Is there "capitalism" in the USA ?

[El Greco]

I happened upon some Joseph Stiglitz opinions that actually exactly coincide with my view of the US (and "western", in general) economy today. Not being an economist I thought that my view was perhaps too simplistic, but seeing as university professor says the same things I believe is quite reassuring:

Quote:

"An awful lot of people are not managing their own money," Stiglitz said. "In old-style 19th Century capitalism, I owned my company, I made a mistake, I bore the consequences."

"Today, (at) most of the big companies you have managers who, when things go well, walk off with a lot of money. When things go bad the shareholders bear the costs," he said.

Even worse, those giving the money to the companies are entities like pension funds that are managing money on behalf of other people, so there are "layers and layers of agency costs," Stiglitz said.

It's a system where "you socialize the losses and privatize the gains," which is not capitalism, he said.

Even though I have the feeling that this is exactly what's happening in most of the "western" world, it is especially interesting to watch it unfolding in the motherland of capitalism. I think that the apex of this "Ersatz capitalism" (or "Lemon socialism") are the repeated bail-outs of banks.

Apologies if it has been discussed before.

[Brian-M]

Quote:

"An awful lot of people are not managing their own money," Stiglitz said. "In old-style 19th Century capitalism, I owned my company, I made a mistake, I bore the consequences."

In short: The owner(s) of a company bear the cost of company failure.

Quote:

"Today, (at) most of the big companies you have managers who, when things go well, walk off with a lot of money. When things go bad the shareholders bear the costs,"

In short: The owner(s) of a company bear the cost of company failure.

The shareholders in a company are the owners of the company. The only difference is that they're paying someone else to run the company for them instead of taking responsibility for running it themselves. (That, and they stand to gain or lose far less than if they owned a majority share in the company.)

[theprestige]

Joseph Stiglitz is an idiot.

[El Greco]

Originally Posted by theprestige

Joseph Stiglitz is an idiot.

Really ? Why do you make all idiots University Professors in the USA ? Because I found another one.

[Merton]

Yes, that's capitalism... it's state capitalism: you have the state and the capitalists working together to control industry. The "old-style, 19th Century capitalism" was more of a laissez-faire capitalism that saw a number of labor abuses in the USA, which we Americans defended against via the state apparatus. Technically, we call this marriage a mixed economy (the means of production are owned by private entities as well as the state, acting as the representative of the people), but it is often referred to as state capitalism or crony capitalism.

Some people tend to conflate capitalism with free markets and insist that anything other than pure laissez-faire capitalism is not capitalism, but all we're really talking about is who owns the means of production.

[theprestige]

Originally Posted by El Greco

Really ? Why do you make all idiots University Professors in the USA ? Because I found another one.

Is Luigi Zingales similarly confused about the roles of managers and shareholders in capital investment? If so, then yes, he's also an idiot.

However, from your link, it looks like Zingales does not share Stiglitz's idiotic confusion on the topic. Hopefully not many University Professors do.

[Tsukasa Buddha]

Joseph Stiglitz is a genius.

[theprestige]

Originally Posted by Tsukasa Buddha

Joseph Stiglitz is a genius.

Evidence of Stiglitz's idiocy is presented in Post # 1, and elucidated in Post # 2.

In which post may we expect to find your evidence of his genius?

[Tsukasa Buddha]

Originally Posted by theprestige

Evidence of Stiglitz's idiocy is presented in Post # 1, and elucidated in Post # 2.

In which post may we expect to find your evidence of his genius?

So you admit to contributing nothing?

[theprestige]

Originally Posted by Tsukasa Buddha

So you admit to contributing nothing?

I admit to succinctly summarizing the evidence and analysis of Stiglitz's fail.

Do you dispute the evidence? Do you dispute the analysis? Do you dispute the summary? Are you contributing anything?

[TubbaBlubba]

Isn't it conceivably a problem that the people managing the company don't necessarily have an incentive to run it well, and aren't accountable?

[Skeptic Ginger]

Originally Posted by El Greco

Really ? Why do you make all idiots University Professors in the USA ? Because I found another one.

It's important to point out not every business in the US is a giant financial institution or mega-corporation. So we do still have some capitalism. But I don't understand why the right wingers on the board are defending the bailouts here when they are all too quick to attack them if the subject is Obama.

[ehcks]

Originally Posted by Brian-M

In short: The owner(s) of a company bear the cost of company failure.

Except the difference is that in the first, the owners actually determine whether the company fails or not, so they try to make sure it doesn't.

In the second, the owners are just the people who get screwed over when the people who run the company let it fail.

[theprestige]

Originally Posted by TubbaBlubba

Isn't it conceivably a problem that the people managing the company don't necessarily have an incentive to run it well, and aren't accountable?

Of course its conceivably a problem. It's a problem for the owner(s).

If the owners of a company hire a manager, but don't give him an incentive to perform well, and don't hold him accountable, that's a problem. For the owners.

Owners behaving badly is entirely possible under capitalism, and the fact that this sometimes happens doesn't make it somehow not capitalism. Similarly, central planning committees behaving badly is entirely possible under communism, and the fact that this sometimes happens doesn't make it somehow not communism.

Stiglitz is an idiot because one of his central theses is based on an obvious straw man: that when shareholders don't hold their management team properly accountable, this isn't "capitalism".

[jj]

Originally Posted by theprestige

Joseph Stiglitz is an idiot.

Really?

And what he's showing is that the managers aren't playing both ends against the middle?

Really?

Perhaps you should show convincing, testable, verifiable evidence for your horrendous defamation?

Can you produce on your ad-hominem attack, or will you be shown to be wanting?

[El Greco]

Ok, I realize that my original question is moot without providing a strict definition of capitalism. I suppose one could argue that bail-outs could very well be part of capitalism.

[Dinwar]

I just want to point out that corporations, which are what is being discussed here (hint: if there are shareholders, you're dealing with a corporation rather than a sole propriatorship), are an invention of the 17th century. The first ones often were involved in [eta] maritime trade [/eta]--after all, that was a HUGE risk, something that no individual could take on. The idea that corporations are not capitalism is utter rubbish--they are nothing more than a contractual agreement between individuals, and were in fact in existence during the time the quote in the OP says was capitalistic.

If the author is that historically illiterate, how can we trust him to properly analyze something as complex as economics?

[TubbaBlubba]

Originally Posted by theprestige

Of course its conceivably a problem. It's a problem for the owner(s).

If the owners of a company hire a manager, but don't give him an incentive to perform well, and don't hold him accountable, that's a problem. For the owners.

Owners behaving badly is entirely possible under capitalism, and the fact that this sometimes happens doesn't make it somehow not capitalism. Similarly, central planning committees behaving badly is entirely possible under communism, and the fact that this sometimes happens doesn't make it somehow not communism.

Right; regardless of how one frames the problem and whose "fault" it may be, couldn't there be space for regulation here, one way or another?

[Dinwar]

Originally Posted by TubbaBlubba

Right; regardless of how one frames the problem and whose "fault" it may be, couldn't there be space for regulation here, one way or another?

Sure there's room for regulation. There's always room for regulation. They're always finding new ways to regulate prison inmates, and they're just about the most-regulated group of people on the planet; anything less than that could easily be subject to more regulations. The question is, is regulation warranted?

If the owners behave stupidly they go out of business. Unless you think that going out of business should be against the law, there's nothing to regulate. As long as the bad manager doesn't commit fraud, theft, or the like, there's nothing to regulate. Life is hard; if you're going to get into business at that level you need to grow a pair and be willing to accept the risks inherent in such activities.

[Tsukasa Buddha]

Originally Posted by theprestige

I admit to succinctly summarizing the evidence and analysis of Stiglitz's fail.

Do you dispute the evidence? Do you dispute the analysis? Do you dispute the summary? Are you contributing anything?

I'll take that as a "Yes, but in denial about it."

[Toke]

Management ripping off stockholders and the taxpayers is an old story.
It may not be the strict definition of capitalism but it seems to work well for the 0.1%.

[theprestige]

Originally Posted by Tsukasa Buddha

I'll take that as a "Yes, but in denial about it."

Take it as you like, Stiglitz is still an idiot.

[jj]

Originally Posted by theprestige

Take it as you like, Stiglitz is still an idiot.

In other words, you've got to "stay on message" but you don't actually have any factual or logical rebuttal, so you simply "define the messenger".

Thank you for admitting you have nothing at all beyond disparagement, hate, and spite.

[Dinwar]

Originally Posted by jj

In other words, you've got to "stay on message" but you don't actually have any factual or logical rebuttal, so you simply "define the messenger".

Thank you for admitting you have nothing at all beyond disparagement, hate, and spite.

So you're not going to respond to me pointing out that he's historically illiterate, I take it. THAT inspires enormous confidence in this analysis.

Obligitory wiki reference. Corporations have been around longer than the concept of capitalism has been, and there's absolutely nothing in the theory of capitalism that prevents them. In fact, as the only way TO prevent them is to limit the ability of people to enter into contractual relationships, the author's ideas actually contradict capitalism sensu stricto.

[theprestige]

Originally Posted by jj

In other words, you've got to "stay on message" but you don't actually have any factual or logical rebuttal, so you simply "define the messenger".

If the shoe fits...

Quote:

Thank you for admitting you have nothing at all beyond disparagement, hate, and spite.

Correction: I have nothing at all beyond disparagement, hate, spite, and the fact that Joseph Stiglitz is an idiot.

Well, to be perfectly accurate, I have nothing at all beyond disparagement, hate, spite, the fact that Joseph Stiglitz is an idiot, and the factual and logical rebuttals by Brian M in post 2, myself in posts 6 and 14, and Dinwar in post 17.

Oh! And I also have a comfy chair! I bet you weren't expecting that, were you?

[stevea]

Originally Posted by theprestige

Evidence of Stiglitz's idiocy is presented in Post # 1, and elucidated in Post # 2.

I disagree with Stiglitz use of the term capitalism in this context, but given these are out-of-context comments to a news source - it can hardly be used to characterize the man's work. That's looney.

Quote:

In which post may we expect to find your evidence of his genius?

Maybe you don't understand the basis of rational discourse.

You made the claim that "Stiglitz is an idiot", the burden is on YOU to support that claim (just ad honinem fallacy) with evidence. Posts #1 & 2 make some reasonable objects to a brief out of context quote - they are in no way evidene of of idiocy = that is strictly your claim.

So to allow you some latitude - Stiglitz won a nobel in econ for asymmetric info theory, and this work greatly influenced modern insurance market and risk evaluation models for secondary markets.

If that's the work of an "idiot" then I assume you, as a bright internet popinjay, can show us examples of your better efforts. Alternatively you may just be a mindless mudslinger incapable of even evaluating the works of others. Feel free to make a case.

===

The cited note suggest several points I disagree with definitionally.

Capitalism is about private ownership of production only, not about using hired management nor corporate entities. We generally do not object to the term "capitalism" when government demands some profits from private production (as business tax) therefore there is no basis to reject the term "capitalism" when government underwrites a fraction of losses. IMO both defray the effective meaning of capitalism and ownership, but not enough to reject the term. Personally I would prefer we avoid both completely, but that's for a different thread.

I think we get into some very troubling distortions of the definitions of "ownership" when for example the government can arbitrarily cuts itself into for a share of equity while totally bypassing the market mechanisms - GM, Chrysler, AIG for example. Who is to say that the government won't "nationalize" other companies as it prefers ? It's utterly lawless.

Corporate management is required by criminal law to manage the operation for the benefit of the shareholders; management may also be held civilly responsible. There is a lot of latitude there, but there have been hundreds of SEC prosecutions by government against managers. It is not solely a matter of owners not holding managers responsible, but of managers violating criminal law. Yes I think we may need some rules to make corporate operation more responsive to shareholders, but that's not a failing of capitalism.


Face it - 99.9% of the objections to capitalism are based on pure envy from collectivists who would prefer to steal by a democratic process what they refuse to work for and cannot build for themselves. Tall poppy syndrome.

[psionl0]

Originally Posted by stevea

Corporate management is required by criminal law to manage the operation for the benefit of the shareholders

Under Australian law, corporate managers are required to act in the best interest of the company. The best interest of the company and the best interest of the shareholders do not necessarily coincide.

[TubbaBlubba]

Originally Posted by Dinwar

Sure there's room for regulation. There's always room for regulation. They're always finding new ways to regulate prison inmates, and they're just about the most-regulated group of people on the planet; anything less than that could easily be subject to more regulations. The question is, is regulation warranted?

If the owners behave stupidly they go out of business. Unless you think that going out of business should be against the law, there's nothing to regulate. As long as the bad manager doesn't commit fraud, theft, or the like, there's nothing to regulate. Life is hard; if you're going to get into business at that level you need to grow a pair and be willing to accept the risks inherent in such activities.

Assuming, of course, a lot of things that demonstrably do not hold.

[Darth Rotor]

Originally Posted by psionl0

Under Australian law, corporate managers are required to act in the best interest of the company. The best interest of the company and the best interest of the shareholders do not necessarily coincide.

You lost me there.

Can you flesh that idea out a little bit?

[psionl0]

Originally Posted by Darth Rotor

You lost me there.

Can you flesh that idea out a little bit?

A couple of excerpts from the Corporations Act 2001 might clarify:

181 (1) A director or other officer of a corporation must exercise their powers and discharge their duties:
(a) in good faith in the best interests of the corporation; and
(b) for a proper purpose.

182 (1) A director, secretary, other officer or employee of a corporation must not improperly use their position to:
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation.

Note that "someone else" includes a shareholder (individuals or a group). Shareholders could not (for example) compel a director to disclose confidential information about the activities of the corporation.

There is an exception allowed for in the case of wholly owned subsidiaries:

187 A director of a corporation that is a wholly-owned subsidiary of a body corporate is taken to act in good faith in the best interests of the subsidiary if:
(a) the constitution of the subsidiary expressly authorises the director to act in the best interests of the holding company; and
(b) the director acts in good faith in the best interests of the holding company; and
(c) the subsidiary is not insolvent at the time the director acts and does not become insolvent because of the director's act.

[Dinwar]

Originally Posted by TubbaBlubba

Assuming, of course, a lot of things that demonstrably do not hold.

Funny how you say that to me, but not the OP. It holds true for both of us.

[jj]

Originally Posted by theprestige

If I have nothing at all beyond disparagement, hate, spite, the fact that Joseph Stiglitz is an idiot,

In other words, you still have nothing beyond the poorly written non-rebuttal from someone else. Got it.

[theprestige]

Originally Posted by psionl0

A couple of excerpts from the Corporations Act 2001 might clarify:

181 (1) A director or other officer of a corporation must exercise their powers and discharge their duties:
(a) in good faith in the best interests of the corporation; and
(b) for a proper purpose.

182 (1) A director, secretary, other officer or employee of a corporation must not improperly use their position to:
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation.

Note that "someone else" includes a shareholder (individuals or a group). Shareholders could not (for example) compel a director to disclose confidential information about the activities of the corporation.

There is an exception allowed for in the case of wholly owned subsidiaries:

187 A director of a corporation that is a wholly-owned subsidiary of a body corporate is taken to act in good faith in the best interests of the subsidiary if:
(a) the constitution of the subsidiary expressly authorises the director to act in the best interests of the holding company; and
(b) the director acts in good faith in the best interests of the holding company; and
(c) the subsidiary is not insolvent at the time the director acts and does not become insolvent because of the director's act.

Doesn't clarify much for me. I thought that a corporation is an association of people--i.e., the shareholders.

If the officer is supposed to act in the best interests of the corporation, doesn't that simply mean the same thing as acting in the best interests of the people who incorporated themselves?

Far from being "someone else", those shareholders would be the very people whose interests the officer must serve. And those shareholders--the owners, the people whose company it is, and to whom the officer owes his duty--have a legal right and obligation to hold him accountable for decisions that go against their interests (i.e., the interests of "the corporation").

That's how I read it, anyway. And I'm not sure how you'd sever the interests of the owners from the interests of their company anyway. "The owners don't agree with this decision, and they will suffer a loss from it, but I think it's better for the company somehow, so they can't seek redress from me." How would that work.

I think it might help more if, instead of presenting the law, you presented some legal cases where the law is discussed, its meaning is questioned, and judgements are issued that answer the questions.

[TubbaBlubba]

Originally Posted by Dinwar

Funny how you say that to me, but not the OP. It holds true for both of us.

I don't care much for the OP as I don't like debates on the exact meaning of loosely defined words. In fact I hate them.

But I did formulate a related question. It was not rhetorical, as I don't know all that much about the details of how companies work, and was trying to nudge some discussion on that out.

Of course you deliberately misinterpreted me in order to go on another one of your Objectivist rants to make the ludicrous "FRAUD OR FORCE!!" point.

Sometimes people, business owners included, make bad decisions. Reasons, as far as I can gather, typically are various asymmetries or deficiencies (in information or bargaining power, for instance). Government regulation is warranted, from an utilitarian perspective, in order to mitigate these.

[Dinwar]

Originally Posted by TubbaBlubba

Of course you deliberately misinterpreted me in order to go on another one of your Objectivist rants to make the ludicrous "FRAUD OR FORCE!!" point.

I have carefully avoided Objectivism (I know that no one on this site considers it worth discussing, or even worth being honest about). I pointed out that when *I* make a statement that has a bunch of assumptions in it you feel obligated to state as much, while when people saying the opposite of me make statements with a bunch of assumptions in them you ignore it. Just as your argument ("...therefore you are wrong") is implied, I decided to leave my argument implied.

If you formulated a question in the post I quoted, please quote it. Nothing I've seen in that post thus far is a question. The entire text of the post reads as follows:

Originally Posted by TubbaBlubba

Originally Posted by Dinwar

Sure there's room for regulation. There's always room for regulation. They're always finding new ways to regulate prison inmates, and they're just about the most-regulated group of people on the planet; anything less than that could easily be subject to more regulations. The question is, is regulation warranted?

If the owners behave stupidly they go out of business. Unless you think that going out of business should be against the law, there's nothing to regulate. As long as the bad manager doesn't commit fraud, theft, or the like, there's nothing to regulate. Life is hard; if you're going to get into business at that level you need to grow a pair and be willing to accept the risks inherent in such activities.

Assuming, of course, a lot of things that demonstrably do not hold.

If I am wrong, I look forward to being proven wrong. Otherwise, given the context (remember, I can't read your mind), my interpretation is perfectly reasonable.

Quote:

Sometimes people, business owners included, make bad decisions. Reasons, as far as I can gather, typically are various asymmetries or deficiencies (in information or bargaining power, for instance). Government regulation is warranted, from an utilitarian perspective, in order to mitigate these.

And from the Christian perspective interest on loans is evil. I'm neither a Christian nor a utilitarian; for me, you may as well be quoting Gandalf in support of your position.

Why is me mentioning a few concepts from a philosophy I agree with "one of [my] Objectivist rants", but you openly stating "Here's what my philosophy states" is perfectly acceptable? Don't bother answering--I already know the answer (it's pretty obvious). It's merely something that you should think about.

[psionl0]

Originally Posted by theprestige

Doesn't clarify much for me. I thought that a corporation is an association of people--i.e., the shareholders.

Wrong. It is an artificial person - a separate entity. It exists independently of the shareholders.

[Brian-M]

Originally Posted by psionl0

Wrong. It is an artificial person - a separate entity. It exists independently of the shareholders.

I prefer the term "legal entity". The term "artificial person" makes me think of science-fiction stories where the term "artificial person" might refer to either a person created from scratch as a product of genetic engineering, or a very human-like android.

[TubbaBlubba]

Originally Posted by Dinwar

I have carefully avoided Objectivism (I know that no one on this site considers it worth discussing, or even worth being honest about). I pointed out that when *I* make a statement that has a bunch of assumptions in it you feel obligated to state as much, while when people saying the opposite of me make statements with a bunch of assumptions in them you ignore it. Just as your argument ("...therefore you are wrong") is implied, I decided to leave my argument implied.

I am under no obligation to scrutinize and respond to everything I disagree with.

Quote:

If you formulated a question in the post I quoted, please quote it. Nothing I've seen in that post thus far is a question. The entire text of the post reads as follows:

Not that one. Now you are deliberately misunderstanding for the sake of rhetoric. Again.

Quote:

If I am wrong, I look forward to being proven wrong. Otherwise, given the context (remember, I can't read your mind), my interpretation is perfectly reasonable.

Okay. Asymmetries. There's something to regulate when severe asymmetries are present.

Quote:

And from the Christian perspective interest on loans is evil. I'm neither a Christian nor a utilitarian; for me, you may as well be quoting Gandalf in support of your position.

Right, so you're not interested in as many as possible having it as good as possible. Nice talking to you.

Quote:

Why is me mentioning a few concepts from a philosophy I agree with "one of [my] Objectivist rants", but you openly stating "Here's what my philosophy states" is perfectly acceptable? Don't bother answering--I already know the answer (it's pretty obvious). It's merely something that you should think about.

Not all philosophies are created equal.

Anyway, I'm tired of your intellectually dishonest rhetorical antics (among other things.) Welcome to ignore.

[psionl0]

Originally Posted by Brian-M

I prefer the term "legal entity". The term "artificial person" makes me think of science-fiction stories where the term "artificial person" might refer to either a person created from scratch as a product of genetic engineering, or a very human-like android.

I don't mind that sort of imagery. "Legal entity" could easily be interpreted as "meaningless phrase".

[Tippit]

Originally Posted by El Greco

Ok, I realize that my original question is moot without providing a strict definition of capitalism. I suppose one could argue that bail-outs could very well be part of capitalism.

Bailout represents the socialization of losses, which is exclusive to any reasonable definition of capitalism. If profits get privatized and losses get socialized, then we don't have capitalism, we have something... else.