Ev Ehrlich's Everyday Economics

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What an incredible news day!  The most exciting newspaper I've enjoyed over my bran flakes in a long time.

Let’s recap.

First, after the most startling confession since Mark McGuire’s, it turns out that it’s John Edwards’ baby.  Check. 

Next, Conan O’Brien and his staff are going to get a substantial amount of money -- $45 million.  Welcome to the world of content, Brian Roberts.   (No, not that Brian Roberts.)

Did anyone else enjoy the remarkable coincidence that Comcast’s acquisition of NBC took place the same week as Gerald Levin’s admission that, as CEO of Time Warner, the merger he architected with AOL was – in his words --  "the “worst deal of the century?”  Levin, in retirement, now runs an addiction rehabilitation center called Moonview Sanctuary, which sounds more like a lycanthropy treatment facility than an addiction center, but whatever.  

Perhaps one of the addictions that Levin treats is the addiction of infrastructure-connectivity-signal providers to acquisitions of content providers, as seen in ABC/Cap Cities’ Jonesing for Disney, or Time Warner’s acquiescence to Steve Case’s money-laundering, crack-dealing stock swap, or now Comcast buying NBC/Universal.  Good luck.

Moving on, more human misery in Haiti.  The only comment worth my making, beyond encouraging charitable giving, is to congratulate the economists who argue that aid made Haiti poorer on their timing.    There is no argument that aid has often been administered poorly , and it’s even more true that we know more about how to do that than we once did – witness that CARE (an organization to which my wife and I contribute annually), once the epitome if not caricature of sending food in boxes (“CARE packages”), is now a leader in microfinance among the world’s poor.But is aid the problem, as in the cause of Haiti’s squalor?  That might be going too far. 

You know what was a bitch for Haiti, in terms of the economy's long-term structure?  Slavery.  I bet it was worse than aid.

Next: the Supreme Court has decided that corporations and labor unions have freedom of speech even if they lack the convention apparatus for delivering speech – lips -- and can spend fortunes producing ads for candidates, although they cannot give money directly to candidates, meaning they can bribe candidates, but not hold a formal deed to them.  That’s because, in the minds that produced this opinion, corporations are legal “people” and have the same First Amendment rights as – what’s the right retrogressive neologism here? – “human” people.

Now the first thought that will occur to most people (“human” people, thanks) is that pharma and banks and energy companies are going to go Biblical in the next election cycle on those who opposed their views on health care, or the bank bail-out and subsequent financial sector reform, or climate change legislation, or whatever, and that labor unions will do their equivalent, lower-budget deal – not quite Biblical, maybe just Apocryphal – job on those who didn’t back card check legislation.

But my first thought is the corporate income tax.  Economists in general, and conservative ones in particular, don’t like the corporate income tax.  It’s double taxation – a corporation makes money, pays taxes on what it makes, and then sends dividends to its stockholders or invests what’s left in projects that help the firm grow, which leads to capital gains.  Stockholders then pay taxes on those dividends and gains.  You don’t have to be a handmaiden of corporate malfeasants to think that’s a bad idea.  We’d be better off if we somehow attributed what corporations make to their stockholders and let the stockholders incorporate that into their own taxes.  They might even be “better” shareholders  – more interested, more involved, more offended by bloat, pomp , and obfuscatory BS  –  if that were the case.

One counterargument to that view is “the hell with it, soak the rich.”  A more sophisticated view is that corporations acquire the right to become “legal people” when they incorporate, and that a special tax on them is like a payment for that special status.  I disagree – I’m with the folks in the last paragraph who argue that we’d be better off attributing what corporations make to their stockholders.  But now we have Justice Roberts – who told us that his job was to “call balls and strikes” and that he wasn’t out to overturn “established law” – overturning established law to not only call balls and strikes, but determine that the corporate team gets four outs when they come to bat, all because corporations are “legal people” with First Amendment rights.

It’s a clear cut case of having it one way and then the other when it suits you.  That it comes from a majority with an ideological axe to grind is unsurprising.  But the part of me that wishes the Consistency Fairy would somehow wave its wand at this type of thing is deeply hurt.  And the part of me that worries about the quality of democracy is afraid.  I might be proven wrong – perhaps the Internet-based waves of organized small contributors, which boosted Howard Dean, President Obama, Ron Paul, and Scott Brown, will produce more resources than their corporate equivalents.  Right now, I doubt it.

But the topper in today’s paper has to be the announcement of the “Volcker Rule,” as embodied in the regulatory framework put forward by the White House yesterday, and that will define the future of banking as surely as Glass-Steagall did almost 80 years ago.    For those of you who demand that complex phenomena be stripped down to their essence (a questionable rule for financial regulation, a good rule for sentences), I think it comes to this – first, banks can’t invest (gamble) their own money in hedge funds, private equity, or other more speculative investments, and, second,  there would be limits on the size a bank could reach (perhaps no bank could account for more than 10 percent of total bank liabilities – deposits, other borrowings by the bank, and so forth).

This stuff deserves its own discussion, and time and space don’t allow that right now.  I was encouraged when reading today’s paper that Senator Judd Gregg, an important Republican on the Senate Banking Committee, said he was attracted to Volcker’s thinking was interested in considering it.  The fact that banks are now stock-character political villains might make them an easy target, but at least it will save us from some predictable cant about “excessive regulation” and blah blah blah.

I consider this cavalier tone justified.  In the past 30 years, we’ve had financial crises driven by the recycling of petrodollars leading to the Mexican/Third World debt crisis in the early 1980s, the savings and loan crisis of a decade later, the Asia/Russian financial meltdown of 1997-98, and now the mortgage-led race to the precipice, and I’m leaving out the 1994 Mexico bail-out and the dot.com bust, which are more tangential to the main point.

And the main point is that financial markets are prone to crises – not only does the market mechanism fail to protect us from them, it actually leads to them.  And I say that as someone who thinks that markets work very well to sort out what happens in the markets for goods and services and even such financially-related phenomena as the market for corporate control (corporate mergers and takeovers and the like).

But there’s a big difference between a market for things you buy to use and a market for things you buy so that you can sell them again.  Panic, herd mentality, and the other behaviors that humans universally demonstrate across time and place don’t do much damage when we’re talking about goods and services.  Yes, it’s amusing to see people stock up on bread and milk and leave grocery stores denuded before a snowstorm, but it’s harmless.  But when the same mentalities produce whipsaws of euphoria and dread, or leave markets without either buyers or sellers, there’s no inherent limit save for crises.  Moreover, the financial market is the cardiac system of the economy.  I’m happy to leave most other social functions to the whim of markets – do people want paper or plastic, or wire- or wireless telephony?  But finance is different.   The question isn't whether to regulate, but how.

All of these topics – well, except who’s a baby daddy – deserve more mention.  What’s the future for signal carriers such as Comcast versus content producers such as NBC?  How should we tax corporations and how should we regard them as social entities?  How should we regulate financial markets?  And given enough time, we’ll get around to all of them.

 And that’s why nature invented time – so that everything doesn’t have to happen at once.