Economics

Frauds are a cancer destroying capitalism

My previous post described a comment by Sam Antar during his CPE session that the fines arising from of a long list of financial fiascos are essentially a tax on illegal behavior.

He made another comment in that session that I wanted to describe in detail. He said these frauds are a cancer destroying capitalism.

I had opportunity to visit with him a few weeks ago and asked him to expand on this idea. I will summarize what we discussed.

This discussion is cross-posted from my other blog, Attestation Update, since it directly affects freedom, capitalism, and morality.

Cancer destroying capitalism

He indicated the foundation of capitalism is reliability of financial information. If you can trust financial information you read then we can do business with each other.

He says the extent of frauds we have seen are leading people to lose faith in financial information. That leads to loosing faith in their counterparties. Therefore people have less trust. In financial terms that means the risk premiums for transactions go up. The interest rate built into a transaction increases and the return drops.

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By Jim Ulvog, ago

Puritans started with socialism and price controls before they jumped to capitalism

There is a concept loose in the U.S. and emphasized in our educational system that the Puritans arrived in the U.S. believing in capitalism and went straight to economic prosperity.

Well, capitalism will definitely do that, but the Puritans made a few stops before getting to prosperity. Those included socialism, price controls, and severe caps on finance & trade under the guise of opposing usury. All of those policies will suppress economic development.

Jerry Bowyer explores this journey through false ideas is a series of articles, which summarize his interview with Mark Valeri, author of Heavenly Merchandize.

To encourage you to check out the full articles, I’ll try to summarize some key ideas.

7/30 – Forbes – Jerry Bowyer – Puritans vs. Capitalism: How A Theological Error Led To Financial Stagnation – In the 17th century, pastors and religious leaders were opposed to usury which included even discounting letters of credit more than a small amount. If you can’t use paper (bills of credit) to facilitate long-distance trading, there won’t be much trading.

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By Jim Ulvog, ago

If you want to increase the number of large animals like elephants and rhinos, allow them to be privately owned and hunted

Kenya and South Africa have taken dramatically different approaches in how to protect large animals.

May not make sense, but I have a plan for you if you want to protect big critters, like rhinos, lions, leopards, elephants, and buffalos (the big 5) along with antelopes and zebras.

What to do? Take South Africa’s approach and allow private ownership of the animals and allow other people to pay the owners of the animals to hunt them.

Like I said, it doesn’t make sense, but incentives matter. And if you want to protect big animals, give individuals incentives to do so.

Kenya and South Africa provide a natural experiment to see which approach works best.

(This article was originally posted at my other blog, Outrun Change. Why cross-post it here? Because I believe this story shows that the approach resembling free enterprise produces a result with a higher level of morality than the alternatives. Private ownership of property produces the moral outcome.  I cannot quite see how it is moral to take actions which cause most of the big animals to die off.)

The following information is from two articles:

Kenya

Kenya bans private ownership of large animals and bans hunting. The country focuses on conservation with funding provided by eco-tourism.

How has that worked?

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By Jim Ulvog, ago

Illustration of creative destruction: lots of Fortune 500 companies disappeared over the last 60 years

What sets apart each of these groups of companies?

Group A: American Motors, Brown Shoe, Studebaker, Collins Radio, Detroit Steel, Zenith Electronics, and National Sugar Refining.

Group B: Boeing, Campbell Soup, General Motors, Kellogg, Proctor and Gamble, Deere, IBM and Whirlpool.

Group C: Facebook, eBay, Home Depot, Microsoft, Office Depot and Target.

Mark Perry, writing at Carpe Diem, explains: Fortune 500 firms in 1955 vs. 2014; 89% are gone, and we’re all better off because of that dynamic ‘creative destruction’.

(This article is cross-posted from my other blog, Outrun Change. You will see why momentarily.)

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By Jim Ulvog, ago

Protectionism – Can someone explain to me how that can be moral ?

Protectionism is the idea that the government can protect me from foreign companies that want to sell me something at a lower price that the government thinks is fair. As a result, I pay more than I would otherwise.

Professor Don Boudreaux published a letter to Wall Street Journal editor explaining why protectionism is immoral. Here’s his letter, quoted in full since it is an open letter to the editor,with the key paragraph expanded into bullet points: (more…)

By Jim Ulvog, ago

Why do we study economics? Because of the suffering of people left behind in poverty.

Many countries around the world have seen their economies grow and enjoy the improved nutrition, health care, comfort, and consumer goods that go along with growth. Other countries, locations, and people groups have been left behind.

Why should we care about growth?

Consider a billion people struggling in India while a billion people in China have a per capita GDP today that is equal to what we had in the U.S. back in 1972.

(Cross-post from my other blog, Nonprofit Update. The question I’ll ask here: Is it moral that the policies that let a billion people move out of grinding poverty in one place were not applied to lift up a billion of their next-door neighbors?)

The Economist explained the issue this way on 5/24:

The increase in (China’s) average annual GDP per head from around $300 to $6,750 over the period (of the last 30 years) has not just brought previously unimagined prosperity to hundreds of millions of people, but has also remade the world economy and geopolitics.

That’s great. I am sincerely happy for the people of China. The next sentence asks us to consider a billion people who got left behind:

India’s GDP per head was the same as China’s three decades ago. It is now less than a quarter of the size. … India’s economy has never achieved the momentum that has dragged much of East Asia out of poverty.

So what, I hear some say.

Consider the human cost: (more…)

By Jim Ulvog, ago

Appeals court says devastation from New Deal is still okay; We lost a hero who also suffered at the hands of the New Deal

Did you know the enlightened wizards of the New Deal worked out a plan that raisin producers had to turn over a percentage of their crop to the government and not get paid for the raisins?

Yes, that was actually a plan developed back in the ‘30s.

Did you know that plan is still in place? Eighty years later?

(Cross posted from my other blog, Outrun Change.)

I discussed that a year ago – Economic destruction from the New Deal just keeps rolling on.

The lawsuit I mentioned back then involved farmers who were told to give 47% of their ’02 crop and 30% of their ’03 crop to the government without compensation.  The case went to the Supreme Court, which ruled the farmers did actually have standing to sue the government. The case went to the 9th Circuit Court for consideration of their claims.

Guess what?

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By Jim Ulvog, ago