Blog author: jspalink
by on Wednesday, March 7, 2007

In the wake of last month’s stock market tumble, Samuel Gregg examines the nature of risk in a free economy. “Risk-taking is indispensable for wealth-creation,” he says. “At the root of wealth-creation is entrepreneurship, and entrepreneurship is impossible unless we are ready to risk testing new ideas, products, and services in the market-place.”

Read the complete commentary here.

  • C Self

    Dr. Gregg,
    I value your commnet very much.

    I have a questsion. I know that man’s life is a venture and even God loves those who create more wealth with creative mind (in heart or materials).
    However, when I see that such unliable and sometimes irrational moves by stock holders cause so much injustice to the hearts and minds of workers who go out and work hard every day.

    For example, I saw "Frontline" special on PBS recently. It was about newspaper businesses. It raised few very disturbing questions to my mind.
    1) Most of newspapers are not owened by wealthy families any longer, but by the stock holders. Due to the demands from stock holders, newspaper CEO has to make decisions for more profit. Even if they made phenominal profit this year, theyhave to make more for the next. So, they end up cutting the cost by firing reporters and expensive investigative researches.
    2) So, they fired many old, hard-line journalist. Ended up reporting with the eye catching gossips and poor news reporting. Although, I don’t exactly appreciate journalism for long time, don’t we need someone to dig for the truth for the betterment of the society? I see more and more of corruption and deceits by smart but selfish minded people these days. I feel more and more confusion about truth an beauty God gave us in today’s world.

    I wonder particularly, if we need better way to handle economic medium "Stocks".

    Your opinion?

  • Dave Hodge

    In response to kaguyahime123:

    Your concern for employees and other individuals commonly known as "stakeholders" is understandable. However, in the measure of risk, they are not the primary participants. Employees offer their time to managers, who are hired by the capital owners to create profit. Employees and managers are compensated immediately for their work, and are only at risk to the extent that their pay is in arrears.

    Contrast this with the risk taken by the capital owner (the stockholders), who must spend millions of dollars in capital equipment such as land, facilities, presses, and air handling units, and millions more to fund receivables, paper inventories, websites, etc. Their return relative to their investment is not guaranteed by any fiduciary, and they are only compensated after all employees, managers, and other business contracts have been satisfied. The "risk" to employees pales in comparison to that of the capital owner.

    It has come to be fashionable lately to rally about the banner of "jobs" and "employees" and other stakeholders, as if they were really the ones bearing all the risk, since they might lose their jobs as a result of poor performance of their employer. This is a symptom of the transition in the economy from an industrial basis, where jobs could be assumed to exist for decades, since the rate of macroeconomic and technological change was much slower than it is currently. For the past twenty years, the world economy has been entering a non-industrial basis (perhaps we might call it the "information basis"?) of production, such that the employee has much more responsibility (and corresponding opportunity) than in past years.

    A man entering the work force today might have six or seven "jobs" throughout his career, when 50 years ago he would have only had one, and 50 years before that he would have been the fourth generation on the family farm. Three hundred years prior still, and he would have been an indentured serf since time out of mind. The waning of what was job security in decades past is replaced with the opportunity for freedom in the present, which is ascendant in a moral sense, also.

    As to the decline of ‘journalism’, it sealed its own fate when the once-great profession of unbiased reporting and information dissemination allowed itself to become preoccupied with political activism and opinion-making in the 1960s and 1970s. Its current state is nothing more than its evolution thirty years after, when politics are less important and tabloids are more important. In addition, I noted that there were TV journalists doing investigative research on the story you cite – how does this square with you?

    The best way to handle the economic medium of common shares of publicly-traded companies is to reduce taxation through lower capital gains and dividend taxes. Often these actions will be cast about as a boon to the rich, since the tax will disproportionately benefit the rich. However, this is a mistaken and foolish assertion, since the common man’s pension is often largely invested in stocks, and higher taxes will bring about so much the worse for him, also!

    Keep up the good work, Dr. Gregg!