-fashioned way: leave our expectations and objectives unchanged, but change our circumstances—for example, by offering money, pointing a gun at us, or starving us into submission.

A simple supervised learning algorithm may not have this effect, unless it is wrapped within an A/B testing framework (as is common in online marketing settings). Bandit algorithms and reinforcement learning algorithms will have this effect if they operate with an explicit representation of user state or an implicit representation in terms of the history of interactions with the user. 9. Some have argued that profit-maximizing corporations are already out-of-control artificial entities. See, for example, Charles Stross, “Dude, you broke the future!” (keynote, 34th Chaos Communications Congress, 2017). See also Ted Chiang, “Silicon Valley is turning into its own worst fear,” Buzzfeed, December 18, 2017. The idea is explored further by Daniel Hillis, “The first machine intelligences,” in Possible Minds: Twenty-Five Ways of Looking at AI, ed.


pages: 370 words: 107,983

Rage Inside the Machine: The Prejudice of Algorithms, and How to Stop the Internet Making Bigots of Us All by Robert Elliott Smith

Ada Lovelace, affirmative action, AI winter, Alfred Russel Wallace, Amazon Mechanical Turk, animal electricity, autonomous vehicles, Black Swan, British Empire, cellular automata, citizen journalism, Claude Shannon: information theory, combinatorial explosion, corporate personhood, correlation coefficient, crowdsourcing, Daniel Kahneman / Amos Tversky, desegregation, discovery of DNA, Douglas Hofstadter, Elon Musk, Fellow of the Royal Society, feminist movement, Filter Bubble, Flash crash, Gerolamo Cardano, gig economy, Gödel, Escher, Bach, invention of the wheel, invisible hand, Jacquard loom, Jacques de Vaucanson, John Harrison: Longitude, John von Neumann, Kenneth Arrow, low skilled workers, Mark Zuckerberg, mass immigration, meta analysis, meta-analysis, mutually assured destruction, natural language processing, new economy, On the Economy of Machinery and Manufactures, p-value, pattern recognition, Paul Samuelson, performance metric, Pierre-Simon Laplace, precariat, profit maximization, profit motive, Silicon Valley, social intelligence, statistical model, Stephen Hawking, stochastic process, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, The Future of Employment, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Thomas Malthus, traveling salesman, Turing machine, Turing test, twin studies, Vilfredo Pareto, Von Neumann architecture, women in the workforce

Inevitably, the economic pressures will begin to yield the same effects in these social contexts that they had in manufacturing, resulting in the rising expense of human-to-human interactions, making them less a part of common life and more a luxury for the better off. Moreover, because human work exists within a system where machines are likely to economically displace jobs, many more people will be driven into isolating work environments, like the Turkers. The merging of profit-maximizing economic and metric-optimizing scientific objectives, driven by and driving technological progress, forms a Gordian knot at the heart of AI. Perceived optimality and the efficiency of specialization drives economic progress, but with it we lose the art of the craftsman and the benefits of synergistic working. Simplification is a convenient skill in scientific modelling, and is the great driver of efficiency, but by its reductive nature it often obscures rather than illuminates the complexity of what we seek to understand.

The individual self-interest being pursued in this case is that of Facebook, a legal person (thanks to the notion of ‘corporate personhood’), whose board and directors are mandated to deliver the maximum value to the company’s shareholders. Facebook’s algorithms are the virtual limbs of this corporate body, tasked with reaching out into the marketplace and finding the best financial returns. In such a situation, where only a single agenda is present, the optimization algorithms involved are the ultimate realization of the rational agents at the centre of two centuries of economic theory. They are allowed to act on their profit-maximizing agendas autonomously, and the particulars of their ‘actions’ are not controlled (or even tractable) by human beings. In fact, the massive growth in AI speculation and development that we’ve seen over the last decade would not be occurring if these self-organizing algorithms did not link so seamlessly with self-organizing free-market theories. This combination of algorithms and networks is, in fact, the world’s first perfect economy, at least in the sense of economic theory.


pages: 918 words: 257,605

The Age of Surveillance Capitalism by Shoshana Zuboff

Amazon Web Services, Andrew Keen, augmented reality, autonomous vehicles, barriers to entry, Bartolomé de las Casas, Berlin Wall, bitcoin, blockchain, blue-collar work, book scanning, Broken windows theory, California gold rush, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, choice architecture, citizen journalism, cloud computing, collective bargaining, Computer Numeric Control, computer vision, connected car, corporate governance, corporate personhood, creative destruction, cryptocurrency, dogs of the Dow, don't be evil, Donald Trump, Edward Snowden, en.wikipedia.org, Erik Brynjolfsson, facts on the ground, Ford paid five dollars a day, future of work, game design, Google Earth, Google Glasses, Google X / Alphabet X, hive mind, impulse control, income inequality, Internet of things, invention of the printing press, invisible hand, Jean Tirole, job automation, Johann Wolfgang von Goethe, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kevin Kelly, knowledge economy, linked data, longitudinal study, low skilled workers, Mark Zuckerberg, market bubble, means of production, multi-sided market, Naomi Klein, natural language processing, Network effects, new economy, Occupy movement, off grid, PageRank, Panopticon Jeremy Bentham, pattern recognition, Paul Buchheit, performance metric, Philip Mirowski, precision agriculture, price mechanism, profit maximization, profit motive, recommendation engine, refrigerator car, RFID, Richard Thaler, ride hailing / ride sharing, Robert Bork, Robert Mercer, Second Machine Age, self-driving car, sentiment analysis, shareholder value, Shoshana Zuboff, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, slashdot, smart cities, Snapchat, social graph, social web, software as a service, speech recognition, statistical model, Steve Jobs, Steven Levy, structural adjustment programs, The Future of Employment, The Wealth of Nations by Adam Smith, Tim Cook: Apple, two-sided market, union organizing, Watson beat the top human players on Jeopardy!, winner-take-all economy, Wolfgang Streeck

For example, economic historian Ellen Meiksins Wood documents the origins of capitalism in the changing relations between English property owners and tenant farmers, as the owners began to favor productivity over coercion: “The new historical dynamic allows us to speak of ‘agrarian capitalism’ in early modern England, a social form with distinctive ‘laws of motion’ that would eventually give rise to capitalism in its mature, industrial form.”10 Wood describes how the new “laws of motion” eventually manifested themselves in industrial production: The critical factor in the divergence of capitalism from all other forms of “commercial society” was the development of certain social property relations that generated market imperatives and capitalist “laws of motion”… competitive production and profit-maximization, the compulsion to reinvest surpluses, and the relentless need to improve labour-productivity associated with capitalism.… Those laws of motion required vast social transformations and upheavals to set them in train. They required a transformation in the human metabolism with nature, in the provision of life’s basic necessities.11 My argument here is that although surveillance capitalism does not abandon established capitalist “laws” such as competitive production, profit maximization, productivity, and growth, these earlier dynamics now operate in the context of a new logic of accumulation that also introduces its own distinctive laws of motion.

It is not extinguished, but rather it is usurped: commandeered and accumulated by surveillance capital’s exclusive claims on our futures. III. How Did They Get Away with It? In the course of the last ten chapters I have argued that surveillance capitalism represents an unprecedented logic of accumulation defined by new economic imperatives whose mechanisms and effects cannot be grasped with existing models and assumptions. This is not to say that the old imperatives—a compulsion toward profit maximization along with the intensification of the means of production, growth, and competition—have vanished. However, these must now operate through the novel aims and mechanisms of surveillance capitalism. I briefly review the new imperatives here, both as a summary of the ground that we have covered and as prelude to the question How did they get away with it? Surveillance capitalism’s new story begins with behavioral surplus discovered more or less ready-made in the online environment, when it was realized that the “data exhaust” clogging Google’s servers could be combined with its powerful analytic capabilities to produce predictions of user behavior.

If industrial capitalism dangerously disrupted nature, what havoc might surveillance capitalism wreak on human nature? The answer to this question requires a return to imperatives. Industrial capitalism brought us to the brink of epic peril, but not as a consequence of an evil lust for destruction or runaway technology. Rather, this result was ineluctably driven by its own inner logic of accumulation, with its imperatives of profit maximization, competition, the relentless drive for labor productivity through the technological elaboration of production, and growth funded by the continuous reinvestment of surplus.23 It is Weber’s “economic orientation” that matters, and how that orientation merges with the specific form of capitalism that rises to dominance in each age. The logic of industrial capitalism exempted the enterprise from responsibility for its destructive consequences, unleashing the destabilization of the climate system and the chaos it spells for all creatures.


pages: 416 words: 118,592

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel

accounting loophole / creative accounting, Albert Einstein, asset allocation, asset-backed security, backtesting, beat the dealer, Bernie Madoff, BRICs, butter production in bangladesh, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial innovation, fixed income, framing effect, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Long Term Capital Management, loss aversion, margin call, market bubble, money market fund, mortgage tax deduction, new economy, Own Your Own Home, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, stocks for the long run, survivorship bias, The Myth of the Rational Market, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond

If they see a price about to break through a resistance area, they tend to buy before, not after, it breaks through. This suggests that others will try to anticipate the signal still earlier. Of course, the earlier they anticipate, the less certain they are that the signal will occur and that the trade will be profitable. Perhaps the most telling argument against technical methods comes from the logical implications of profit-maximizing behavior. Suppose that Universal Polymers is selling at around 20 when Sam, the chief research chemist, discovers a new production technique that promises to double the company’s earnings. Sam is convinced that the price of Universal will hit 40 when the news of his discovery comes out. Because any purchases below 40 will provide a swift profit, he may well buy up all the stock he can until the price hits 40, a process that could take no longer than a few minutes.

For example, the transaction costs involved in trying to capitalize on the January Effect are sufficiently large that the predictable pattern is not economically meaningful. Third, the predictable pattern that has been found, such as the dividend yield effect, may simply reflect general economic fluctuations in interest rates or, in the case of the small-firm effect, an appropriate premium for risk. Finally, if the pattern is a true anomaly, it is likely to self-destruct as profit-maximizing investors seek to exploit it. Indeed, the more profitable any return predictability appears to be, the less likely it is to survive. An exchange between Robert Shiller, a skeptic about market efficiency, and Richard Roll, an academic economist who was also a businessman running billions of dollars of investment funds, is quite revealing. After Shiller stressed the importance of fads and inefficiencies, Roll responded as follows: I have personally tried to invest money, my client’s money and my own, in every single anomaly and predictive device that academics have dreamed up….


pages: 401 words: 115,959

Philanthrocapitalism by Matthew Bishop, Michael Green, Bill Clinton

Albert Einstein, anti-communist, barriers to entry, battle of ideas, Bernie Madoff, Bob Geldof, Bonfire of the Vanities, business process, business process outsourcing, Charles Lindbergh, clean water, cleantech, corporate governance, corporate social responsibility, Dava Sobel, David Ricardo: comparative advantage, don't be evil, family office, financial innovation, full employment, global pandemic, global village, God and Mammon, Hernando de Soto, high net worth, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Dyson, John Harrison: Longitude, joint-stock company, knowledge economy, knowledge worker, Live Aid, lone genius, Marc Andreessen, market bubble, mass affluent, microcredit, Mikhail Gorbachev, Nelson Mandela, new economy, offshore financial centre, old-boy network, peer-to-peer lending, performance metric, Peter Singer: altruism, plutocrats, Plutocrats, profit maximization, profit motive, Richard Feynman, risk tolerance, risk-adjusted returns, Ronald Coase, Ronald Reagan, shareholder value, Silicon Valley, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, stem cell, Steve Jobs, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade liberalization, transaction costs, trickle-down economics, wealth creators, winner-take-all economy, working poor, World Values Survey, X Prize

“To credit these corporations with being ‘socially responsible’ is to stretch the term to mean anything a company might do to increase profits if, in doing so, it also happens to have some beneficent impact on the rest of society.” Reich misses the point, however, about the difficult choices that companies face. Many executives are so focused on dealing with short-term pressures for bigger profits that they do not devote sufficient time to thinking about what is in their long-term-profit-maximizing, enlightened self-interest. Even if they do think about it, it is all too rare that an executive is willing to incur the short-run costs (such as that R&D–like philanthropy) necessary to achieve that more profitable long-term goal. Spending on lobbying against change that may impose a short-term cost is often the reflex reaction. Corporate “doing well by doing good” may provide a win-win for the firm and society, but it is a win that too few firms even attempt—which is why those firms that do try surely deserve the public’s encouragement.

Especially since anticapitalist protesters started to target the WEF’s annual meetings in the 1990s, Schwab has thought hard about the need for business to engage more constructively in society—and has led by example in opening up the WEF to more diverse opinions, including from some of the people who would once have supported the activists on the other side of the Davos security fence. In his article “Global Corporate Citizenship,” he calls on international business leaders to “fully commit to sustainable development and address paramount global challenges,” including climate change, the provision of public health care, energy conservation, and the management of resources, particularly water, as part of a long-term profit-maximization strategy. Schwab argues that the emergence of global corporate citizenship is the “inevitable result” of several factors. One is the weakness of government: Schwab would reject Reich’s big-government prescriptions because the role of the nation-state is declining and global governance institutions (such as the U.N. and World Trade Organization) are inadequate to address global challenges.


pages: 695 words: 194,693

Money Changes Everything: How Finance Made Civilization Possible by William N. Goetzmann

Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, banking crisis, Benoit Mandelbrot, Black Swan, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, capital asset pricing model, Cass Sunstein, collective bargaining, colonial exploitation, compound rate of return, conceptual framework, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, delayed gratification, Detroit bankruptcy, disintermediation, diversified portfolio, double entry bookkeeping, Edmond Halley, en.wikipedia.org, equity premium, financial independence, financial innovation, financial intermediation, fixed income, frictionless, frictionless market, full employment, high net worth, income inequality, index fund, invention of the steam engine, invention of writing, invisible hand, James Watt: steam engine, joint-stock company, joint-stock limited liability company, laissez-faire capitalism, Louis Bachelier, mandelbrot fractal, market bubble, means of production, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, new economy, passive investing, Paul Lévy, Ponzi scheme, price stability, principal–agent problem, profit maximization, profit motive, quantitative trading / quantitative finance, random walk, Richard Thaler, Robert Shiller, Robert Shiller, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, spice trade, stochastic process, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, time value of money, too big to fail, trade liberalization, trade route, transatlantic slave trade, tulip mania, wage slave

The current debate about foreign ownership of companies has contrasted the argument that sovereign funds have the same interests as any other shareholder (profit maximization) versus the suggestion that foreign owners will use their stake to further national interests. I believe that profit maximization will dominate most board decisions by sovereign funds, but that the potential for the exercise of rights in the national interest is also present and of potential concern. The reason for this is governance. States have a fiduciary duty to their citizens, not to other shareholders in a company. In certain circumstances, they will face trade-offs between profit maximization and national interest, and it is only right that they serve their citizens first. A question for every country is whether a sovereign fund will become a diplomatic necessity in the future.


pages: 538 words: 121,670

Republic, Lost: How Money Corrupts Congress--And a Plan to Stop It by Lawrence Lessig

asset-backed security, banking crisis, carried interest, circulation of elites, cognitive dissonance, corporate personhood, correlation does not imply causation, crony capitalism, David Brooks, Edward Glaeser, Filter Bubble, financial deregulation, financial innovation, financial intermediation, invisible hand, jimmy wales, Martin Wolf, meta analysis, meta-analysis, Mikhail Gorbachev, moral hazard, Pareto efficiency, place-making, profit maximization, Ralph Nader, regulatory arbitrage, rent-seeking, Ronald Reagan, Sam Peltzman, Silicon Valley, single-payer health, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, WikiLeaks, Zipcar

The reason for laws regulating pollution is that pollution is an external cost of production, which is to say a cost not borne by the polluting company or its shareholders, and in making business decisions profit maximizers don’t consider costs they don’t bear. Banks consider the potential costs of bankruptcy to themselves in deciding how much risk to take but do not consider the potential costs to society as a whole.34 The banks were thus freed of the burden of federal regulation, yet driven by the discipline of market regulation to assume far more risk than was good for the economy. As Posner concludes: Am I saying that deregulation made bankers and through them borrowers take risks that were excessive from an overall social standpoint? Yes, once we recognht=ougize that competition will force banks to take risks (in order to increase return) that the economic and regulatory environment permits them to take, provided the risks are legal and profit-maximizing, whatever their consequences for the economy as a whole.35 This was also the conclusion of the Financial Crisis Inquiry Commission: “Unchecked, competition… can place the entire financial system at risk.”36 And indeed, as the commission concluded, in this case it did: More than 30 years of deregulation and reliance on self-regulation by financial institutions championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe.37 From the perspective of the economy as a whole, the banks thus took on more risk than was sensible.


pages: 448 words: 117,325

Click Here to Kill Everybody: Security and Survival in a Hyper-Connected World by Bruce Schneier

23andMe, 3D printing, autonomous vehicles, barriers to entry, bitcoin, blockchain, Brian Krebs, business process, cloud computing, cognitive bias, computer vision, connected car, corporate governance, crowdsourcing, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Heinemeier Hansson, Donald Trump, drone strike, Edward Snowden, Elon Musk, fault tolerance, Firefox, Flash crash, George Akerlof, industrial robot, information asymmetry, Internet of things, invention of radio, job automation, job satisfaction, John Markoff, Kevin Kelly, license plate recognition, loose coupling, market design, medical malpractice, Minecraft, MITM: man-in-the-middle, move fast and break things, move fast and break things, national security letter, Network effects, pattern recognition, profit maximization, Ralph Nader, RAND corporation, ransomware, Rodney Brooks, Ross Ulbricht, security theater, self-driving car, Shoshana Zuboff, Silicon Valley, smart cities, smart transportation, Snapchat, Stanislav Petrov, Stephen Hawking, Stuxnet, The Market for Lemons, too big to fail, Uber for X, Unsafe at Any Speed, uranium enrichment, Valery Gerasimov, web application, WikiLeaks, zero day

It’s part of what I meant when I talked about engineering security by design at the beginning of this chapter: if we’re building a system and the only way to secure it is by not connecting it, that should be considered a valid option. This might be regarded as heresy in today’s race to network everything, but large, centralized systems are not inevitable. Technical and corporate elites may be pushing us in that direction, but they really don’t have any good supporting arguments other than profit maximization. Disconnecting can happen in several ways. It can mean creating separate “air gapped” networks. (These have vulnerabilities as well, and are not a security panacea.) It can mean going back to non-interoperable systems. And it can mean not building connectivity into systems in the first place. There are also incremental ways to do this. We can enable local communications only. We can design dedicated devices, reversing the current trend of turning everything into a general-purpose computer.

Abbott Labs, 38, 41 Access Now, 214 accountability, 112, 128, 147 ACLU, 223 ad blockers, 16 African Union, 89 airline safety, 144 airplanes: bugs in, 41 remote control of, 1–2, 16 air traffic control, 210 Alexa (Amazon’s virtual assistant), 4, 61 Alexander, Keith, 118 algorithms: accurate inputs required by, 84 autonomous, 7, 82–87 data needed by, 84 hacking of, 83–84 machine learning, 82–83, 85, 111–12 physical agency of, 83 and robots, 86–87 security standards for, 111–12, 148 speed of, 84–85 Alibaba website, 169 Alphabet (Google’s parent company), 57 Alphonso, 58 Amazon, 57, 61, 62 Amnesia IoT botnet, 37 Amnesty International, 223 Anderson, Ross, 185 Andromeda botnet, 52 Angry Birds, 58 anonymity, 52, 53, 110, 199–200 Apple, 57, 60, 78, 174, 196 Applied Cryptography (Schneier), 32 Arab Spring, 67 arbitration agreements, 129 Arthur Andersen, 127 artificial intelligence (AI), 7, 86–87, 95, 148, 149, 219 Ashley Madison, hacking of, 78 AT&T, 113 Atomic Energy Commission (AEC), 149 attack vs. defense, 160–79 attack as US priority in, 73 attack easier than defense, 219 attacks changing in, 32–33 “defense dominant” strategy, 160 design for security vs. surveillance, 167–70 fixing vulnerabilities in, 162–67 in law enforcement, 173–76 offensive autonomous attack software, 85 and relationship between government and industry, 176–79 security as, 10, 16, 26–28 zero days in, 162, 163, 165 attribution, 52–55 in cyberattacks, 72, 203 detection evasion, 55 main points of, 54 authentication, 45–51 continuous, 47 differential, 47, 49 hub-and-spoke model of, 50 and identification, 51 and identity theft, 50–51, 171 and impersonation, 51 in Internet+, 49–51 methods of, 46 standards of, 109, 169 trade-off between security and usability in, 47 two-factor, 47, 49, 200 automobiles: aging, 39–40 bugs in, 41 driverless, 4, 205 industry regulation of, 182, 186 international markets for, 186, 187 Internet connection in, 6 manufacturer support of, 39–40 remote hacking of, 1, 3, 16 repair manuals for, 139 safety of, 139, 182 security standards for, 151 availability, attacks on, 78–82 Azimuth, 162 baby monitors, 133–35 backdoors, 26, 87, 88, 172, 174, 193–98, 220 Baker, Stewart, 204 balkanization, 157 banks, data manipulation attacks on, 81–82 Baratov, Karim, 30 Beckstrom, Rod, 19 Belan, Alexsey, 30 Bell, Alexander Graham, 152 best efforts, 122 Beyond Fear (Schneier), 211 “big data,” 57 biometrics, authentication via, 46, 47 Bismarck, Otto von, 220 bitcoin, 15, 74, 75, 77, 198, 218 blackouts, 29, 90 Blade Runner (film), 218 Blaster worm, 94 Bluetooth, 50, 58, 79 Bohm, Nick, 220 Border Gateway Protocol (BGP), 22, 23, 24, 115 Boston Marathon bombing (2013), 95, 202 Boston MBTA, 42 botnets, 26, 75, 77, 95, 139 Bowman Dam, Rye, New York, 79 breach disclosure laws, 137–38 bribery, 183 Brightest Flashlight, 58 BT, 113 Buckshot Yankee, 66 Budapest Convention on Cybercrime, 157 buffer overflow bug, 21 bug bounties, 36 bugs, 20–21, 41 CALEA (Communications Assistance for Law Enforcement Act) [1994], 168, 170 California, “Teddy Bears and Toasters” bill in, 187–88 Calo, Ryan, 149 Cameron, David, 197 Campos, Hugo, 63 CAN-SPAM Act (2003), 154 Caproni, Valerie, 193 “Capture the Flag” (hacking sport), 85 Carbon Black, 74 Carson, Rachel, Silent Spring, 183 caveat emptor, 131 Cellebrite, 174 cell towers, 32–33 fake, 168–70 Center on Privacy and Technology, 224 CEO fraud, 75 Challenger, 29 Check Point (Israeli company), 87 Cheney, Dick, 76, 93, 94 Chertoff, Michael, 198 Child Online Protection Act (1998), 154, 192–93 child porn, 183 China: and African Union headquarters, 89 censorship in, 67–68 and cybercrime law, 156, 158 cyberespionage by, 66, 67, 81 eavesdropping on communications, 195–96 hacking by, 45 intellectual property theft by, 66, 72–73 social control in, 67–68 China Telecom, 113 chips: general-purpose, 6 vulnerabilities in, 21 CIA, 73, 77, 165–67 Cisco Internet switches, 170 cities, smart sensors in, 4, 6 Citizen Lab, 64 Clapper, James, 66, 81 Clark, David, 23 class-action lawsuits, 129 class breaks: hacking via, 33, 95 use of term, 31–32 click fraud, 16, 75 cloud computing, 7, 190 Code for America, 223 Cogent ISP, 115 Cohen, Julie, 154 Comcast, 62, 113 Comey, James, 193–94 Commission on Enhancing National Cybersecurity, 180–81 complexity, 11, 27 and accidents, 80 theory of, 210 and unpredictability, 211 Computer Fraud and Abuse Act (1986), 42 computers: extensibility of, 24–26 as ubiquitous, 1–5, 19 vulnerabilities in, 30–32 confidentiality, threats to, 78–81 Consumers Union, 136, 145 copy protection, 25, 41, 62, 131, 154, 155, 205 Core Infrastructure Initiative, 115 corporations: CEO fraud in, 75 consumers controlled by, 59–64 data sought by, 57 infrastructure controlled by, 117 insecurity favored by, 56 profit maximization by, 118 regulation evaded by, 154–55 surveillance capitalism in, 57–59, 65, 209 CrashOverride, 2, 4–5 credential stealing, 45–47 credit card fraud, 16, 100 crime rate, public toleration of, 92 crimeware-as-a-service (CaaS), 76 cryptanalysis, differential, 33 cryptocurrencies, 172, 198 Cuban Missile Crisis (1962), 95 “cyber,” as umbrella term, 183–84 cyberattacks, 68–74, 116, 203, 217 Cyberbit (Israel), 65 cybercrime, 74–77, 156, 158 cyberdefense: “active,” 203 national agency for, 148 cyberespionage, see espionage Cyber Grand Challenge, 85 cyber incident data repository, 177 cyber peace, 213–14 cyberphysical systems, 7 cyber resilience, 211–12 cybersecurity, see Internet+ security Cybersecurity Improvement Act (2017), 180, 208 Cyber Shield Act (2017), 136 cyberstalking, 76 Cyber Threat Alliance, 177 cyberwar, 68–74 arms race in, 73, 116, 212–14 attribution in, 72 autonomous weapons in, 86 cyberespionage vs., 72 cyber mercenaries in, 70 limited response in, 71 “preparing the battlefield,” 69 and unpeace, 71–74 cyberweapons: in armed conflict, 72 autonomous, 86 instability of, 72, 212 manufacturers, 65 nonproliferation standards for, 158 theft of, 73 Daniel, Michael, 164 Darknet, 198 DARPA (US Defense Advanced Research Projects Agency), 85 data: accuracy of, 84 in adversarial machine learning, 84 anonymity of, 110 as byproduct, 57 “Collect it all,” 118 deletion of, 110 encryption of, 109, 171 integrity of, 80, 81, 109 jurisdiction over, 146 limits on collection of, 109 metadata, 174 natural bias of, 84 ownership of, 109 personal, control of, 62–63, 64, 109–11 sharing of, 177–79 storage and processing of, 174 Data and Goliath (Schneier), 110, 172 databases: encryption of, 171 threats to, 79, 80, 81 data brokers, 58 Data Encryption Standard (DES), 32, 33 DDoS (distributed denial-of-service) attack, 29, 130, 202 Deepwater Horizon disaster, 124 “defense dominance,” 160 see also attack vs. defense Democratic National Committee, Russian attacks on (2016), 30, 45, 78, 80 denial of service, 29, 79, 81, 130, 202 Department of Homeland Security, 117, 138 Derechos Digitales, Chile, 214 detection evasion, 55 Digital HKS, Harvard, 224 Digital Millennium Copyright Act (DMCA), 41–42, 62, 154, 193, 205–6, 220 digital rights management (DRM), 25, 62, 205 Digital Security Helpline, 214 DNSChanger malware, 37 Doctorow, Cory, 163 Dodd-Frank Act (2010), 126 Domain Name Service, 24, 115 security (DNSSEC), 24 domino effect, 210 “Don’t Panic,” 174 drones, 7, 80, 91, 95, 151, 200 Dyn, botnet attack against, 94, 202 Edgehill program (UK), 168 Electronic Communications Privacy Act (1986), 153 Electronic Frontier Foundation, 32, 223 Who Has Your Back?


pages: 651 words: 135,818

China into Africa: trade, aid, and influence by Robert I. Rotberg

barriers to entry, BRICs, colonial rule, corporate governance, Deng Xiaoping, energy security, European colonialism, failed state, global supply chain, global value chain, income inequality, Khartoum Gordon, land reform, megacity, microcredit, offshore financial centre, one-China policy, out of africa, Pearl River Delta, profit maximization, purchasing power parity, RAND corporation, Scramble for Africa, South China Sea, special economic zone, structural adjustment programs, trade route, Washington Consensus, zero-sum game

Beijing may have some overall strategic thinking to do about its role in Africa and Latin America, but China is not a monolithic polity. Debates go on inside China’s policymaking circles all the time. The Chinese leadership may want certain outcomes from China’s engagement in Africa and Latin America, but it may not be able to control a rapidly expanding network of state and private actors who have entered these markets based on the logic of globalization and profit maximization. Domestic Developmental Dynamics It is not sufficient to study Africa’s or Latin America’s or any individual country’s relations with China from a narrow bilateral perspective. Nor is it complete to focus on a particular theme, such as energy, human rights, or strategic ambitions. China’s domestic developmental dynamics will have a decisive impact on how the Chinese government and Chinese firms behave abroad.

These constraints and limitations primarily come from the current stage in China’s own domestic development, which is characterized by 03-7561-4 ch3.qxd 9/16/08 4:08 PM Page 61 China’s Emerging Partnerships in Africa 61 —a brutal, cutthroat capitalist market economy (or as some call it, a primitive accumulation process in its classical Marxist sense); —severe exploitation of labor forces; —a lack of protection for workers and the collapse of the welfare and health care system; —greedy forces of profit maximization; —widespread corruption in both political and economic areas; —the worsening of environmental and ecological conditions; —a lack of corporate responsibility and transparency; and —no experience or expertise with democratic governance. All of these market-driven developments will not just stay within Chinese borders; they will move to the rest of the world as China expands into Africa and other parts of the globe.


pages: 484 words: 136,735

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

"Robert Solow", bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, business cycle, buy and hold, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, global rebalancing, Hyman Minsky, income inequality, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage debt, Nelson Mandela, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Vilfredo Pareto, Washington Consensus, zero-sum game

Even more importantly for practical politicians, Russian communism and German fascism now presented rival models that America and Britain could not ignore. As the socio-political system began to evolve from the first era of capitalism to the second, economics also had to reinvent itself. It did this by dividing into two distinct branches. The traditional branch, later described as microeconomics, continued to use the tools of nineteenth-century marginal theory to analyze the behavior of utility-maximizing individuals and profit-maximizing companies in competitive markets for ordinary commodities such as coal, tomatoes, or shoes. The new branch of the subject, called macroeconomics, was invented more or less from scratch in the 1930s by Keynes and his Cambridge collaborator, Richard Kahn, along with the Polish economist Michal Kalecki. It focused not on ordinary goods but on the factors of production that create new wealth—labor, capital, and money—and especially on how the fluctuating demand for all these factors of production generates instability in the economy as a whole.

The reality, as demonstrated by the Third World debt crisis, when the institutions that went bankrupt were all strictly regulated utility banks, is that finance always and everywhere involves a combination of the utility and the casino, of socially indispensable fiduciary functions and privately profitable speculation on unpredictable risks. Rather than trying artificially to separate out the public and private characteristics of banking, the new thinking about capitalism should acknowledge that financial institutions will always be in some sense public-private hybrids, subject to the messy confusion of political and profit-maximizing incentives that infuriated Henry Paulson and the other free-market ideologues who wanted to demolish Fannie Mae and Freddie Mac. Banks may be legally structured as private companies, answerable only to their shareholders, but they have a uniquely important social function and thus operate in the public realm, with implicit government support. Their managements, shareholders, and regulators must therefore recognize the symbiotic interdependence between private banking and government.


Making Globalization Work by Joseph E. Stiglitz

affirmative action, Andrei Shleifer, Asian financial crisis, banking crisis, barriers to entry, Berlin Wall, business process, capital controls, central bank independence, corporate governance, corporate social responsibility, currency manipulation / currency intervention, Doha Development Round, Exxon Valdez, Fall of the Berlin Wall, Firefox, full employment, Gini coefficient, global reserve currency, Gunnar Myrdal, happiness index / gross national happiness, illegal immigration, income inequality, income per capita, incomplete markets, Indoor air pollution, informal economy, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), inventory management, invisible hand, John Markoff, Jones Act, Kenneth Arrow, Kenneth Rogoff, low skilled workers, manufacturing employment, market fundamentalism, Martin Wolf, microcredit, moral hazard, new economy, North Sea oil, offshore financial centre, oil rush, open borders, open economy, price stability, profit maximization, purchasing power parity, quantitative trading / quantitative finance, race to the bottom, reserve currency, rising living standards, risk tolerance, Silicon Valley, special drawing rights, statistical model, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, trickle-down economics, union organizing, Washington Consensus, zero-sum game

If we consider the problem to be overborrowing, then we naturally think of making it more difficult for borrowers to discharge their debts; on the contrary, if the problem is overlending, we focus on strengthening incentives for lenders to exercise due diligence. The political economy of overborrowing is easy to understand. The current borrowing government benefits, and later governments have to deal with the consequences. But why have sophisticated, profit-maximizing lenders so often overlent? Lenders encourage indebtedness because it is profitable.8 Developing country governments are sometimes even pressured to overborrow. There may be kickbacks in loans, or even more frequently in the projects that they finance. Even without corruption, it is easy to be influenced by Western businessmen and financiers. They wine and dine those responsible for borrowing as they sell their loan packages, and tell them why this is a good time to borrow, why their particular package is particularly attractive, why this is the right time to restructure debt.9 Countries that aren’t sure that borrowing is worth the risk are told how important it is to establish a credit rating: borrow even if you really don’t need the money.

A key criticism of globalization discussed in this book is that it has attempted to “depoliticize” decisions that are quintessentially political. 9.As we shall explain in chapter 3, the underlying economic forces for globalization too may change over time, as the composition of production and trade changes. 10.These are views already incorporated into corporate governance in many European countries. The views expressed here are, I should note, as reasonable as they may seem to the laymen, highly controversial—particularly within American academia. There are some extreme conditions under which one can show value(or profit-) maximizing behavior of firms lead to economic efficiency, and it is upon these extreme models that much of the economics literature focuses. But so long as there is imperfect information or an incomplete set of markets, then maximizing the well-being of shareholders does not lead either to economic efficiency or general well-being. See, for instance, Sanford J. Grossman and Joseph E. Stiglitz, “On Value Maximization and Alternative Objectives of the Firm,” Journal of Finance, vol. 32, no. 2 (May 1977), pp. 389–402.


pages: 501 words: 134,867

A Line in the Tar Sands: Struggles for Environmental Justice by Tony Weis, Joshua Kahn Russell

addicted to oil, Bakken shale, bilateral investment treaty, call centre, carbon footprint, clean water, colonial exploitation, conceptual framework, corporate social responsibility, decarbonisation, Deep Water Horizon, en.wikipedia.org, energy security, energy transition, Exxon Valdez, failed state, global village, guest worker program, happiness index / gross national happiness, hydraulic fracturing, immigration reform, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, invisible hand, liberal capitalism, LNG terminal, market fundamentalism, means of production, Naomi Klein, new economy, Occupy movement, oil shale / tar sands, peak oil, profit maximization, race to the bottom, smart grid, special economic zone, WikiLeaks, working poor

Today, ENGO campaigns have retained key features that are at the root of the tensions with grassroots campaigning: the bureaucratic and top-down organizing style; accountability to campaign funders rather than affected communities; the narrow focus on the official policy-making process; and the single-issue (non-systemic) approach to popular education. Below, I will discuss the case of the Great Bear Rainforest campaign in British Columbia. Throughout this chapter, I indicate how ENGOs have, for the most part, shied away from anything that might smack of anti-capitalism, and even from identifying corporate power and profit maximization as central to the problems that they claim to address. On the contrary, many have embraced the frameworks of “green capitalism” or “ethical consumerism”—no doubt, in part, to appease funders and reassure policy-makers of their respectability. ENGOs’ Failure to Address Colonialism and Environmental Racism In Canada, ENGOs have begun to recognize how resource extraction is a racialized issue, in which business priorities outweigh concerns about the pollution and destruction wrought on First Nations communities.

To see why, recall that corporations are purely self-interest-motivated institutions, in the sense that what they do depends on their economic calculations of costs and benefits. Their options are evaluated in terms of how they positively or negatively affect the organization’s vital interests, which centre on growth, the maximization of profits, and shareholder returns.3 As a result, if activists want to influence corporate behaviour, the only way to do so is to threaten the corporation’s vital interest in profit maximization. Can the movement to shut down the tar sands carry out actions that directly threaten the profitability of firms like Suncor, Syncrude, TransCanada, and Enbridge? In my view, it can do so only to a very limited degree. Consider the kinds of threats that grassroots activism can pose for these corporations when relying on popular education, public protest, and confrontational disruption or defiance.


pages: 182 words: 55,234

Rendezvous With Oblivion: Reports From a Sinking Society by Thomas Frank

Affordable Care Act / Obamacare, Bernie Sanders, big-box store, business climate, business cycle, call centre, crowdsourcing, David Brooks, deindustrialization, deskilling, Donald Trump, edge city, Frank Gehry, high net worth, income inequality, Jane Jacobs, Jeff Bezos, McMansion, new economy, New Urbanism, obamacare, offshore financial centre, plutocrats, Plutocrats, Ponzi scheme, profit maximization, Ralph Nader, Richard Florida, Ronald Reagan, Silicon Valley, single-payer health, The Death and Life of Great American Cities, too big to fail, urban planning, Washington Consensus, Works Progress Administration

If you want to succeed, you must go to them; they are the ones controlling the gate. What they sell, in other words, is something we believe to be so valuable it is almost impossible to measure. Anyone in her right mind would pay an enormous price for it. Another fact: this same industry, despite its legal status as a public charity, is today driven by motives almost indistinguishable from those of the profit-maximizing entities traded on the New York Stock Exchange. The coming of “academic capitalism” has been anticipated and praised for years; today it is here. Colleges and universities clamor greedily for pharmaceutical patents and ownership chunks of high-tech start-ups; they boast of being “entrepreneurial”; they have rationalized and outsourced countless aspects of their operations in the search for cash; they fight their workers nearly as ferociously as a nineteenth-century railroad baron; and the richest among them have turned their endowments into in-house hedge funds.


Masters of Mankind by Noam Chomsky

affirmative action, American Legislative Exchange Council, Berlin Wall, failed state, God and Mammon, income inequality, Intergovernmental Panel on Climate Change (IPCC), land reform, Martin Wolf, means of production, Nelson Mandela, nuremberg principles, offshore financial centre, oil shale / tar sands, Paul Samuelson, plutocrats, Plutocrats, profit maximization, Ralph Waldo Emerson, Silicon Valley, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, union organizing, urban renewal, War on Poverty, Washington Consensus, Westphalian system

Similarly, the American people “understand” the necessity for the grotesquerie of the space race, which is quite susceptible to Madison Avenue techniques and thus, along with the science-technology race in general, serves as “a transfigured, transmuted and theoretical substitute for an infinite strategic arms race; it is a continuation of the race by other means.”53 It is fashionable to decry such analyses—or even references to the “military-industrial complex”—as “unsophisticated.” It is interesting, therefore, to note that those who manipulate the process and stand directly to gain by it are much less coy about the matter. There are some perceptive analysts—J. K. Galbraith is the best example—who argue that the concern for growth and profit maximization has become only one of several motives for management and technostructure, that it is supplemented, perhaps dominated, by identification with and adaptation to the needs of the organization, the corporation, which serves as a basic planning unit for the economy.54 Perhaps this is true, but the consequences of this shift of motivation may nevertheless be slight, since the corporation as planning unit is geared to production of consumer goods55—the consumer, often, being the national state—rather than satisfaction of social needs, and to the extension of its dominion in the organized international economy.


pages: 170 words: 51,205

Information Doesn't Want to Be Free: Laws for the Internet Age by Cory Doctorow, Amanda Palmer, Neil Gaiman

Airbnb, barriers to entry, Brewster Kahle, cloud computing, Dean Kamen, Edward Snowden, game design, Internet Archive, John von Neumann, Kickstarter, MITM: man-in-the-middle, optical character recognition, plutocrats, Plutocrats, pre–internet, profit maximization, recommendation engine, rent-seeking, Saturday Night Live, Skype, Steve Jobs, Steve Wozniak, Stewart Brand, transfer pricing, Whole Earth Catalog, winner-take-all economy

I think that old media will continue to find a home in the new world. After all, 2011 was the year that a silent film (The Artist) swept the Oscars. Despite the waxing fortunes of recorded performances, live music and live theater continue to thrive—indeed, taken as a whole, these industries are bigger than they have ever been. The entertainment industry has a long history of characterizing its profit-maximization strategies as do-or-die existential crises. If we can’t control the printing press/the record player/the radio/cable/VCRs/the Internet, they say, we will die. The reality is more like “If we can’t control these things, we’ll have to invent some new ways of making money, and make less from the old ways.” It’s happened many times before. 3.21 What Is Copyright For? THE PURPOSE OF copyright shouldn’t be to ensure that whoever got lucky with last year’s business model gets to stay on top forever.


pages: 226 words: 59,080

Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, business cycle, butterfly effect, capital controls, Carmen Reinhart, central bank independence, collective bargaining, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Donald Davies, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, Fellow of the Royal Society, financial deregulation, financial innovation, floating exchange rates, fudge factor, full employment, George Akerlof, Gini coefficient, Growth in a Time of Debt, income inequality, inflation targeting, informal economy, information asymmetry, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, Pareto efficiency, Paul Samuelson, price stability, prisoner's dilemma, profit maximization, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, school vouchers, South Sea Bubble, spectrum auction, The Market for Lemons, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, trade route, ultimatum game, University of East Anglia, unorthodox policies, Vilfredo Pareto, Washington Consensus, white flight

Compensation levels of high income earners such as CEOs seem also to be determined largely by bargaining.3 Other models highlight the role of norms in the spread that is considered acceptable between, say, the CEO’s compensation and the amounts earned by rank-and-file employees. Most economists would acknowledge that workers in the United States and Europe greatly benefited from the more egalitarian social understanding of the 1950s and 1960s. Yet other models suggest that profit-maximizing reasons motivate certain firms to pay more than the going market wage, without departing from the marginal-productivity framework as such. For example, above-market “efficiency” wages, as they are called, may make sense for employers in order to motivate workers or minimize labor turnover (to reduce costs of hiring and training). These wrinkles move us away from general-purpose models and take us back, again, to specific models that may be relevant in different settings.


pages: 202 words: 62,901

The People's Republic of Walmart: How the World's Biggest Corporations Are Laying the Foundation for Socialism by Leigh Phillips, Michal Rozworski

Berlin Wall, Bernie Sanders, call centre, carbon footprint, central bank independence, Colonization of Mars, combinatorial explosion, complexity theory, computer age, corporate raider, decarbonisation, discovery of penicillin, Elon Musk, G4S, Georg Cantor, germ theory of disease, Gordon Gekko, greed is good, hiring and firing, index fund, Intergovernmental Panel on Climate Change (IPCC), Internet of things, inventory management, invisible hand, Jeff Bezos, Joseph Schumpeter, linear programming, liquidity trap, mass immigration, Mont Pelerin Society, new economy, Norbert Wiener, oil shock, passive investing, Paul Samuelson, post scarcity, profit maximization, profit motive, purchasing power parity, recommendation engine, Ronald Coase, Ronald Reagan, sharing economy, Silicon Valley, Skype, sovereign wealth fund, strikebreaker, supply-chain management, technoutopianism, The Nature of the Firm, The Wealth of Nations by Adam Smith, theory of mind, transaction costs, Turing machine, union organizing

The difference lies in their objective function (the goal) and how it is determined. In the capitalist firm, the technique is put in the service of maximizing profit for the gain of the owners, and indeed, most linear programming textbooks and software manuals assume profit as the objective. In the socialist society, the objective function may still be an increase in wealth, but that of the society as a whole; that is, mathematically akin to profit-maximization, but socially determined. The steady expansion of leisure time might be another objective function, as might the maximization of ecosystem services and minimization of their disruption. In this way, we see how while the replacement of market allocation with economic planning may be a necessary condition for the realization of socialism, it is not a sufficient condition: it must be married to democracy.


pages: 219 words: 63,495

50 Future Ideas You Really Need to Know by Richard Watson

23andMe, 3D printing, access to a mobile phone, Albert Einstein, artificial general intelligence, augmented reality, autonomous vehicles, BRICs, Buckminster Fuller, call centre, clean water, cloud computing, collaborative consumption, computer age, computer vision, crowdsourcing, dark matter, dematerialisation, digital Maoism, digital map, Elon Musk, energy security, failed state, future of work, Geoffrey West, Santa Fe Institute, germ theory of disease, global pandemic, happiness index / gross national happiness, hive mind, hydrogen economy, Internet of things, Jaron Lanier, life extension, Mark Shuttleworth, Marshall McLuhan, megacity, natural language processing, Network effects, new economy, oil shale / tar sands, pattern recognition, peak oil, personalized medicine, phenotype, precision agriculture, profit maximization, RAND corporation, Ray Kurzweil, RFID, Richard Florida, Search for Extraterrestrial Intelligence, self-driving car, semantic web, Skype, smart cities, smart meter, smart transportation, statistical model, stem cell, Stephen Hawking, Steve Jobs, Steven Pinker, Stewart Brand, strong AI, Stuxnet, supervolcano, telepresence, The Wisdom of Crowds, Thomas Malthus, Turing test, urban decay, Vernor Vinge, Watson beat the top human players on Jeopardy!, web application, women in the workforce, working-age population, young professional

Pew Oceans Report, 2003 If you find all this a little fanciful, consider for a moment that there is already a system in use in parts of the UK whereby video feeds are used to monitor animals automatically, working out when they’re ready to be slaughtered. The technology maps animal outlines, then uses algorithms to work out weight, feed requirements and likely market days. Why bother? Because of cost savings and profit maximization. Fishing without fishermen But applying cutting-edge science and technology to the food chain won’t be limited to the land. Out at sea similar techniques will be applied to farm fish in the open ocean. The idea here is to build vast motorized—or possibly sail-powered—cages, fill them with laboratory-bred baby fish and float them out to sea. Food can either come from the open ocean or be scattered into the cages from supply vessels, which know exactly where the cages are thanks, once again, to GPS.


pages: 261 words: 63,473

Warren Buffett Accounting Book: Reading Financial Statements for Value Investing (Warren Buffett's 3 Favorite Books) by Stig Brodersen, Preston Pysh

discounted cash flows, fixed income, intangible asset, market bubble, money market fund, principal–agent problem, profit maximization, risk tolerance, time value of money

But the other side of the equation is just as important—if not more so: you should minimize your expenses. I am not talking about remembering to turn off the lights when leaving your home, or taking the bus instead of the car. I am talking about one of your biggest expenses in personal finances: taxes. Few people notice it because they only look at the bottom of their pay slip, but taxes are a major expense in every household. In investing, taxes are equally a problem for profit maximization. If you are like me, your goal with value investing is to establish a new source of income outside your daily job. By minimizing your tax, you indirectly improve your return on investments. Luckily, minimizing taxes on capital gains is very easy to do. The following table shows the current American tax bracket for 2014. Don’t worry if you do not live in America; this example is applicable for any investor.


Debtor Nation: The History of America in Red Ink (Politics and Society in Modern America) by Louis Hyman

asset-backed security, bank run, barriers to entry, Bretton Woods, business cycle, card file, central bank independence, computer age, corporate governance, credit crunch, declining real wages, deindustrialization, diversified portfolio, financial independence, financial innovation, fixed income, Gini coefficient, Home mortgage interest deduction, housing crisis, income inequality, invisible hand, late fees, London Interbank Offered Rate, market fundamentalism, means of production, mortgage debt, mortgage tax deduction, p-value, pattern recognition, profit maximization, profit motive, risk/return, Ronald Reagan, Silicon Valley, statistical model, technology bubble, the built environment, transaction costs, union organizing, white flight, women in the workforce, working poor, zero-sum game

Policymakers, in numerous instances, often acted with the best of intentions, seeking to solve pressing economic and social problems, like unemployment, wealth inequality, and discrimination. Yet the policies, once enacted, often had far-reaching, unexpected consequences. For lenders, figuring out ways to extend credit met with both success and failure. The short-hand way in which historians describe capitalist decision-making as “profit maximizing” obscures the gut-wrenching difficulty of discovering new ways to make money. But once discovered, whether borne by profit or inscribed in law, new ways to lend spread throughout the economy. At certain junctures, which are the focus of this book, sudden changes in the larger political, economic, and social structures surrounding debt abruptly reoriented lending practices. These moments of transformation came from all quarters, and while the most powerful institutions—commercial banks, corporations, government agencies—frequently played the most crucial roles, those with less power in America, when organized, contributed to the changes as well.

., 260 Bussing, Irvin, 77, 83, 85 Buy Now, Pay Later: Advertising Credit, and Consumer Durables in the 1920s (Olney), 293n3, 294n9 Calder, Lendol, 294n9, 297n26, 297n39, 297n41, 297n44, 301n149 INDEX Caldor’s, 168; “Caldor’s Credit Card,” 168 Calvert, Robert, 152 Campbell, Sharyn, 195, 203 capital, 5; allocation of, 5–6; risk-weighted capital, 256; transformation of into debt, 5 Capital Moves (Cowie), 295n11 Capital One, 257, 272, 273 capitalism: and the allocation of capital, 5–6; consumer capitalism, 7; and “profit maximizing,” 2; success of, 284–85 Caplan, P. I., 96 Caplovitz, David, 175–76, 176, 177, 343n25 “‘Carry Credit in Your Pocket’: The Early History of the Credit Card at Bank of America and Chase Manhattan” (Wolters), 316n2 Cassaday, Norman, 117 CBS News, 210 Central Bank (Walnut Creek, California), 250 Chadbourne, Archie, 36 Changing Times, 171 Charga-Plates, 117–18, 133, 145, 146, 149–50; group Charga-Plate plan, 326; in the postwar era, 120–27, 127–28 charge account credit.


pages: 257 words: 13,443

Statistical Arbitrage: Algorithmic Trading Insights and Techniques by Andrew Pole

algorithmic trading, Benoit Mandelbrot, constrained optimization, Dava Sobel, George Santayana, Long Term Capital Management, Louis Pasteur, mandelbrot fractal, market clearing, market fundamentalism, merger arbitrage, pattern recognition, price discrimination, profit maximization, quantitative trading / quantitative finance, risk tolerance, Sharpe ratio, statistical arbitrage, statistical model, stochastic volatility, systematic trading, transaction costs

Defining risk moments (or events) as times when a stock price trace changes direction such that a peak or trough is formed, it is desirable for risk minimization purposes to select pairs that show similar event histories—peaks and troughs close in time with similar 22 STATISTICAL ARBITRAGE sized moves for the two stocks between these events. Such pairs are less likely to react divergently (except, perhaps, in the immediate aftermath) following a disturbance to the market (political, industrial development, etc.). For profit maximization, it is desirable that between events the two stocks develop along different price trajectories, exhibiting as much negative correlation—moving apart, then together—as possible. See Chapter 5 for a formal treatment of desirable and undesirable pair correlations. 2.4.2 Event Analysis The turning point algorithm works as follows: 1. A local maximum in the price series is a turning point if subsequently the price series declines by an amount giving a negative return greater in absolute value than a specified fraction of the local, annualized return volatility. 2.


pages: 261 words: 64,977

Pity the Billionaire: The Unexpected Resurgence of the American Right by Thomas Frank

Affordable Care Act / Obamacare, bank run, big-box store, bonus culture, business cycle, collateralized debt obligation, collective bargaining, commoditize, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Deng Xiaoping, financial innovation, housing crisis, invisible hand, Kickstarter, money market fund, Naomi Klein, obamacare, payday loans, profit maximization, profit motive, road to serfdom, Robert Bork, Ronald Reagan, shareholder value, strikebreaker, The Chicago School, The Myth of the Rational Market, Thorstein Veblen, too big to fail, union organizing, Washington Consensus, white flight, Works Progress Administration

One of the stranded passengers, meanwhile, possesses great political power; he is able to threaten top railroad officials and have the train proceed into the tunnel of desire just like the flesh-and-blood passengers of 1910 wanted. And then the passengers are suffocated for his insolence. Politics, in short, is what causes train accidents. Government does not protect passengers; it imperils them. If allowed to act on their profit-maximizing own, corporations would never endanger passengers’ lives, much as those moochers deserve to be endangered. For more on the Wellington disaster, see Ruby El Hult, Northwest Disaster: Avalanche and Fire (Portland, OR: Binfords and Mort, 1960) and Gary Krist, The White Cascade: The Great Northern Railway Disaster and America’s Deadliest Avalanche (New York: Henry Holt, 2007). To get up to speed on the history of train wrecks, try Mark Aldrich’s Death Rode the Rails: American Railroad Accidents and Safety, 1828–1965 (Baltimore: Johns Hopkins University Press, 2006).


pages: 265 words: 71,143

Empires of the Weak: The Real Story of European Expansion and the Creation of the New World Order by Jason Sharman

British Empire, cognitive dissonance, colonial rule, corporate social responsibility, death of newspapers, European colonialism, joint-stock company, joint-stock limited liability company, land tenure, offshore financial centre, passive investing, Peace of Westphalia, performance metric, profit maximization, Scramble for Africa, South China Sea, spice trade, trade route, transaction costs

Those who fail to imitate are unlikely to survive.”50 More generally Kenneth Waltz, the doyen of theory in the same field, holds that, thanks to the anarchical nature of the international system, maladapted units “fall by the wayside.”51 Adopting Waltz’s logic to nineteenth-century military competition in Latin America, another scholar makes the same point: “Whether firms in the market or states in the system, units in competitive realms are continually pressed to ensure they are internally well organized and equipped to thrive and survive.”52 The explanation here relies on differential survival rates rather than learning: obsolete or maladapted ideas and organizations give way, leaving more suitable ideas and organizations to diffuse, multiply, and dominate.53 Firms that don’t learn to keep up with the competition will tend to go out of business.54 If selection is working to weed out inefficient organizations and promote efficient ones, the end result will be very similar to that in which organizations are adept learners. Often these two mechanisms are said to reinforce each other. The threat of elimination provides the incentive to learn. Because inefficient organizations are eliminated, economists assume that firms behave as if they have mastered complex profit-maximization calculations. Yet, if anything, Elster sees even bigger problems with the idea that organizations’ characteristics can be explained as functional adaptations to environmental pressures, in this case the pressures of military competition. Rather like learning, what at first seems to be a commonsense presumption on closer inspection turns out to rely on quite demanding and restrictive conditions.


pages: 244 words: 66,977

Subscribed: Why the Subscription Model Will Be Your Company's Future - and What to Do About It by Tien Tzuo, Gabe Weisert

3D printing, Airbnb, airport security, Amazon Web Services, augmented reality, autonomous vehicles, blockchain, Build a better mousetrap, business cycle, business intelligence, business process, call centre, cloud computing, cognitive dissonance, connected car, death of newspapers, digital twin, double entry bookkeeping, Elon Musk, factory automation, fiat currency, Internet of things, inventory management, iterative process, Jeff Bezos, Kevin Kelly, Lean Startup, Lyft, manufacturing employment, minimum viable product, natural language processing, Network effects, Nicholas Carr, nuclear winter, pets.com, profit maximization, race to the bottom, ride hailing / ride sharing, Sand Hill Road, shareholder value, Silicon Valley, skunkworks, smart meter, social graph, software as a service, spice trade, Steve Ballmer, Steve Jobs, subscription business, Tim Cook: Apple, transport as a service, Uber and Lyft, uber lyft, Y2K, Zipcar

That infamous analyst call back in November 2011 was a turning point in modern business history. Today the market is much more sophisticated about subscription models as growth engines. What do the Adobe and PTC transition stories have in common? As Lah and Wood note, successful enterprise transitions share some common themes: “They communicated their transition objectives very clearly and they committed to a firm timeline. They ran with an aggressive profit maximizer mentality. They were open and transparent in their financial reporting . . . the louder and more publicly aggressive companies seem to be about their pivot to technology as a service, the better chance their stock price has of weathering the transition period.” Today the tech sector is booming again. According to the St. Louis Fed, since the Great Recession ended, jobs in the tech sector have been growing by 20 percent, compared with 11 percent growth in the rest of the private sector.


pages: 246 words: 68,392

Gigged: The End of the Job and the Future of Work by Sarah Kessler

Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, basic income, bitcoin, blockchain, business cycle, call centre, cognitive dissonance, collective bargaining, crowdsourcing, David Attenborough, Donald Trump, East Village, Elon Musk, financial independence, future of work, game design, gig economy, income inequality, information asymmetry, Jeff Bezos, job automation, law of one price, Lyft, Mark Zuckerberg, market clearing, minimum wage unemployment, new economy, payday loans, post-work, profit maximization, QR code, race to the bottom, ride hailing / ride sharing, Second Machine Age, self-driving car, shareholder value, sharing economy, Silicon Valley, Snapchat, TaskRabbit, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, union organizing, universal basic income, working-age population, Works Progress Administration, Y Combinator

Still, Trebor was often asked: Could a self-funded cooperative really compete with venture-backed startups like Uber? The lobby of Uber’s San Francisco headquarters featured a ceiling-high world map outlined on a black wall, with blue dots sprinkled over most of it, to show where Uber’s service was available. They sure had a head start. That’s not the point, Trebor believed. “These questions are coming from the assumption about profit maximization rather than serving a set of members,” he told me in an interview. “You don’t need to destroy Uber. But can you create an ethical, smaller alternative?” In other words, if you’re not trying to create a jackpot win for investors, there’s really no need to paint a black map on the wall with which to track an expanding empire. All you’re trying to do is provide work for the people who own the company.


pages: 236 words: 67,953

Brave New World of Work by Ulrich Beck

affirmative action, anti-globalists, Asian financial crisis, basic income, Berlin Wall, collective bargaining, conceptual framework, Fall of the Berlin Wall, feminist movement, full employment, future of work, Gunnar Myrdal, hiring and firing, illegal immigration, income inequality, informal economy, job automation, knowledge worker, labour market flexibility, labour mobility, low skilled workers, McJob, means of production, mini-job, post-work, postnationalism / post nation state, profit maximization, purchasing power parity, rising living standards, Silicon Valley, working poor, working-age population, zero-sum game

Ecological globalization risks also find local expression. And the crises of ecology and justice form an inner unity: ‘There can be no justice between the sexes in a world of ecological crises and global apartheid, if the social and political structures that protect the poor are dismantled because they “block” free trade or are considered “inefficient” or “extravagant” in the sense of the market logic of profit maximization.’28 In so far as capitalist successes based on information tech-nology remove the shackles of human labour, reports of victories and bad tidings become two sides of the same coin. Both the profits of transnational corporations and the unemployment figures are on the rise in the welfare niche-societies of Western Europe. The same trend that means a roller-coaster for the economy is becoming a living nightmare for working people.


pages: 232 words: 70,361

The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay by Emmanuel Saez, Gabriel Zucman

activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Berlin Wall, business cycle, Cass Sunstein, collective bargaining, corporate governance, Donald Trump, financial deregulation, income inequality, income per capita, informal economy, intangible asset, Jeff Bezos, labor-force participation, Lyft, Mark Zuckerberg, market fundamentalism, Mont Pelerin Society, mortgage debt, mortgage tax deduction, new economy, offshore financial centre, oil shock, patent troll, profit maximization, purchasing power parity, race to the bottom, rent-seeking, ride hailing / ride sharing, Ronald Reagan, shareholder value, Silicon Valley, single-payer health, Skype, Steve Jobs, The Wealth of Nations by Adam Smith, transfer pricing, trickle-down economics, uber lyft, very high income, We are the 99%

The small-government ideas championed by the Mont Pelerin Society from its creation in 1947, embodied by Barry Goldwater in his 1964 presidential run, and advanced by a network of conservative foundations in the 1970s, had finally spread into mainstream thought and prevailed politically.4 In this ideology, the primary role of government is to defend property rights and the key engine of growth is the profit-maximizing business, minimizing taxes paid along the way. “There is no such thing as society, there are only individual men and women,” according to this world view.5 For the atomized individual, taxation is a dead loss; it amounts to legalized theft. And indeed, speaking on the lawn of the White House, pen at the ready, Reagan denounced a tax system that had become ‘‘un-American”; its “steeply progressive nature struck at the heart of the economic life of the individual.”


pages: 593 words: 189,857

Stress Test: Reflections on Financial Crises by Timothy F. Geithner

Affordable Care Act / Obamacare, asset-backed security, Atul Gawande, bank run, banking crisis, Basel III, Bernie Madoff, Bernie Sanders, break the buck, Buckminster Fuller, Carmen Reinhart, central bank independence, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Doomsday Book, eurozone crisis, financial innovation, Flash crash, Goldman Sachs: Vampire Squid, housing crisis, Hyman Minsky, illegal immigration, implied volatility, Kickstarter, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, Nate Silver, negative equity, Northern Rock, obamacare, paradox of thrift, pets.com, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, RAND corporation, regulatory arbitrage, reserve currency, Saturday Night Live, savings glut, selection bias, short selling, sovereign wealth fund, The Great Moderation, The Signal and the Noise by Nate Silver, Tobin tax, too big to fail, working poor

He would later quip that there hadn’t been a useful financial innovation since the ATM. I took his discomfort seriously, but I didn’t have the strength of his convictions. I had never worked in banking, so I had no basis for comparison to the past. I didn’t see the financial sector as either irretrievably broken or inherently wise. I saw it as an inherently risky business, a collection of profit-maximizing individuals with profit-maximizing shareholders, providing generally valuable economic services. I was rarely shocked by reports of rapacious behavior. I took it as a given. I rarely socialized with Wall Street executives—I did run into Volcker once at a lavish celebration of Peterson’s Blackstone Group, and he whispered, only half-jokingly: “You shouldn’t be here!”—but I talked to them regularly to get their perspectives on the markets and the economy.


Money and Government: The Past and Future of Economics by Robert Skidelsky

anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, market clearing, market friction, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, mobile money, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, placebo effect, price stability, profit maximization, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

The 311 M ac roe c onom ic s i n t h e C r a s h a n d A f t e r , 2 0 0 7 – implication of this is that shares are always correctly priced on average, because investors adjust their buy/sell actions instantaneously and accurately to any newly released information. Thus, in the words of Fama, ‘I take the market efficiency hypothesis to be the simple statement that security prices fully reflect all available information.’11 An ‘efficient’ market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants. In an efficient market, competition among the many intelligent participants leads to a situation where, at any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already occurred and on events which, as of now, the market expects to take place in the future.

Despite regrettable backslidings, our political and social systems are more sophisticated, more resilient, than those of even the recent past. Populations are better educated and less submissive to the unbridled will of rulers. This in itself militates against a return to a much more primitive political style. None of this means that globalization should or can continue, 383 A N e w M ac roe c onom ic s heedless of national sentiment. Identity politics is telling us that there are limits to the rule of profit-maximizing capitalism which we ignore at our peril. Economics can help us understand what those limits are. But it has to be a different kind of economics. Specifically, those who think about economics should spell out the economic conditions for a decent migration policy. V I I I. R e for m i ng E conom ic s 51 Economics has a crucial part to pay in preserving the liberal political system. But to do so political liberalism must be detached from neoliberal economics.


pages: 607 words: 185,487

Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed by James C. Scott

agricultural Revolution, business cycle, clean water, colonial rule, commoditize, deskilling, facts on the ground, germ theory of disease, informal economy, invention of writing, invisible hand, Jane Jacobs, Kenneth Arrow, land reform, land tenure, Louis Pasteur, new economy, New Urbanism, Potemkin village, price mechanism, profit maximization, road to serfdom, Silicon Valley, stochastic process, the built environment, The Death and Life of Great American Cities, the scientific method, Thorstein Veblen, urban decay, urban planning, urban renewal, working poor

Cultivators can reduce the danger of going hungry if they sow, instead of only one or two cultivars, crops of long and short maturity, crops that are drought resistant and those that do well under wetter conditions, crops with different patterns of resistance to pests and diseases, crops that can be stored in the ground with little loss (such as cassava), and crops that mature in the "hungry time" before other crops are gath- ered.4S Finally, and perhaps most important, each of these crops is embedded in a distinctive set of social relations. Different members of the household are likely to have different rights and responsibilities with respect to each crop. The planting regimen, in other words, is a reflection of social relations, ritual needs, and culinary tastes; it is not just a production strategy that a profit-maximizing entrepreneur took straight out of the pages of a text in neoclassical economics. The high-modernist aesthetic and ideology of most colonial agronomists and their Western-trained successors foreclosed a dispassionate examination of local cultivation practices, which were regarded as deplorable customs for which modern, scientific farming was the corrective. A critique of such hegemonic ideas comes, if it comes at all, not from within, but typically from the margins, where the intellectual point of departure and operating assumptions, as was the case with Jacobs, are substantially different.

Alcorn, "Huastec Noncrop Resource Management: Implications for Prehistoric Rain Forest Management," Human Ecology 9, no. 4 (1981): 395-417; and Christine Padoch, "The Woodlands of Tae: Traditional Forest Management in Kalimantan," in William Bentley and Marcia Gowen, eds., Forest Resources and Wood Based Biomass Energy as Rural Development Assets (New Delhi: Oxford and IBH, 1995). 2. For marketed crops in a fully commercialized system, profit maximization would rarely be precisely the same as crop-volume maximization. Where labor was scarce, cultivators would be more concerned about maximizing the crop return per unit of labor, whereas if land was scarce, the return per acre would be the focus. 3. Paul Richards, Indigenous Agricultural Revolution: Ecology and Food Production in West Africa (London: Unwin Hyman, 1985), p. 160; in this chapter I rely heavily on this brilliant book.


pages: 1,073 words: 302,361

Money and Power: How Goldman Sachs Came to Rule the World by William D. Cohan

asset-backed security, Bernie Madoff, business cycle, buttonwood tree, buy and hold, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, fear of failure, financial innovation, fixed income, Ford paid five dollars a day, Goldman Sachs: Vampire Squid, Gordon Gekko, high net worth, hiring and firing, hive mind, Hyman Minsky, interest rate swap, John Meriwether, Kenneth Arrow, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, mega-rich, merger arbitrage, moral hazard, mortgage debt, Myron Scholes, paper trading, passive investing, Paul Samuelson, Ponzi scheme, price stability, profit maximization, risk tolerance, Ronald Reagan, Saturday Night Live, South Sea Bubble, time value of money, too big to fail, traveling salesman, value at risk, yield curve, Yogi Berra, zero-sum game

He had had to figure out how to extend the firm’s reach beyond Sidney Weinberg’s friends and to learn how to impart the firm’s collected wisdom and knowledge more broadly as the firm grew more rapidly. This led him to create the New Business Group and the firm’s fourteen principles. These innovations, however, took the firm only so far toward the modernization it desperately needed. To get the firm the rest of the way fell to the next generation of the firm’s leaders, Friedman and Rubin. According to Institutional Investor, the firm’s new leaders established an “Ad Hoc Profit Maximization Committee,” whose members were “intelligent men from Mars,” according to Friedman, and the purpose of which was “to bring new perspectives to the firm’s various businesses by questioning how things are run … without threatening the ethos.” Then there was the “bevy” of new consultants who showed up at the firm. Marketing consultant Anthony Buzan—a “creative provocateur,” Geoff Boisi said—had been hired to counter the perception that Goldman was a follower, not a leader, when it came to financial innovation.

We really mean it.” —— WHATEVER SOCIAL AND behavioral problems the firm seemed to be having as the John Weinberg era faded away, there was no question Goldman Sachs—more than ever—still knew how to make money. Institutional Investor estimated the 1990 “honeypot” at “north of $600 million,” and Forbes wrote, without caveat, that the firm made $1 billion in net income in 1991. The Ad Hoc Profit Maximization Committee seemed to be working quite well. Goldman was not only the leader in the traditional investment banking businesses of underwriting debt and equity securities and in advising on M&A deals, but it had also started to become a leader in the business of investing its own capital, as a principal in trades and as a major investor in a variety of its own private-equity, bridge loan, and hedge funds.

Woolworth Company Gadhafi, Mu‘ammar al- Galbraith, John Kenneth, 2.1, 2.2, 2.3, 2.4, 2.5 Gang of Five, 5.1, 5.2 Gant, Donald Gapper, John gasoline Gasvoda, Kevin, 19.1, 20.1 GATT treaty Gaul, Paul Geissinger, John Geisst, Charles Geithner, Timothy, prl.1, 22.1 General Atlantic General Cigar Company General Electric, 2.1, 3.1, 3.2, 3.3, 4.1, 7.1, 8.1, 9.1 European bonds underwritten for RCA’s merger with, 10.1, 10.2 General Foods Corporation, 2.1, 3.1, 3.2, 4.1, 4.2, 10.1 General Motors General Re Corporation Gensler, Gary, 17.1, 18.1 George, Edward Germany, 1.1, 3.1, 14.1, 14.2, 14.3 Geronemus, Roy Gerst, David get-rich-quick schemes Getty Oil Gilbert, Cass Gilmour, James Giuliani, Rudolph, 11.1, 11.2, 11.3, 11.4, 11.5, 11.6, 11.7, 11.8, 11.9, 11.10 Glass-Steagall Act (1932), 2.1, 4.1, 10.1, 16.1 Glauber, Robert Glengarry Glen Ross (Mamet), 4.1 Glenn, John Global Crossing gold, 3.1, 9.1, 9.2 gold coins, 1.1, 1.2 Goldfield, Jacob, 13.1, 13.2, 16.1 Goldman, Bertha, 1.1, 1.2, 1.3 Goldman, Henry, 1.1, 1.2, 2.1, 4.1 Federal Reserve System designed by Germany supported by Goldman Sachs inherited by retirement of, 1.1, 1.2, 4.1 as risk-taking Sears IPO handled by, 1.1, 1.2, 1.3 underwriting and, 1.1, 1.2 Goldman, Henry, Jr. Goldman, Julius Goldman, Louisa see Sachs, Louisa Goldman Goldman, Marcus in arrival to U.S. death of gold coins of IOUs bought and sold by, 1.1, 1.2, 1.3, 1.4, 1.5, 1.6, 5.1 money for Jewish immigrants collected by Sam Sachs made partner of, 1.1, 1.2 Goldman, Rebecca Goldman, Rosa see Sachs, Rosa Goldman Goldman, Sachs & Dreyfus Goldman Sachs: “Ad Hoc Profit Maximization Committee” at, 12.1, 12.2 Administrative Department of American Cyanamid Corporation lawsuit against annual budgeting at antitrust lawsuit against, 4.1, 8.1 arbitrage department of, 5.1, 5.2, 5.3, 5.4, 6.1, 6.2, 6.3, 6.4, 7.1, 7.2, 9.1, 9.2, 10.1, 11.1, 11.2, 11.3, 12.1, 15.1; see also Levy, Gustave Lehmann; Rubin, Robert bad news not shared by, 7.1, 7.2, 7.3; see also “big short” in battles with other companies board of directors at, 17.1, 17.2, 22.1 bond department of, 3.1, 3.2, 5.1, 5.2, 10.1, 10.2, 14.1 Bouton’s potential lawsuit against branch offices of, 3.1, 4.1 Broad Street building of, 4.1, 5.1, 6.1, 7.1 Buffett’s loan to, prl.1, prl.2 business department of Business Standards Committee of, 24.1, 24.2 Buying Department of, 7.1, 7.2, 7.3 calling effort of capital of, 1.1, 1.2, 4.1, 4.2, 5.1, 5.2, 6.1, 7.1, 9.1, 10.1, 10.2, 12.1, 12.2, 12.3, 14.1, 14.2, 14.3, 15.1, 15.2, 15.3, 16.1 Capital Structure Franchise Trading Group of Catching’s company created for Catching’s power grab at collusion accusations against commercial paper traded by, 1.1, 1.2, 1.3, 1.4; see also commercial paper compensation at, prl.1, prl.2, prl.3, prl.4, 5.1, 7.1, 7.2 competitiveness at confidentiality and nondisparagement agreements at, prl.1 conflict management by, prl.1, 15.1, 17.1 Corporate Finance Department of, 7.1, 7.2, 7.3, 17.1 Corzine’s desire to enlarge in crash of 1929, 2.1, 2.2, 2.3, 2.4, 3.1 Depression strategy of, prl.1, 3.1 discipline at 85 Broad Street building of, prl.1, 8.1, 10.1, 10.2, 17.1 envy of ethical code of, prl.1, 8.1, 16.1, 17.1 Executive Committee of, 15.1, 16.1, 16.2, 16.3, 16.4 factors in prowess of as family business fear of Financial Institutions Group of (FIG), 15.1, 15.2, 16.1, 16.2, 16.3, 16.4, 16.5, 16.6 fine paid by Firmwide Risk Committee at Fixed-Income, Currencies and Commodities (FICC) at, 14.1, 16.1, 17.1, 17.2, 17.3, 17.4, 17.5, 19.1 fixed-income division of, 10.1, 10.2, 10.3, 12.1, 12.2, 12.3, 13.1, 14.1, 14.2, 14.3, 14.4, 15.1, 15.2, 15.3, 16.1, 17.1 Ford IPO handled by, 4.1, 5.1, 5.2, 8.1, 12.1 foreign exchange department of, 1.1, 9.1, 14.1, 15.1, 15.2, 17.1 “great rehabilitation” of, 3.1, 3.2 hot IPO’s distributed by hundredth anniversary of internal e-mails of, prl.1, prl.2, prl.3, prl.4 International Advisory Committee of international expansion of, 8.1, 12.1, 12.2, 14.1, 14.2, 14.3, 14.4, 15.1, 15.2, 15.3, 16.1, 17.1, 17.2 interview process at investment banking of, prl.1, prl.2, 3.1, 4.1, 4.2, 4.3, 4.4, 5.1, 6.1, 7.1, 7.2, 8.1, 8.2, 8.3, 9.1, 9.2, 10.1, 10.2, 14.1, 14.2, 15.1, 15.2, 16.1, 18.1; see also investment banking Investment Banking Services (IBS) investment trusts of, 2.1, 2.2, 2.3, 2.4, 3.1, 3.2, 4.1, 5.1, 8.1, 9.1 J.


pages: 1,073 words: 314,528

Strategy: A History by Lawrence Freedman

Albert Einstein, anti-communist, Anton Chekhov, Ayatollah Khomeini, barriers to entry, battle of ideas, Black Swan, British Empire, business process, butterfly effect, centre right, Charles Lindbergh, circulation of elites, cognitive dissonance, coherent worldview, collective bargaining, complexity theory, conceptual framework, corporate raider, correlation does not imply causation, creative destruction, cuban missile crisis, Daniel Kahneman / Amos Tversky, defense in depth, desegregation, Edward Lorenz: Chaos theory, en.wikipedia.org, endogenous growth, endowment effect, Ford paid five dollars a day, framing effect, Frederick Winslow Taylor, Gordon Gekko, greed is good, information retrieval, interchangeable parts, invisible hand, John Nash: game theory, John von Neumann, Kenneth Arrow, lateral thinking, linear programming, loose coupling, loss aversion, Mahatma Gandhi, means of production, mental accounting, Murray Gell-Mann, mutually assured destruction, Nash equilibrium, Nelson Mandela, Norbert Wiener, Norman Mailer, oil shock, Pareto efficiency, performance metric, Philip Mirowski, prisoner's dilemma, profit maximization, race to the bottom, Ralph Nader, RAND corporation, Richard Thaler, road to serfdom, Ronald Reagan, Rosa Parks, shareholder value, social intelligence, Steven Pinker, strikebreaker, The Chicago School, The Myth of the Rational Market, the scientific method, theory of mind, Thomas Davenport, Thomas Kuhn: the structure of scientific revolutions, Torches of Freedom, Toyota Production System, transaction costs, ultimatum game, unemployed young men, Upton Sinclair, urban sprawl, Vilfredo Pareto, War on Poverty, women in the workforce, Yogi Berra, zero-sum game

For Luttwak it involved an “exaggerated dependence on firepower as such to the detriment of maneuver and flexibility.” This style, he acknowledged, had the “great attractions of predictability and functional simplicity.” All military effort could be geared to attacking sets of targets in a systematic fashion. Under its misleading aura, war would be “governed by a logic analogous to that of microeconomics.” The “conduct of warfare at all levels” would be “analogous to the management of a profit-maximizing industrial enterprise.” In the end, superior resources should win, even though applied with routine and repetitive tactics and procedures. The greater the input, the greater the output. The costs would lie in absorbing the enemy’s reciprocal attrition and the calculation could be upended should the enemy attract an ally to achieve a superior balance of power. Against this dull, methodical, bureaucratic linearity Luttwak promoted imaginative flair and operational paradox.

It was now seeking to use the “stock market’s collective judgment to resolve conflicts of interest that had plagued scholars, executives, and shareholders for generations.”2 By assuming perfect labor markets, so that employees cost no more than what they were worth to the company and if necessary could move without cost to an alternative job, their analysis concluded that the most important risks were those carried by shareholders.3 By 1983, because of the growing interest shown by economists, Jensen felt able to claim that a “revolution would take place” over the coming decades “in our knowledge about organizations.” Though organization science was in its infancy, the foundation for a powerful theory was in place. This involved departing from the economists’ view of the firm as “little more than a black box that behaves in a value- or profit-maximizing way” in an environment in which “all contracts are perfectly and costlessly enforced.” Instead he argued that firms could be understood in terms of systems geared to performance evaluation, rewards, and the assignment of decision rights. Relationships within an organization, including those between suppliers and customers, could be understood as contracts. Taken together they formed a complex system made up of maximizing agents with diverse objectives.

Deregulated markets were favored because they put at risk the positions of managers who were not delivering value for shareholders. Contrary to the pejorative connotations of hostile takeovers, the argument of Jensen and his colleagues was that these could increase the efficiency of the market. Managers dare not get sidetracked by loose and fashionable talk of multiple “stakeholders” but must keep their focus on the needs of the “shareholders” for profit maximization. While managers might complain about takeovers, they were a way of increasing value, redeploying assets, and protecting companies from mismanagement. “Scientific evidence indicates that the market for corporate control almost uniformly increases efficiency and shareholders’ wealth.”5 Companies were viewed as a bundle of assets, formed and reformed according to the demands of the market. The market was all-knowing, while managers were inclined to myopia.


pages: 238 words: 73,824

Makers by Chris Anderson

3D printing, Airbnb, Any sufficiently advanced technology is indistinguishable from magic, Apple II, autonomous vehicles, barriers to entry, Buckminster Fuller, Build a better mousetrap, business process, commoditize, Computer Numeric Control, crowdsourcing, dark matter, David Ricardo: comparative advantage, death of newspapers, dematerialisation, Elon Musk, factory automation, Firefox, future of work, global supply chain, global village, IKEA effect, industrial robot, interchangeable parts, Internet of things, inventory management, James Hargreaves, James Watt: steam engine, Jeff Bezos, job automation, Joseph Schumpeter, Kickstarter, Lean Startup, manufacturing employment, Mark Zuckerberg, means of production, Menlo Park, Network effects, private space industry, profit maximization, QR code, race to the bottom, Richard Feynman, Ronald Coase, Rubik’s Cube, self-driving car, side project, Silicon Valley, Silicon Valley startup, Skype, slashdot, South of Market, San Francisco, spinning jenny, Startup school, stem cell, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, supply-chain management, The Nature of the Firm, The Wealth of Nations by Adam Smith, transaction costs, trickle-down economics, Whole Earth Catalog, X Prize, Y Combinator

And what’s clear about these new producers is that they’re not going to be making the same one-size-fits-all products that defined the mass-production era. Instead, they’re going to be starting with one-size-fits-one and building from there, finding out how many other consumers share their interests, passions, and unique needs. Happiness economics What’s interesting is that such hyperspecialization is not necessarily a profit-maximizing strategy. Instead, it is better seen as meaning-maximizing. Writing in The New York Times Magazine, Adam Davidson sees this as a natural evolution of an affluent country where the basic needs for the middle class and above have all been more than met: The hot field of happiness economics argues, rather persuasively, that once people reach some level of comfort, they are willing—even eager—to trade in potential earnings at a lucrative but uninspiring job for less (but comfortable) pay at more satisfying work.


pages: 288 words: 76,343

The Plundered Planet: Why We Must--And How We Can--Manage Nature for Global Prosperity by Paul Collier

agricultural Revolution, Berlin Wall, business climate, Doha Development Round, energy security, food miles, G4S, information asymmetry, Kenneth Arrow, megacity, new economy, offshore financial centre, oil shock, profit maximization, rent-seeking, Ronald Coase, Scramble for Africa, sovereign wealth fund, stem cell, Stewart Brand

The benefits to society as a whole are not aligned with the interests of those with the power of decision. To internalize these externalities, which means to align incentives with the social interest, the value of the entitlements should accrue to the entity setting the rules. In a fish farm this happens automatically: the owner of the fish farm takes out only the number of fish that is consistent with long-term profit maximization. The miracle of the market is that his interest is aligned with ours. He makes money by providing us with what we want. By assigning the rights over the oceans to the United Nations the high seas would, in effect, be turned into a giant fish farm. The bare minimum would be for the United Nations to limit the harvest to a scientifically determined sustainable rate; that which would keep the stock constant.


pages: 225 words: 11,355

Financial Market Meltdown: Everything You Need to Know to Understand and Survive the Global Credit Crisis by Kevin Mellyn

asset-backed security, bank run, banking crisis, Bernie Madoff, bonus culture, Bretton Woods, business cycle, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, disintermediation, diversification, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Francis Fukuyama: the end of history, George Santayana, global reserve currency, Home mortgage interest deduction, Isaac Newton, joint-stock company, Kickstarter, liquidity trap, London Interbank Offered Rate, long peace, margin call, market clearing, mass immigration, money market fund, moral hazard, mortgage tax deduction, Northern Rock, offshore financial centre, paradox of thrift, pattern recognition, pension reform, pets.com, plutocrats, Plutocrats, Ponzi scheme, profit maximization, pushing on a string, reserve currency, risk tolerance, risk-adjusted returns, road to serfdom, Ronald Reagan, shareholder value, Silicon Valley, South Sea Bubble, statistical model, The Great Moderation, the new new thing, the payments system, too big to fail, value at risk, very high income, War on Poverty, Y2K, yield curve

Morgan acted the same way when he personally ended the panic of 1907 in New York by taking all the other bankers into his library one by one and making them come clean about their loans and investments. He decided which banks deserved loans and which needed to be merged or shut down. It worked, though the politicians in Washington never forgave him for saving the economy when they could not. The idea that a private, profit-maximizing banker could be the ‘‘lender of last resort’’ for the whole system drove them nuts. Despite nearly a century of populist resistance to a government-sponsored bank, Congress passed the Federal Reserve Act in 1913. A CAMEL IS BORN Like almost all legislative sausage-making in Congress, the Federal Reserve Act was an ugly compromise. Congress represented strong local interests in their states.


pages: 280 words: 79,029

Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better by Andrew Palmer

Affordable Care Act / Obamacare, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Black-Scholes formula, bonus culture, break the buck, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Graeber, diversification, diversified portfolio, Edmond Halley, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, family office, financial deregulation, financial innovation, fixed income, Flash crash, Google Glasses, Gordon Gekko, high net worth, housing crisis, Hyman Minsky, implied volatility, income inequality, index fund, information asymmetry, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, margin call, Mark Zuckerberg, McMansion, money market fund, mortgage debt, mortgage tax deduction, Myron Scholes, negative equity, Network effects, Northern Rock, obamacare, payday loans, peer-to-peer lending, Peter Thiel, principal–agent problem, profit maximization, quantitative trading / quantitative finance, railway mania, randomized controlled trial, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, Thales of Miletus, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application

They are also able to attract capital more easily: the amount of venture capital flowing into European financial-­technology firms, for example, has not been this high since the dot-com era. That is not to be complacent about finance. Growth and greed can distort good ideas. But when the next financial crisis comes, my bet is that it will stem from an established market, probably property, in which mainstream investors and profit-maximizing institutions have gotten carried away once again. The balance that regulators have to strike is watchfulness for the risks that can cause real economic damage and tolerance for the ideas that can produce real benefits. My belief is that tremendous good will come out of the financial industry in the coming years, thanks to the sorts of entrepreneurs and innovators we have met in the preceding pages.


pages: 249 words: 73,731

Car Guys vs. Bean Counters: The Battle for the Soul of American Business by Bob Lutz

corporate governance, creative destruction, currency manipulation / currency intervention, flex fuel, medical malpractice, Ponzi scheme, profit maximization, Ralph Nader, shareholder value, Steve Jobs, Toyota Production System, transfer pricing, Unsafe at Any Speed, upwardly mobile

attitude. The focus has to be on the customer. 9. It’s better to have Manufacturing lose ground in the Harbour Report, building high net-margin vehicles with many more hours, than being best in the world building low-hour vehicles that we take a loss on. We need to recognize that everything is a trade-off, that we can’t maximize the performance of any one function to the detriment of overall profit maximization. The same goes for every discipline: A gorgeous vehicle that disappoints in quality will fail. A car incorporating every conceivable new safety technology makes no contribution to safety if it becomes unaffordable to the customer or we can’t afford to build it. A vehicle with a single-minded focus on “absence of thingsgone-wrong” will fail miserably if it is dull, unexciting, a dog to drive, and ugly.


pages: 345 words: 75,660

Prediction Machines: The Simple Economics of Artificial Intelligence by Ajay Agrawal, Joshua Gans, Avi Goldfarb

"Robert Solow", Ada Lovelace, AI winter, Air France Flight 447, Airbus A320, artificial general intelligence, autonomous vehicles, basic income, Bayesian statistics, Black Swan, blockchain, call centre, Capital in the Twenty-First Century by Thomas Piketty, Captain Sullenberger Hudson, collateralized debt obligation, computer age, creative destruction, Daniel Kahneman / Amos Tversky, data acquisition, data is the new oil, deskilling, disruptive innovation, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, everywhere but in the productivity statistics, Google Glasses, high net worth, ImageNet competition, income inequality, information retrieval, inventory management, invisible hand, job automation, John Markoff, Joseph Schumpeter, Kevin Kelly, Lyft, Minecraft, Mitch Kapor, Moneyball by Michael Lewis explains big data, Nate Silver, new economy, On the Economy of Machinery and Manufactures, pattern recognition, performance metric, profit maximization, QWERTY keyboard, race to the bottom, randomized controlled trial, Ray Kurzweil, ride hailing / ride sharing, Second Machine Age, self-driving car, shareholder value, Silicon Valley, statistical model, Stephen Hawking, Steve Jobs, Steven Levy, strong AI, The Future of Employment, The Signal and the Noise by Nate Silver, Tim Cook: Apple, Turing test, Uber and Lyft, uber lyft, US Airways Flight 1549, Vernor Vinge, Watson beat the top human players on Jeopardy!, William Langewiesche, Y Combinator, zero-sum game

For a business school, for example, it is easy to say that they are focused on recruiting the “best” students, but in order to specify the prediction, we need to specify what “best” means—highest salary offer upon graduation? Most likely to assume a CEO role within five years? Most diverse? Most likely to donate back to the school after graduation? Even seemingly straightforward objectives, like profit maximization, are not as simple as they first appear. Should we predict the action to take that will maximize profit this week, this quarter, this year, or this decade? Companies often find themselves having to go back to basics to realign on their objectives and sharpen their mission statement as a first step in their work on their AI strategy. 14 Job Redesign Before the advent of AI and the internet was the computer revolution.


PostgreSQL: Up and Running, 3rd Edition by Unknown

cloud computing, database schema, full text search, job automation, platform as a service, profit maximization, web application

The beginnings of PostgreSQL code-base began well before that in 1986. PostgreSQL is supported on all major operating systems: Linux, Unix, Windows, and Macs. Every year brings a new major release, offering enhanced performance along with features that push the envelope of what’s possible in a database offering. Finally, PostgreSQL is open source with a generous licensing policy. PostgreSQL is supported by a community of developers and users where profit maximization is not the ultimate pursuit. If you want features, you’re free to contribute, or at least vocalize. If you want to customize and experiment, no one is going to sue you. You, the mighty user, make PostgreSQL what it is. In the end, you will wonder why you ever used any other database, because PostgreSQL does everything you could hope for and does it for free. No more reading the licensing-cost fine print of those other databases to figure out how many dollars you need to spend if you have 8 cores on your virtualized servers with X number of concurrent connections.


pages: 296 words: 78,227

The 80/20 Principle: The Secret to Achieving More With Less by Richard Koch

Albert Einstein, always be closing, barriers to entry, business cycle, business process, delayed gratification, fear of failure, income inequality, inventory management, Johann Wolfgang von Goethe, knowledge worker, profit maximization, rolodex, Ronald Reagan, Vilfredo Pareto, wage slave

Instead of dealing with 1,000 suppliers, purchases were consolidated through the 200 suppliers who comprised 95 percent of total supplies (a 95/20 Principle). The organization was streamlined and flattened. At the heart of the market meltdown, Corning turned away business. This might seem perverse, but it worked. A simpler, smaller operation rapidly restored profits. Less was more. MANAGERS LOVE COMPLEXITY At this point it is worth asking: why do supposedly profit-maximizing organizations become complex, when this plainly destroys value? One important answer, alas, is that managers love complexity. Complexity is stimulating and intellectually challenging; it leavens boring routine; and it creates interesting jobs for managers. Some people believe that complexity obtrudes when no one is looking. No doubt—but complexity is also sponsored by managers, just as it sponsors them.


pages: 286 words: 79,305

99%: Mass Impoverishment and How We Can End It by Mark Thomas

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, additive manufacturing, Albert Einstein, anti-communist, autonomous vehicles, bank run, banks create money, bitcoin, business cycle, call centre, central bank independence, complexity theory, conceptual framework, creative destruction, credit crunch, declining real wages, distributed ledger, Donald Trump, Erik Brynjolfsson, eurozone crisis, fiat currency, Filter Bubble, full employment, future of work, Gini coefficient, gravity well, income inequality, inflation targeting, Internet of things, invisible hand, Jeff Bezos, jimmy wales, job automation, Kickstarter, labour market flexibility, laissez-faire capitalism, light touch regulation, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, money: store of value / unit of account / medium of exchange, Nelson Mandela, North Sea oil, Occupy movement, offshore financial centre, Own Your Own Home, Peter Thiel, Piper Alpha, plutocrats, Plutocrats, profit maximization, quantitative easing, rent-seeking, Ronald Reagan, Second Machine Age, self-driving car, Silicon Valley, smart cities, Steve Jobs, The Great Moderation, The Wealth of Nations by Adam Smith, wealth creators, working-age population

Warren Buffett, for example, has suggested an expansion of the earned income tax credit as a way of ensuring that those whose market value has fallen below what it takes to enjoy a decent life can still have one.28 Paul Tudor Jones II, a hedge fund manager whose personal wealth is estimated at around US$5 billion, has set up the Just Capital Foundation29 to encourage corporations to act in the interests of society as a whole rather than to focus on short-term profit maximization. George Soros has suggested that he personally should be paying more in taxes30 and has set up the Institute for New Economic Thinking. And they are not alone.31 A suitably powerful and coherent coalition is still a long way off – but it is no longer fanciful to believe that it could be created. CHAPTER 7 Eight Scenarios Prediction is very difficult, especially about the future. Often attributed to Niels Bohr We have seen that over the thirty-five years from 1980 to 2015 the phenomenon of mass impoverishment began to take hold in several developed economies – notably in the US and, more recently, in the UK.


pages: 309 words: 86,909

The Spirit Level: Why Greater Equality Makes Societies Stronger by Richard Wilkinson, Kate Pickett

basic income, Berlin Wall, clean water, Diane Coyle, epigenetics, experimental economics, experimental subject, Fall of the Berlin Wall, full employment, germ theory of disease, Gini coefficient, God and Mammon, impulse control, income inequality, Intergovernmental Panel on Climate Change (IPCC), knowledge economy, labor-force participation, land reform, longitudinal study, Louis Pasteur, meta analysis, meta-analysis, Milgram experiment, moral panic, offshore financial centre, phenotype, plutocrats, Plutocrats, profit maximization, profit motive, Ralph Waldo Emerson, statistical model, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, upwardly mobile, World Values Survey, zero-sum game

Perhaps we need public bodies and non-profits, funded from public revenue, able to negotiate a price at which to buy access or copyrights for the nation. Perhaps we need international bodies able to negotiate free access to educational and business resources throughout the world. From the point of view of society as a whole, the tendency for technological change to reduce marginal costs is rapidly tipping the balance of advantage away from allowing profit-maximizing corporations to control the distribution of goods. Increasingly they can only rely on the remnants of monopolistic power provided by patents or copyright. We need to find new ways of paying organizations and individuals for life-enhancing research, creativity and innovation – the geese which lay the golden eggs – which does not then restrict access to the benefits. Perhaps we need charities to fund the development of software for free worldwide use.


pages: 258 words: 83,303

Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization by Jeff Rubin

addicted to oil, air freight, banking crisis, big-box store, BRICs, business cycle, carbon footprint, collateralized debt obligation, collective bargaining, creative destruction, credit crunch, David Ricardo: comparative advantage, decarbonisation, energy security, food miles, hydrogen economy, illegal immigration, immigration reform, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Watt: steam engine, Just-in-time delivery, market clearing, megacity, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit maximization, reserve currency, South Sea Bubble, the market place, The Wealth of Nations by Adam Smith, trade liberalization, zero-sum game

When unions go through the math, they will come to the realization that in a world where emissions cost money, the factories their members work in have a comparative global advantage. If your emissions are a third less than those of your competitors, you want the price of emissions to be as high as possible—because the bigger the cost of emissions, the greater your cost advantage from emitting less. That’s not tree-hugging environmentalism, just plain old profit-maximizing economics. Organized labor will soon need to advocate for more stringent standards for carbon emissions. In the process, blue-collar jobs become green-collar jobs. Not only does that change the way labor acts, it sets the stage for political alliances that would once have seemed absurd. Save the world from disastrous human-induced climate change and in the process bring back home high-paying industrial jobs that most of us thought were gone forever: that’s a powerful combo in any political constituency, and it’s one that will soon agitate for a radical shift in US carbon policy.


The Armchair Economist: Economics and Everyday Life by Steven E. Landsburg

Albert Einstein, Arthur Eddington, business cycle, diversified portfolio, first-price auction, German hyperinflation, Golden Gate Park, information asymmetry, invisible hand, Kenneth Arrow, means of production, price discrimination, profit maximization, Ralph Nader, random walk, Ronald Coase, Sam Peltzman, sealed-bid auction, second-price auction, second-price sealed-bid, statistical model, the scientific method, Unsafe at Any Speed

Perhaps the City Council would prefer to start charging its own admission fee, using the proceeds to improve city services or to lower taxes. This would yield a benefit to everyone in Springfield with no offsetting cost. Here is a rare occurrence of the most sought-after and frequently elusive goal in economic policy—a genuine free lunch. Alternatively, the city could auction off the aquarium to the highest bidder. Once again the lunch is free. The proceeds of the auction can be used to do good while the new owner's profit-maximizing behavior is of no consequence to anybody but himself. Fixed resources—land in a particular location, a unique aquarium, an unusual skill, or an unusual preference—yield economic gains to those who own them. If there are no owners, there are no gains. The Indifference Principle ensures that all gains are either transferred to a fixed-resource owner or effectively discarded. Economists tend to feel that it is better for someone to reap the benefits of a resource than for no one to reap them, and therefore tend to think that the institution of property is a good thing.


pages: 294 words: 85,811

The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care by T. R. Reid

Berlin Wall, British Empire, double helix, employer provided health coverage, fudge factor, Kenneth Arrow, medical malpractice, profit maximization, profit motive, single-payer health, South China Sea, the payments system

Somebody at Prudential had determined that the Japanese yen was a foreign currency; that violated the rules. My company later switched our health insurance to Aetna, which employed a similar dodge: The adjuster said she couldn’t pay our claims because she couldn’t call the doctor’s office to verify the bills. It seems that Aetna had a phone system for its adjusters that didn’t allow international calls. So naturally, all our claims had to be denied. The most maddening of all the profit-maximizing mechanisms in the U.S. health insurance industry is the practice known as “rescission,” a legal term that means “We’re canceling your coverage.” This occurs when an insured person who has been paying premiums for months or years has a serious accident or contracts a serious disease, which can mean serious bills for the insurance company to pay. At that point, the insurer’s Rescission Department digs through all the records, looking for a reason to cancel the sick person’s coverage.


pages: 316 words: 87,486

Listen, Liberal: Or, What Ever Happened to the Party of the People? by Thomas Frank

Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, American ideology, barriers to entry, Berlin Wall, Bernie Sanders, blue-collar work, Burning Man, centre right, circulation of elites, Clayton Christensen, collective bargaining, Credit Default Swap, David Brooks, deindustrialization, disruptive innovation, Donald Trump, Edward Snowden, Fall of the Berlin Wall, financial innovation, Frank Gehry, full employment, George Gilder, gig economy, Gini coefficient, income inequality, Jaron Lanier, Jeff Bezos, knowledge economy, knowledge worker, Lean Startup, mandatory minimum, Marc Andreessen, Mark Zuckerberg, market bubble, mass immigration, mass incarceration, McMansion, microcredit, mobile money, moral panic, mortgage debt, Nelson Mandela, new economy, obamacare, payday loans, Peter Thiel, plutocrats, Plutocrats, Ponzi scheme, post-industrial society, postindustrial economy, pre–internet, profit maximization, profit motive, race to the bottom, Republic of Letters, Richard Florida, ride hailing / ride sharing, Ronald Reagan, sharing economy, Silicon Valley, Steve Jobs, Steven Levy, TaskRabbit, Thorstein Veblen, too big to fail, Travis Kalanick, Uber for X, union organizing, urban decay, women in the workforce, Works Progress Administration, young professional

That it also rewards the meritorious and bids down the lives of the unskilled and the poorly graduated makes it seem even more like an act of God. In truth, however, nothing is inevitable and very little is new. And tech is no more the root of the problem than are trade or globalization. Many of our most vaunted innovations are simply methods—electronic or otherwise—of pulling off some age-old profit-maximizing maneuver by new and unregulated means. Sometimes they are designed to accomplish things that would be regulated or even illegal under other circumstances, or else they are designed to alter relationships of economic power in some ingenious way—to strip away this or that protection from workers or copyright holders, for example. Consider the many celebrated business innovations that are, in reality, nothing more than instruments to get around our society’s traditional middle-class economic arrangements.


pages: 283 words: 81,163

How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present by Thomas J. Dilorenzo

banking crisis, British Empire, business cycle, collective bargaining, corporate governance, corporate social responsibility, financial deregulation, Fractional reserve banking, Hernando de Soto, income inequality, invisible hand, Joseph Schumpeter, laissez-faire capitalism, means of production, medical malpractice, Menlo Park, minimum wage unemployment, Norman Mailer, plutocrats, Plutocrats, price stability, profit maximization, profit motive, Ralph Nader, rent control, rent-seeking, Robert Bork, Ronald Coase, Ronald Reagan, Silicon Valley, statistical model, The Wealth of Nations by Adam Smith, transcontinental railway, union organizing, Upton Sinclair, wealth creators, working poor, Works Progress Administration, zero-sum game

Locke catalogues the personal and business-practice traits of those who have been pioneers of industry and wealth creation in America. Manne, Henry G. The Modern Corporation and Social Responsibility. Washington, D.C.: American Enterprise Institute, 1972. One of the founders of the “law and economics” movement explains how businesses can best be “socially responsible” by steadfastly concentrating on profit maximization. Martin, Albro. James J. Hill and the Opening of the Northwest. New York: Oxford University Press, 1976. An excellent biography of the man who, without any governmental assistance, built a transcontinental railroad, better and more profitably than his subsidized rivals. McGee, John S. “Predatory Pricing: The Standard Oil (N.J.) Case.” Journal of Law and Economics, vol. 1, October 1958.


pages: 383 words: 81,118

Matchmakers: The New Economics of Multisided Platforms by David S. Evans, Richard Schmalensee

Airbnb, Alvin Roth, big-box store, business process, cashless society, Chuck Templeton: OpenTable:, creative destruction, Deng Xiaoping, disruptive innovation, if you build it, they will come, information asymmetry, Internet Archive, invention of movable type, invention of the printing press, invention of the telegraph, invention of the telephone, Jean Tirole, John Markoff, Lyft, M-Pesa, market friction, market microstructure, mobile money, multi-sided market, Network effects, Productivity paradox, profit maximization, purchasing power parity, QR code, ride hailing / ride sharing, sharing economy, Silicon Valley, Snapchat, Steve Jobs, Tim Cook: Apple, transaction costs, two-sided market, Uber for X, uber lyft, ubercab, Victor Gruen, winner-take-all economy

This interdependency of demands results from indirect network effects. It is what distinguishes multisided platforms from single-sided firms. Traditional economics, including what is still taught in most economic textbooks and in most MBA courses, completely ignores indirect network effects and the consequences of interdependent demand. When economists account for indirect network effects in our theoretical models, the profit-maximizing price to the participants on one side could be less than the cost of providing an additional unit; it could be zero or, in other words, free; or it could be less than zero in the sense that the business actually pays the participant something when he or she uses the product. This theoretical result could have been just a curious possibility that we could use to try to keep students awake.


pages: 365 words: 88,125

23 Things They Don't Tell You About Capitalism by Ha-Joon Chang

"Robert Solow", affirmative action, Asian financial crisis, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, borderless world, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, deskilling, ending welfare as we know it, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, full employment, German hyperinflation, Gini coefficient, hiring and firing, Hyman Minsky, income inequality, income per capita, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market fundamentalism, means of production, Mexican peso crisis / tequila crisis, microcredit, Myron Scholes, North Sea oil, offshore financial centre, old-boy network, post-industrial society, price stability, profit maximization, profit motive, purchasing power parity, rent control, shareholder value, short selling, Skype, structural adjustment programs, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, Toyota Production System, trade liberalization, trickle-down economics, women in the workforce, working poor, zero-sum game

If we are to prevent this kind of thing happening again, we should build a system where material enrichment is taken seriously but is not allowed to become the only goal. Organizations – be they corporations or government departments – should be designed to reward trust, solidarity, honesty and cooperation among their members. The financial system needs to be reformed to reduce the influence of short-term shareholders so that companies can afford to pursue goals other than short-term profit maximization. We should better reward behaviour with public benefits (e.g., reducing energy consumption, investment in training), not simply through government subsidies but also by bestowing it with a higher social status. This is not just a moral argument. It is also an appeal to enlightened self-interest. By letting short-term self-interest rule everything we risk destroying the entire system, which serves no one’s interest in the long run.


The Ages of Globalization by Jeffrey D. Sachs

Admiral Zheng, British Empire, Cape to Cairo, colonial rule, Columbian Exchange, Commentariolus, coronavirus, COVID-19, Covid-19, cuban missile crisis, decarbonisation, demographic transition, Deng Xiaoping, domestication of the camel, Donald Trump, en.wikipedia.org, endogenous growth, European colonialism, global supply chain, greed is good, income per capita, invention of agriculture, invention of gunpowder, invention of movable type, invention of the steam engine, invisible hand, Isaac Newton, James Watt: steam engine, job automation, John von Neumann, joint-stock company, Louis Pasteur, low skilled workers, mass immigration, Nikolai Kondratiev, out of africa, packet switching, Pax Mongolica, precision agriculture, profit maximization, profit motive, purchasing power parity, South China Sea, spinning jenny, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, trade route, transatlantic slave trade, Turing machine, Turing test, urban planning, Watson beat the top human players on Jeopardy!, wikimedia commons

In order to ensure that all parts of society benefit from the ongoing technological advances, public policies will have to tax the “winners” and use the proceeds to ensure universal access to quality healthcare, education, and social protection as a matter of human right—the core idea of the social-democratic ethos. Subsidiarity and the Public Sphere A key to good policy making is the distinction between private goods and public goods. Private goods are goods that the marketplace efficiently provides under the incentives of profit maximization. Public goods are those that the marketplace underprovides because the profit motive will send the wrong signals. Public goods include quality education and healthcare for all, new scientific knowledge, access to new technologies, protection of the environment, and infrastructure such as highways and long-distance transmission lines for electric power. Private goods (such as housing, furnishings, automobiles, personal appliances, tourism, etc.) operate mostly on a market basis, with households generally spending their own incomes to purchase goods from profit-oriented businesses.


pages: 843 words: 223,858

The Rise of the Network Society by Manuel Castells

"Robert Solow", Apple II, Asian financial crisis, barriers to entry, Big bang: deregulation of the City of London, Bob Noyce, borderless world, British Empire, business cycle, capital controls, complexity theory, computer age, computerized trading, creative destruction, Credit Default Swap, declining real wages, deindustrialization, delayed gratification, dematerialisation, deskilling, disintermediation, double helix, Douglas Engelbart, Douglas Engelbart, edge city, experimental subject, financial deregulation, financial independence, floating exchange rates, future of work, global village, Gunnar Myrdal, Hacker Ethic, hiring and firing, Howard Rheingold, illegal immigration, income inequality, Induced demand, industrial robot, informal economy, information retrieval, intermodal, invention of the steam engine, invention of the telephone, inventory management, James Watt: steam engine, job automation, job-hopping, John Markoff, knowledge economy, knowledge worker, labor-force participation, laissez-faire capitalism, Leonard Kleinrock, longitudinal study, low skilled workers, manufacturing employment, Marc Andreessen, Marshall McLuhan, means of production, megacity, Menlo Park, moral panic, new economy, New Urbanism, offshore financial centre, oil shock, open economy, packet switching, Pearl River Delta, peer-to-peer, planetary scale, popular capitalism, popular electronics, post-industrial society, postindustrial economy, prediction markets, Productivity paradox, profit maximization, purchasing power parity, RAND corporation, Robert Gordon, Robert Metcalfe, Shoshana Zuboff, Silicon Valley, Silicon Valley startup, social software, South China Sea, South of Market, San Francisco, special economic zone, spinning jenny, statistical model, Steve Jobs, Steve Wozniak, Ted Nelson, the built environment, the medium is the message, the new new thing, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, total factor productivity, trade liberalization, transaction costs, urban renewal, urban sprawl, zero-sum game

Under capitalism, the separation between producers and their means of production, the commodification of labor, and the private ownership of means of production on the basis of the control of capital (commodified surplus), determined the basic principle of appropriation and distribution of surplus by capitalists, although who is (are) the capitalist class(es) is a matter of social inquiry in each historical context, rather than an abstract category. Under statism, the control of surplus is external to the economic sphere: it lies in the hands of the power-holders in the state – let us call them apparatchiki or lingdao. Capitalism is oriented toward profit-maximizing, that is, toward increasing the amount of surplus appropriated by capital on the basis of the private control over the means of production and circulation. Statism is (was?) oriented toward power-maximizing, that is, toward increasing the military and ideological capacity of the political apparatus for imposing its goals on a greater number of subjects and at deeper levels of their consciousness.

Preston, Pascal Prigogine, Ilya printing, China privatization Prodi, Romano producer networks producer services production; assembly line; capitalist; cross-border; flexibility; globalization; lean; networking; offshore; organization transformed; social relations; technology productivity; competitiveness; computer manufacturing; electronics; employment; globalization; G-7 countries; industrialism; innovation; knowledgebased; labor costs; Mexico; North/South; OECD countries; profitability; services; Solow; technology; time professionals profit-maximizing profitability: crisis; information technologies; productivity; US property rights property slump Pursell, Carroll Putnam, Robert Pyo, H. Qian, Wen-yuan Quayle, Dan Quinn, James Brian Qvortup, Lars Qwest race: Internet use; professionals; see also ethnicity racism radio Ralle, P. Ramonet, Ignacio Rand Corporation Randlesome, Collin R&D Reagan, Ronald real virtuality Redding, S.


pages: 286 words: 90,530

Richard Dawkins: How a Scientist Changed the Way We Think by Alan Grafen; Mark Ridley

Alfred Russel Wallace, Arthur Eddington, bioinformatics, cognitive bias, computer age, conceptual framework, Dava Sobel, double helix, Douglas Hofstadter, epigenetics, Fellow of the Royal Society, Haight Ashbury, interchangeable parts, Isaac Newton, Johann Wolfgang von Goethe, John von Neumann, loose coupling, Murray Gell-Mann, Necker cube, phenotype, profit maximization, Ronald Reagan, Stephen Hawking, Steven Pinker, the scientific method, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Yogi Berra, zero-sum game

Again building on Williams’ ideas, Dawkins pointed out, though not in these terms, that logically the concept of selfishness makes sense only within a larger set of ideas, in which there is an entity to be selfish, a quantity whose numerical value says how well-off the entity is, and a range of possible actions that can be taken by the entity. Mathematics and the social sciences nowadays use mathematical formalizations of this larger context (‘optimization programmes’) in game theory and economics, to cope with familiar economic issues such as consumer choice theory and profit maximization by firms. By bringing this larger set of ideas into the centre of the biological argument, Dawkins was able to pursue the logic of adaptationism further. Linking selfishness to replicators, he argued that the entity concerned was the gene and the quantity that surviving genes would come through natural selection to act as if maximizing was their replication. This link between replicator dynamics on the one hand and selfishness on the other, brilliantly encompassed in the title of the book, is the very centre of Darwin’s argument, but spelled out in a way that is more practical for further analysis: of course, it could only be articulated after Mendelian genetics had been discovered.


pages: 339 words: 88,732

The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson, Andrew McAfee

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, access to a mobile phone, additive manufacturing, Airbnb, Albert Einstein, Amazon Mechanical Turk, Amazon Web Services, American Society of Civil Engineers: Report Card, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, barriers to entry, basic income, Baxter: Rethink Robotics, British Empire, business cycle, business intelligence, business process, call centre, Charles Lindbergh, Chuck Templeton: OpenTable:, clean water, combinatorial explosion, computer age, computer vision, congestion charging, corporate governance, creative destruction, crowdsourcing, David Ricardo: comparative advantage, digital map, employer provided health coverage, en.wikipedia.org, Erik Brynjolfsson, factory automation, falling living standards, Filter Bubble, first square of the chessboard / second half of the chessboard, Frank Levy and Richard Murnane: The New Division of Labor, Freestyle chess, full employment, G4S, game design, global village, happiness index / gross national happiness, illegal immigration, immigration reform, income inequality, income per capita, indoor plumbing, industrial robot, informal economy, intangible asset, inventory management, James Watt: steam engine, Jeff Bezos, jimmy wales, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kevin Kelly, Khan Academy, knowledge worker, Kodak vs Instagram, law of one price, low skilled workers, Lyft, Mahatma Gandhi, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Mars Rover, mass immigration, means of production, Narrative Science, Nate Silver, natural language processing, Network effects, new economy, New Urbanism, Nicholas Carr, Occupy movement, oil shale / tar sands, oil shock, pattern recognition, Paul Samuelson, payday loans, post-work, price stability, Productivity paradox, profit maximization, Ralph Nader, Ray Kurzweil, recommendation engine, Report Card for America’s Infrastructure, Robert Gordon, Rodney Brooks, Ronald Reagan, Second Machine Age, self-driving car, sharing economy, Silicon Valley, Simon Kuznets, six sigma, Skype, software patent, sovereign wealth fund, speech recognition, statistical model, Steve Jobs, Steven Pinker, Stuxnet, supply-chain management, TaskRabbit, technological singularity, telepresence, The Bell Curve by Richard Herrnstein and Charles Murray, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, Tyler Cowen: Great Stagnation, Vernor Vinge, Watson beat the top human players on Jeopardy!, winner-take-all economy, Y2K

Similar stories have been and will be told in music and media; in finance and publishing; in retailing, distribution, services, and manufacturing. In almost every industry, technological progress will bring unprecedented bounty. More wealth will be created with less work. But at least in our current economic system, this progress will also have enormous effects on the distribution income and wealth. If the work a person produces in one hour can instead be produced by a machine for one dollar, then a profit-maximizing employer won’t offer a wage for that job of more than one dollar. In a free-market system, either that worker must accept a wage of one dollar an hour or find some new way to make a living. Conversely, if a person finds a new way to leverage insights, talents, or skills across one million new customers using digital technologies, then he or she might earn one million times as much as would be possible otherwise.


pages: 346 words: 90,371

Rethinking the Economics of Land and Housing by Josh Ryan-Collins, Toby Lloyd, Laurie Macfarlane

"Robert Solow", agricultural Revolution, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, basic income, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, debt deflation, deindustrialization, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, garden city movement, George Akerlof, ghettoisation, Gini coefficient, Hernando de Soto, housing crisis, Hyman Minsky, income inequality, information asymmetry, knowledge worker, labour market flexibility, labour mobility, land reform, land tenure, land value tax, Landlord’s Game, low skilled workers, market bubble, market clearing, Martin Wolf, means of production, money market fund, mortgage debt, negative equity, Network effects, new economy, New Urbanism, Northern Rock, offshore financial centre, Pareto efficiency, place-making, price stability, profit maximization, quantitative easing, rent control, rent-seeking, Richard Florida, Right to Buy, rising living standards, risk tolerance, Second Machine Age, secular stagnation, shareholder value, the built environment, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, universal basic income, urban planning, urban sprawl, working poor, working-age population

For a more general but critical account of the development of neoclassical economic theory in the US, see Tobin (1985). 11 See, for example, the well-established undergraduate textbook Economics by Sloman and Wride (2009, pp. 258–259). The authors dedicate four pages to a discussion of the role of land in the economy out of a total of 793 under the microeconomic theory section of the book (Chapter 9: ‘The theory of distribution of income’). On page 58 they discuss the ‘non-human factors of production’ – i.e land and capital – and present two graphs showing the ‘profit maximizing employment of a factor’, arguing that the same equation, ‘marginal cost = marginal revenue of product’, applies whether the factor is land, capital or labour. 12 Most famously in the twenty-year ‘Cambridge controversy’ between academics at the British university and Cambridge, Massachusetts, home of the Massachusetts institute of Technology (MIT) in the 1950s and 1960s. See Cohen and Harcourt (2003) for a discussion. 13 The below account draws heavily on an excellent paper by Mason Gaffney: ‘Land as a Distinctive Factor of Production’ (1994a). 14 Although it is possible to have multiple uses for land – for example an area of wetlands might serve as a wildlife sanctuary, a site of leisure and a flood defence. 15 ‘Return on capital’ or ‘return on invested capital’ is typically calculated by dividing the net operating surplus minus taxes divided by invested capital for a particular period, usually a year. 16 The London Borough of Kensington and Chelsea, where house prices are some of the highest in the UK, received 450 planning applications for basements in 2013, compared to 46 in 2001 (Dowling, 2014).


pages: 339 words: 94,769

Possible Minds: Twenty-Five Ways of Looking at AI by John Brockman

AI winter, airport security, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, artificial general intelligence, Asilomar, autonomous vehicles, basic income, Benoit Mandelbrot, Bill Joy: nanobots, Buckminster Fuller, cellular automata, Claude Shannon: information theory, Daniel Kahneman / Amos Tversky, Danny Hillis, David Graeber, easy for humans, difficult for computers, Elon Musk, Eratosthenes, Ernest Rutherford, finite state, friendly AI, future of work, Geoffrey West, Santa Fe Institute, gig economy, income inequality, industrial robot, information retrieval, invention of writing, James Watt: steam engine, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, Kevin Kelly, Kickstarter, Laplace demon, Loebner Prize, market fundamentalism, Marshall McLuhan, Menlo Park, Norbert Wiener, optical character recognition, pattern recognition, personalized medicine, Picturephone, profit maximization, profit motive, RAND corporation, random walk, Ray Kurzweil, Richard Feynman, Rodney Brooks, self-driving car, sexual politics, Silicon Valley, Skype, social graph, speech recognition, statistical model, Stephen Hawking, Steven Pinker, Stewart Brand, strong AI, superintelligent machines, supervolcano, technological singularity, technoutopianism, telemarketer, telerobotics, the scientific method, theory of mind, Turing machine, Turing test, universal basic income, Upton Sinclair, Von Neumann architecture, Whole Earth Catalog, Y2K, zero-sum game

We can stigmatize the stubborn arrogance of current AI as “right cybernetics,” the path that led to current automated weapons systems, Uber’s ill-disguised hostility to human workers, and the capitalist dreams of Google. Now we must turn back to left cybernetics—theoretical biologists and anthropologists engaged with a trans-species understanding of intelligent systems. Gregory Bateson’s observation that corporations merely simulate “aggregates of parts of persons,” with profit-maximizing decisions cut off from “wider and wiser parts of the mind,” has never been more timely.* The cybernetic epistemology offered here suggests a new approach. The individual mind is immanent, not only in the body but also in pathways outside the body, and there is a larger Mind, of which the individual mind is only a subsystem. This larger Mind, Bateson holds, is comparable to God, and is perhaps what some people mean by “God,” but it is still immanent in the total interconnected social system and planetary ecology.


pages: 307 words: 88,180

AI Superpowers: China, Silicon Valley, and the New World Order by Kai-Fu Lee

AI winter, Airbnb, Albert Einstein, algorithmic trading, artificial general intelligence, autonomous vehicles, barriers to entry, basic income, business cycle, cloud computing, commoditize, computer vision, corporate social responsibility, creative destruction, crony capitalism, Deng Xiaoping, deskilling, Donald Trump, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, full employment, future of work, gig economy, Google Chrome, happiness index / gross national happiness, if you build it, they will come, ImageNet competition, income inequality, informal economy, Internet of things, invention of the telegraph, Jeff Bezos, job automation, John Markoff, Kickstarter, knowledge worker, Lean Startup, low skilled workers, Lyft, mandatory minimum, Mark Zuckerberg, Menlo Park, minimum viable product, natural language processing, new economy, pattern recognition, pirate software, profit maximization, QR code, Ray Kurzweil, recommendation engine, ride hailing / ride sharing, risk tolerance, Robert Mercer, Rodney Brooks, Rubik’s Cube, Sam Altman, Second Machine Age, self-driving car, sentiment analysis, sharing economy, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, Skype, special economic zone, speech recognition, Stephen Hawking, Steve Jobs, strong AI, The Future of Employment, Travis Kalanick, Uber and Lyft, uber lyft, universal basic income, urban planning, Y Combinator

This is also why the United States has built a strong lead in early applications of business AI. Major American corporations already collect large amounts of data and store it in well-structured formats. They often use enterprise software for accounting, inventory, and customer relationship management. Once the data is in these formats, it’s easy for companies like Palantir to come in and generate meaningful results by applying business AI to seek out cost savings and profit maximization. This is not so in China. Chinese companies have never truly embraced enterprise software or standardized data storage, instead keeping their books according to their own idiosyncratic systems. Those systems are often not scalable and are difficult to integrate into existing software, making the cleaning and structuring of data a far more taxing process. Poor data also makes the results of AI optimizations less robust.


pages: 297 words: 95,518

Ten Technologies to Save the Planet: Energy Options for a Low-Carbon Future by Chris Goodall

barriers to entry, carbon footprint, congestion charging, decarbonisation, energy security, Indoor air pollution, Intergovernmental Panel on Climate Change (IPCC), Kickstarter, land tenure, load shedding, New Urbanism, oil shock, profit maximization, Silicon Valley, smart grid, smart meter, statistical model, undersea cable

Although the precise cost is not yet known, it is likely to work out at more than $35 for each ton of carbon dioxide, adding over 3 cents to the cost of generating a kilowatt-hour of electricity, increasing coal generation costs by 40 to 50 percent. Without a substantial and guaranteed financial incentive, no power station owner will likely voluntarily move to CCS . Forward-looking coal-fired power station operators are almost pleading with governments to ensure high carbon taxes in order to create such an incentive. Make carbon emissions costly enough, and profit-maximizing power stations will have an incentive to install capture equipment rather than pay for their carbon dioxide pollution. “I am a carboholic,” wrote David Crane in the Washington Post. Crane is the head of NRG , a U.S. electricity generator with a portfolio of coal-fired stations. “If Congress puts in place a substantial carbon price,” he said, “we will do what America does best; we will react to carbon dioxide price signals by innovating and commercializing technologies that avoid, prevent, and remove carbon dioxide from the atmosphere.”


pages: 372 words: 92,477

The Fourth Revolution: The Global Race to Reinvent the State by John Micklethwait, Adrian Wooldridge

Admiral Zheng, affirmative action, Affordable Care Act / Obamacare, Asian financial crisis, assortative mating, banking crisis, barriers to entry, battle of ideas, Berlin Wall, Bernie Madoff, Boris Johnson, Bretton Woods, British Empire, cashless society, central bank independence, Chelsea Manning, circulation of elites, Clayton Christensen, Corn Laws, corporate governance, credit crunch, crony capitalism, Deng Xiaoping, Detroit bankruptcy, disintermediation, Edward Snowden, Etonian, failed state, Francis Fukuyama: the end of history, full employment, Gunnar Myrdal, income inequality, Khan Academy, Kickstarter, knowledge economy, Kodak vs Instagram, labor-force participation, laissez-faire capitalism, land reform, liberal capitalism, Martin Wolf, means of production, minimum wage unemployment, mittelstand, mobile money, Mont Pelerin Society, Nelson Mandela, night-watchman state, Norman Macrae, obamacare, oil shale / tar sands, old age dependency ratio, open economy, Parag Khanna, Peace of Westphalia, pension reform, pensions crisis, personalized medicine, Peter Thiel, plutocrats, Plutocrats, popular capitalism, profit maximization, rent control, rent-seeking, ride hailing / ride sharing, road to serfdom, Ronald Coase, Ronald Reagan, school choice, school vouchers, Silicon Valley, Skype, special economic zone, too big to fail, total factor productivity, War on Poverty, Washington Consensus, Winter of Discontent, working-age population, zero-sum game

A stream of luminaries hacked away at the status quo: Frank Knight demonstrated that social reform was often counterproductive; Ronald Coase (another LSE import) and George Stigler argued that regulators were frequently captured by the people whom they regulated; Gary Becker invented the economics of human capital; James Buchanan and Gordon Tullock demonstrated that bureaucrats were motivated by the same profit-maximizing instincts as businesspeople.4 But nobody wielded the ax more vigorously than Friedman. Few academics have had Friedman’s gift for evangelism. Looking back, what the young freeloader heard in the San Francisco sauna was a version of the “Road to Hell” lecture, which Friedman delivered at any university that would have him: a lecture in which he excoriated everything that the American Left—and indeed the American ­center—held dear and unveiled an entirely different future. ­


pages: 324 words: 92,805

The Impulse Society: America in the Age of Instant Gratification by Paul Roberts

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, asset allocation, business cycle, business process, Cass Sunstein, centre right, choice architecture, collateralized debt obligation, collective bargaining, computerized trading, corporate governance, corporate raider, corporate social responsibility, creative destruction, crony capitalism, David Brooks, delayed gratification, disruptive innovation, double helix, factory automation, financial deregulation, financial innovation, fixed income, full employment, game design, greed is good, If something cannot go on forever, it will stop - Herbert Stein's Law, impulse control, income inequality, inflation targeting, invisible hand, job automation, John Markoff, Joseph Schumpeter, knowledge worker, late fees, Long Term Capital Management, loss aversion, low skilled workers, mass immigration, new economy, Nicholas Carr, obamacare, Occupy movement, oil shale / tar sands, performance metric, postindustrial economy, profit maximization, Report Card for America’s Infrastructure, reshoring, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Rodney Brooks, Ronald Reagan, shareholder value, Silicon Valley, speech recognition, Steve Jobs, technoutopianism, the built environment, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, Tyler Cowen: Great Stagnation, Walter Mischel, winner-take-all economy

But it is a failure rooted in a marketplace that is now so married to the psychology of the consumer that it mirrors that psychology’s least attractive attributes—not least the tendency, wired in by evolution, to prize immediate rewards and ignore future costs. You can see this have-it-now reflex in the way our entire consumer culture treats immediate gratification as if it were life’s primary goal, to be pursued as efficiently and unapologetically as possible. But you can also see it among the institutions in charge of the consumer economy, not least the institutions of business. We may always have been a profit-maximizing species, but there was a time when profit was regarded as inseparable from broader social goals and obligations. Today, those obligations are treated increasingly as “inefficiencies” to be minimized or eliminated entirely with cost-cutting technologies and lean strategies. This intensifying emphasis on the bottom line helps explain the unprecedented level of corporate earnings, which have more than recovered from the Great Recession.


pages: 327 words: 90,542

The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril by Satyajit Das

"Robert Solow", 9 dash line, accounting loophole / creative accounting, additive manufacturing, Airbnb, Albert Einstein, Alfred Russel Wallace, Anton Chekhov, Asian financial crisis, banking crisis, Berlin Wall, bitcoin, Bretton Woods, BRICs, British Empire, business cycle, business process, business process outsourcing, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Clayton Christensen, cloud computing, collaborative economy, colonial exploitation, computer age, creative destruction, cryptocurrency, currency manipulation / currency intervention, David Ricardo: comparative advantage, declining real wages, Deng Xiaoping, deskilling, disintermediation, disruptive innovation, Downton Abbey, Emanuel Derman, energy security, energy transition, eurozone crisis, financial innovation, financial repression, forward guidance, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global reserve currency, global supply chain, Goldman Sachs: Vampire Squid, happiness index / gross national happiness, Honoré de Balzac, hydraulic fracturing, Hyman Minsky, illegal immigration, income inequality, income per capita, indoor plumbing, informal economy, Innovator's Dilemma, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, John Maynard Keynes: technological unemployment, Kenneth Rogoff, knowledge economy, knowledge worker, light touch regulation, liquidity trap, Long Term Capital Management, low skilled workers, Lyft, Mahatma Gandhi, margin call, market design, Marshall McLuhan, Martin Wolf, Mikhail Gorbachev, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, oil shale / tar sands, oil shock, old age dependency ratio, open economy, passive income, peak oil, peer-to-peer lending, pension reform, plutocrats, Plutocrats, Ponzi scheme, Potemkin village, precariat, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, Ralph Nader, Rana Plaza, rent control, rent-seeking, reserve currency, ride hailing / ride sharing, rising living standards, risk/return, Robert Gordon, Ronald Reagan, Satyajit Das, savings glut, secular stagnation, seigniorage, sharing economy,