SIMPLETON ECONOMICS

I not an economist. My formal training consists of a single introductory economics course in college. But it’s become abundantly clear that the so-called “experts,” with all their extensive training, seem equally unable to understand the complexities of an economic system as vast as the one powering (now underpowering) the United States. Had they been as expert as they claimed, they would have foreseen the crisis and at least paid lip-service to the changes necessary to avert it, so that our esteemed governing class could ignore them, since these changes would no doubt have been politically inconvenient. As it turns out, most of them were blind-sided. Yes, there were occasional voices about this “bubble” and that, but no concerted cry of alarm before the financial ax fell. So I guess my ignorant, common-sense rants about what’s wrong with the private sector and what needs to change carry as much weight as the proclamations of the pros.

For a number of years I’ve been amazed as the geometric rise of the salaries and benefits of the CEOs of the major publicly held corporations. Don’t get me wrong—I’m a fan of capitalism in all its untarnished if sometimes brutal splendor, but not when the system is gamed. And it seemed to me that many of the captains of industry were making more than they were producing. To be rewarded with tens to hundreds of millions of dollars in salary and perks regardless of performance with the argument that “that’s what it takes to hire someone of ability these days” didn’t sit well with me. Especially since what it took to hire these repositories of dubious ability was calculated by these very same people. Sort of like the wolf guarding the henhouse, don’t you think? A more liberal friend of mine pointed out that market forces exist to keep excesses in check: the companies have boards of directors and shareholders to limit the largesse. Unfortunately, the boards are populated by the same people benefitting from their own generosity and most of the shareholders are the man in the street, who has neither the time nor inclination to actively weigh in. Sure, if the company fails, the CEOs get nothing, but a lot of raiding of the coffers can occur before that point is reached, and if the company continues to do well, the upper echelons are still robbing the shareholders. When reimbursement is no longer tied to performance, but preordained, the capitalist system is corrupted. Privately held businesses are another matter. If the owner wishes to overpay himself and run the business to the ground, that’s his business. Sad for his employees, no doubt, but people are and should be the authors of their own success and failure. Unless they’re “too big to fail” and the government decides the taxpayer must bail them out. Which brings me to my next point: monopolies.

Too few players with too little competition, and the capitalist system fails. So, appropriately, anti-monopoly laws were enacted to protect the economy. Over the years I watched with surprise as gargantuan corporation after corporation merged. It must be all right, I surmised. The “experts” have analyzed the marketplace and given their blessing. Then the phrase “too big to fail” burst forth from the mouths of our economists and politicians. I’m a simple man. I thought, doesn’t “too big to fail” mean “too big to exist”? Obviously, I’m a simpleton.

Let’s talk about derivatives and defined benefits next time. You’ll love it, trust me.

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