Category: Business and Society

Blog author: jballor
Friday, December 9, 2005
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You probably have heard of Pascal’s Wager, but have you heard of Kant’s Bet? Immanuel Kant, the 18th century moral philosopher, famous for his discussion of the categorical imperative, has an interesting section bearing on economics in his Canon of Pure Reason (which comes at the conclusion of his Critique of Pure Reason).

In the section discussion epistemology, entitled, “Opining, Knowing, and Believing,” Kant explores the difference between subjective conviction that something is true and objective certainty. The personal basis for such a judgment depends in part on the strength of the subjective belief. Talking specifically about pragmatic beliefs, which adhere to some activity and particular action, Kant writes:

The usual touchstone, whether that which someone asserts is merely his persuasion — or at least his subjective conviction, that is, his firm belief — is betting. It often happens that someone propounds his views with such positive and uncompromising assurance that he seems to have entirely set aside all thought of possible error. A bet disconcerts him. Sometimes it turns out that he has a conviction which can be estimated at a value of one ducat, but not of ten. For he is very willing to venture one ducat, but when it is a question of ten he becomes aware, as he had not previously been, that it may very well be that he is in error. If, in a given case, we represent ourselves as staking the happiness of our whole life, the triumphant tone of our judgment is greatly abated; we become extremely diffident, and discover for the first time that our belief does not reach so far. Thus pragmatic belief always exists in some specific degree, which, according to differences in the interests at stake, may be large or may be small.

In such a way, we can arrive a subjective value of actual beliefs, while at the same time exposing the truth that full subjective conviction cannot be immediately translated into objective certainty. Thus we have Kant’s Bet, not something Kant invented of course, but merely passes along to us as part of the philosophical tradition.

In the twentieth century, Italian statistician Bruno de Finetti came up with a rather more refined and complex version of something like Kant’s Bet, designed as “a method to gauge someone’s confidence in the chances of a given event occurring by measuring it against a lottery with a known probability” (See The De Finetti Game via the evangelical outpost). All this really is a philosophical way of getting at the old cliché, “Put your money where your mouth is.”

Blog author: jspalink
Wednesday, December 7, 2005
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The new Paramount movie Aeon Flux starring Charlize Theron paints a picture of a post-apocalyptic future for humankind. But the “perfect society” will remain a myth this side of the eschaton, says Jordan Ballor. The fulfillment of merely human potential cannot approach the “fullness of hope that comes with the recognition of God and an afterlife,” he writes.

Read the full commentary here.

Blog author: jballor
Tuesday, December 6, 2005
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Says Harvard economist Kenneth Rogoff:

Hollywood’s cartoon-like caricatures of evil multinational corporations may some day seize mainstream consciousness, leading to political upheavals that shatter today’s social contract. That won’t be good for profits, or for the poor.

For more on Tinseltown’s demonization of multinational corporations, see “The Manchurian Mistake.”

Who’s looking out for ya, baby…

I know I’ve been enjoying the falling oil prices of late when filling up my minivan’s gas tank. At the height of the post-Katrina and Rita oil price spike, I was paying upwards of $70 to fill the thing up. Now that things have calmed down a bit, I’m even hoping to see gas drop back down to that magic $1.99 level or lower.

And who do we have to thank for these lower costs? At first blush, I’d say Adam Smith. But I’d be wrong. It turns out that one man singlehandedly took on the high-price beast… and won.

That man?

O’Reilly.

CAVUTO: Okay. Gas prices are down a lot. Why do you think that is?

O’REILLY: Because they’re afraid they’ll go to jail. And those C.E.O.s who manipulated them–

CAVUTO: Why are you sure that they manipulated them?

O’REILLY: I have guys that are inside the five major oil companies – my father used to work for one of those oil companies, by the way – who have told me that in those meetings they look for every way to jack up oil prices after Katrina, every way. When they didn’t have to. And they got scared because in my reporting and some other reporting, they said –

CAVUTO: Wait, you’re taking credit for gas prices being down?

O’REILLY: My reporting and reporting of others.

Hmm. Perhaps tomorrow night’s “Unresolved Issues” segment on The Factor will focus on Bill’s incomplete knowledge of the law of supply and demand.

Blog author: kjayabalan
Wednesday, November 30, 2005
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That’s the title of this week’s survey of Italy in The Economist.

The news for Italy is quite depressing. Its economic growth is the slowest in Europe, behind even France and Germany, its productivity is down while its wages are up, and a massive demographic crisis looms.

The survey is extensive, covering the structural, political and even cultural impediments today’s Italy faces. These include a tendency to blame Europe and China for Italian woes, an over-reliance on small- and medium-sized enterprises, too little foreign competition (especially in the banking sector), fractured political coalitions, high taxes and budernsome regulations, and crime, corruption and poverty in southern Italy. And while the economic situation is bleak, things are not really bad enough to push through the needed reforms. The overall prognosis is for a “long, slow decline.”

(See also, next week’s Time Asia magazine for this interview with Italy’s finance minister. I’m baffled how one man can manage to confuse the issue of global competitiveness so many times in one short intervew!)

The major difficulty is, however, ideological. Berlusconi himself and his government are simply not believers in the power of free markets, as they have sought personal and national wealth through political cronyism and negotiated deals. There is even less hope that a center-left coalition led by Romano Prodi will be capable of seeing the light.

Here’s a passage from the survey that sums this up:

“One general problem is that the whole notion of service is rather undervalued. Indeed, Italy often seems to suffer from a pervasive anti-business, anti-consumer culture. Italians may be entrepreneurial and creative, but they are no means pro-market. Neither of the two main post-war political parties, the Christian Democracts and the Communists, could be described as economically liberal. Nor is the Catholic Church, still a huge influence in the country, which has always affected to disdain profit. In any case, many businessmen in Italy do better by exploiting contacts and seeking favours from the state than by building companies or trying to serve customers better.”

This is a fair description of the intellectual climate regarding business in Italy, and it is a highly unsatisfactory one. Capitalism remains a dirty word espcially among the elite classes, including the religious.

Thankfully, the late Pope John Paul II helped develop Catholic social doctrine and lead it in the direction of a greater appreciation of free markets. In the landmark 1991 encyclical Centesimus Annus, he explicitly supported “an economic system which recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector” (n. 42).

Clearly, this development of doctrine has not yet taken root in Italy, but that’s why the Acton Institue is here. With friends like the Istituto Bruno Leoni, we hope to be able to change this climate for the good of the bel paese and its charming yet under-employed citizens.

A consensus has developed among activists on the left that Wal-Mart is bad for America, and particularly bad for the poor, not only in America (where wages are supposedly driven down) but also abroad (where suppliers allegedly abuse and exploit their workers). Check out this litany of social harms alleged to be caused by Wal-Mart. The organization that compiled that list – Wal-Mart Watch – even has a “faith resource guide” that pastors can use to whip up anti-Wal-Mart sentiment within their flocks.

Unfortunately, this appears to be yet another case of well-meaning activists pursuing a goal that will actually hurt those it is intended to help. Monday’s Washington Post notes that Wal-Mart is actually a progressive force in society:

EVIL! Or not.

Wal-Mart’s critics allege that the retailer is bad for poor Americans. This claim is backward: As Jason Furman of New York University puts it, Wal-Mart is “a progressive success story.” Furman advised John “Benedict Arnold” Kerry in the 2004 campaign and has never received any payment from Wal-Mart; he is no corporate apologist. But he points out that Wal-Mart’s discounting on food alone boosts the welfare of American shoppers by at least $50 billion a year. The savings are possibly five times that much if you count all of Wal-Mart’s products.

These gains are especially important to poor and moderate-income families. The average Wal-Mart customer earns $35,000 a year, compared with $50,000 at Target and $74,000 at Costco. Moreover, Wal-Mart’s “every day low prices” make the biggest difference to the poor, since they spend a higher proportion of income on food and other basics. As a force for poverty relief, Wal-Mart’s $200 billion-plus assistance to consumers may rival many federal programs. Those programs are better targeted at the needy, but they are dramatically smaller. Food stamps were worth $33 billion in 2005, and the earned-income tax credit was worth $40 billion.

Set against these savings for consumers, Wal-Mart’s alleged suppression of wages appears trivial. Arindrajit Dube of the University of California at Berkeley, a leading Wal-Mart critic, has calculated that the firm has caused a $4.7 billion annual loss of wages for workers in the retail sector. This number is disputed: Wal-Mart’s pay and benefits can be made to look good or bad depending on which other firms you compare them to. When Wal-Mart opened a store in Glendale, Ariz., last year, it received 8,000 applications for 525 jobs, suggesting that not everyone believes the pay and benefits are unattractive.

The whole article is quite illuminating. The moral of the story? Make sure that your good intentions are connected to sound economics.

Via Q and O

Four hundred MILLION dollars!

Whoops. This week, GM retracts its earnings report from four years ago, saying it overstated its profits by somewhere between $300-400 million dollars. The tendency with a story like this is to cry “fraud!” and then denounce corporate America for its inherently corrupt nature. Now, who can say what the cause is of this slip-up (blunder, goof, unbelievably huge mathematical oh-oh?)? But in the absence of the whole story, how proper is pessimism? Is it possible to be ambivalent toward GM and give them the benefit of the doubt?

Detroit auto is in a bad way (for other ways Detroit is in a bad way, see here). With Delphi in big trouble, SUV sales plummeting, and a $1.6 billion dollar third-quarter loss (that’s billion with a ‘b’), why would GM come out and report a mistake this embarrassing at the most inopportune time? If there is scandal and GM was involved in shady, Enron-like accouting, why would they fess up now? One could easily say they would get caught anyway (the SEC has an investigation going), but even so, why pile sorrow upon sorrow if you are trying to deceive people?

Speculation can be healthy only to a certain point. So let’s at least give them the benefit of the doubt. For once, let’s make a point of recognizing what seems to be–at least at this point–corporate honesty. (You won’t hear that in the news.) See, not all guys in suits are trying to take over the world.

Blog author: jspalink
Wednesday, November 9, 2005
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Black Americans have enjoyed only a mixed record of progress in the fifty years since Rosa Parks took her seat on that Montgomery bus. Anthony Bradley examines her legacy and the nature of liberty in today’s America. “Truly free blacks are those who are free to make their own morally formed choices without government involvement,” Bradley writes.

Read the full commentary here.

Blog author: kschmiesing
Monday, November 7, 2005
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For those of us who harbor some nostalgic sentiment for this country’s agrarian past…

I’ve written previously about the corrosive effect of subsidies on American agriculture. Now, Denis Boyles, in a thoughtful piece on NRO, notes from a similar perspective the importance of entrepreneurial thinking in preserving the agricultural towns of rural America.

Here’s one piece:

When I asked Genna M. Hurd, the co-director of the Kansas Center for Community Economic Development at the University of Kansas and an expert in rural communities, what made the difference between a town that lived and a town that died, I expected her to give me the old saw about how it takes a school to save a town. Instead, she answered simply, “Local leadership and vision.”

Aaah, the magical soothing balm that is government regulation!

The delightfully titled Now Batting for Pedro Borbon blog (“Manny Mota…Mota…Mota”) reveals the (predictable) results of governmental efforts to “increase transparency” in the business world:

So, let’s review. The law that was supposed to ensure greater transparency and make the stock market safe for all of us, especially the little guy, is driving companies to purge the little guy, become less transparent, and shun our world-class public capital markets.

Score another beaut for the Great Sausage Factory!

“We’re from the government, and we’re here to help you,” indeed…

Regardless, it seems to me that this is yet another opportunity to reflect on the importance of maintaining ethical business practices in both large and small corporations. As you recall, Sarbanes-Oxley was the congressional response to the various Enron-Worldcom type business accounting scandals in the late 90’s. Those scandals – a result of a distinct lack of ethical practices – resulted in a lot of people losing a lot of money, public distrust of corporations, and a resulting governmental response to the public outcry. The final links in this chain of events include massive new costs for businesses in order to comply with the new regulations, and now the phenomenon noted above. In other words, everyone loses. Returning to and reinforcing core ethical principles, however, creates a situation in which everyone can win.