dagblog - Comments for "Barack Obama on What Mitt Romney Does for a Living"

Well, if I had said anything

Dan Kervick — Sun, 22 Jul 2012 23:00:20 +0000

Well, if I had said anything about "doing away with private ownership", I suppose this would be a relevant comment. But since I only raised the issue of the degree to which we rely on private ownership, it's not.

I also want people to get

Aaron Carine — Sat, 21 Jul 2012 14:39:09 +0000

In reply to I believe capital certainly

I also want people to get equitable returns on their labor, Dan, which would mean--at the least--the minimum necessary for what their society considers a decent living. The failures of socialism leave me with no clear idea of how it is to be done, but I don't think doing away with private ownership will fix things.

Thanks, Dreamer; that was actually my third post.

I believe capital certainly

Dan Kervick — Wed, 18 Jul 2012 00:29:19 +0000

In reply to It isn't a straw man. Marx

I believe capital certainly contributes to production. My concern is more with the degree to which we rely on the system of private ownership, and the way those ownership claims are used to determine who receives the returns from the value that is added by production.

I don't think you are putting

moat — Wed, 18 Jul 2012 00:24:39 +0000

In reply to But instead of making it

I don't think you are putting up a straw man but some distinctions should be considered.

Marx didn't say any work that lead to the production of a commodity was more or less real. If the entrepreneur he refers to as the master of the system of production also involves themselves with how the thing is made, that participation doesn't change the value of the product within a specific system of exchange. Das Capital has been extensively criticized for its attempt to provide a comprehensive theory of the price of things. If the book(s) fall short in that regard then it must be read with the understanding that Marx is not assigning the "real" value of each bit of effort that goes into making something but demonstrating that the exchange value turns all people involved with the production into commodities themselves.

Marx is not saying the owner always benefits despite doing no work. The idea is that the owner becomes wealthy only because he is shortchanging other people more than he is being shortchanged.

If you want to read about lazy entrepreneurs, I suggest a round of Veblen.

Apologies if I missed it, but

AmericanDreamer — Wed, 18 Jul 2012 00:19:51 +0000

In reply to It isn't a straw man. Marx

Apologies if I missed it, but is this your first post here, Aaron? If so, welcome to dagblog.

It isn't a straw man. Marx

Aaron Carine — Wed, 18 Jul 2012 00:05:31 +0000

In reply to But instead of making it

It isn't a straw man. Marx felt that capital contributed nothing to production, and I suspect that is Mr. Kervick's view as well. While I'm grateful to Marx for explaining that labor has value, he got this one wrong.

As for the history of capitalism being a history of "economic disasters", democratic capitalism has produced the highest living standards for the largest number of people.

Tx.

PeraclesPlease — Mon, 16 Jul 2012 20:14:10 +0000

In reply to True or False: CEO's and

Tx.

True or False: CEO's and

AmericanDreamer — Mon, 16 Jul 2012 18:38:05 +0000

In reply to Barack Obama on What Mitt Romney Does for a Living

True or False: CEO's and Boards of Directors of publicly held corporations have a legal duty to maximize shareholder wealth?

I have, incorrectly I learned this weekend from Lynn Stout's very short and excellent 2012 book The Shareholder Value Myth, believed that to be correct and stated it as such. I stand corrected. Stout demolishes a number of other false beliefs about corporations associated with the shareholder value belief structure, such as that, as Milton Friedman claimed in 1970, shareholders "own" corporations. Of greater potential interest to investors and policymakers, she also reviews several types of evidence suggesting that shareholder-wealth maximization policies, facilitated by a number of policy changes over the past 2 or 3 decades, have not led to better results--for shareholders themselves, let alone other corporate stakeholders.

Stout points out that shareholders are individual people or institutional investors who have widely varying interests and desires, which are often mutually incompatible. The "shareholder value" philosophy which has been dominant in our society for several decades now (but was not always so) as reflecting the true purpose of public corporations is based on a notion of a single, "Platonic ideal" type of shareholder whose interest is solely in today's market price of a corporation's equity. Whereas real shareholders have different time frames, different degrees of diversification, different attitudes towards sacrificing personal wealth to follow ethical rules and avoid harming others, etc. As she writes,"conventional shareholder value thinking reconciles different shareholders' conflicting desires by simply assuming the conflicts away."

Reading it prompted me to reflect on where/how I acquired the belief about Board/CEO legal duty to maximize shareholder wealth.

One likely possibility, although this is going back a long time now--is the Corporations Law course I took at the University of Chicago circa 1984, which happened to be taught by Dan Fischel. Fischel is co-author of a leading 1991 "law and economics" textbook that takes this point of view. IF he taught this view as reflecting the state of the law at that time, as opposed to his personal preference on what the law should be--and it's a long time ago so I don't know that that was the case--then I and many fellow students over the years were badly served by him.

Marjorie Kelly, in her book The Divine Right of Capital, a book I admire, apparently also stated this as a correct statement of current law. So that could have been another source. But, really, that view appears to be so widespread that I or others mistaken about this might have gotten that belief from any number of sources.

Of much clearer direct relevance to the subject of this thread, Stout cites an empirical study of activist hedge funds by Bill Bratton at the University of Pennsylvania which concludes: "Activist hedge funds look for four things in their targets--potential sale of the whole, potential sale of a part, free cash, and cuttable costs." (p. 69) (None of which is inconsistent with your comments in the thread, PP.) Stout is pretty clearly anti-hedge fund, noting negative but no positive effects they have. She is a law professor, active with many organizations and projects, who would surely be seen by the hedge fund crowd as a corporate director apologist.

Bratton article, "Hedge Funds and Corporate Governance", 95 Georgetown Law Review, 2007, is at: http://georgetownlawjournal.org/files/pdf/95-5/BRATTON.pdf From the closing part of the abstract:

Meanwhile, the financial results also show that hedge fund activism is a more benign phenomenon than its critics would have us believe. Hedge fund interventions neither amount to near-term hold ups nor revive the 1980s leveraged restructuring. Short term investments are rare. Large cash payouts have been made by only a minority of the firms surveyed, and borrowing has been the mode of finance in only a minority of the payout cases.

Regardless of one's views on

AmericanDreamer — Mon, 16 Jul 2012 16:13:44 +0000

In reply to I'm more offended by the

Regardless of one's views on what is acceptable or appropriate or healthy income and wealth inequality in our society, it is clear that hedge funds can become so big that their failure can potentially trigger catastrophic domino effects affecting the rest of a, or several, societies. They do not operate in anything like a transparent way--that is part of their appeal to their investors. So it is basically impossible for anyone in authority, presumably the federal government, to monitor what they are doing and what risks they may be creating for an entire economy.

The story of Long-Term Capital Management in the late 1990s, told by Roger Lowenstein in When Genius Failed, should be amply suggestive on that point of what can happen.

For this reason alone, it seems to me they need to be regulated.

But instead of making it

AmericanDreamer — Mon, 16 Jul 2012 16:06:01 +0000

In reply to I say it's bullshit. A

But instead of making it clear what nasty line Romney crossed, gutting workers' retirement and just stripping out cash, we're instead just promoting an "investors bad, don't produce anything" mentality.

I agree. One of the biggest problems with Marx's analysis of capitalism is that on his view the only people who produce anything of value are the line workers. Whereas it should not take a whole lot of reflection to grasp that people who are putting up money to get an enterprise started where they have no guarantee of a return--undertaking real, not heads-I-win-tails-you-lose "risk", that is--, people who manage and organize an enterprise so that it is able to produce what it produces well, and, of course, people who came up with the idea for the new product or service in the first place, for example, are actually contributing a great deal of value.

Whether line workers, the worker bees who are "doing the work" of enterprises, are being fairly compensated relative to such others who are contributing value, and whether the current degree of inequality is dysfunctional for our economy, are different questions. But regardless of how one answers them, characterizing the other actors--such as managers, entrepreneurs, investors per se--as people who are purely and simply leeching off of line workers, the latter of whom, alone, are supposedly doing "real work" and contributing value, is off base.

I've not extensively studied Marx so if I put up a straw man here, am glad to be corrected.