Too Big to Succeed

"Greed is good" was the mantra of the 80s, but after the stock market "crash" of 1989 and the arrest of junk-bond traders Ivan Boesky and Michael Milligan, it became no longer acceptable to say so.  Not that the culture of the financial industry changed -- it simply became less conspicuous.

Greed is, of course, an inherent part of human nature, and any political or ethical system which fails to take it into account is doomed to failure.  Part of the reason for capitalism's success (such as it has been) is surely that it harnesses greed to productive ends.  Or perhaps more accurately, some of its side effects benefit society (creation of jobs, technological progress) in spite of its main goal of facilitating greed.

However, even Adam Smith recognized that regulation of capitalism is necessary to avoid its more egregious abuses, particularly where "externalities" (public or common goods such as the environment) are concerned.  Smith probably did not anticipate the emergence of megacorporations and the highly interconnected financial system we have today, living as he did before the Industrial Revolution got into full swing.  If he had, perhaps he would have placed even more emphasis on the need for regulation.

The May Atlantic includes an article by Simon Johnson, a former chief economist at the IMF, recommending that the federal government nationalize failing megabanks and break them up into medium-size pieces, with new antitrust regulations and caps on executive compensation to prevent megabanks from coming back.  Johnson recognizes that this would produce some inefficiency and might drive some financial activity overseas, but in his view, these disadvantages are outweighed by the benefits of not having to bail out banks that are "too big to fail".

I wholeheartedly concur with Johnson, but why stop at banks?  The federal government has been bailing out GM and Chrysler for the same reason, that they are too big to fail.  But individual construction companies, which have also been hard hit by the recession, are not getting a bailout (though you could say that the industry as a whole is getting a bailout from the stimulus package).  Perhaps this is because there are no construction companies that are too big to fail.  Why not impose limits on the size of any corporation, not just banks?

Johnson blames the "oligarchy" of financial executives for exerting undue influence on the government and preventing these reforms.  But even in the unlikely event that we manage to break the financial oligarchy's hold on the government, some other corporate oligarchy will just take its place, unless we take steps to prevent any industrial oligarchy from arising, by limiting the size of any corporation.

This idea is anathema to conservatives and libertarians, as constituting interference in the pure market, but that position seems indefensible to me.  Without antitrust regulation, monopolies and cartels naturally arise, which reduces or eliminates the competition that is an essential aspect of the free market.  When individual corporations become too big, government steps in to prevent their failure, either because the corporate oligarchies control government, or because government concludes that their failure would have an unacceptably large impact on society.  This also constitutes interference in the free market.

A more reasonable objection concerns how the size limit is determined.  Presumably the limit would differ across industries, to take into account different economies of scale and barriers to entry.  But this becomes subject to interpretation and manipulation (lobbying) -- the definition of an industry, the determination of which industry a particular corporation belongs to, and the determination of the limit for a given industry.  And there would have to be provisions for adjusting the limit as new technologies change the economies of scale or create new industries.  But surely any step in this direction would improve our current mess.

Mother's Day

Often at church on Sundays the pastor would exhort us not to confine our religious devotions to one day a week, but to think of Jesus and follow his precepts every day.  The idea is certainly laudable, at least for anyone who professes to be a Christian, but most people seem to have a difficult time actually putting it into practice.  So they fall back on Sunday.

This morning the children brought their cards to Mommy and promised to be nice to her all day, a promise honored largely in the breach.  I was struck once again by the enormity of appreciating mothers only once a year, when every day Mommy does a thousand things, large and small, to help her children survive and thrive.  Surely, every day should be Mother's day!  But just as the Israelites (and most of the Republican party) constantly turned away from God, so do children invariably neglect and mistreat their mothers.  Even on Mother's Day.