The Unknown Ideal

Jeffrey Sachs writes in the November Scientific American

For decades economists and politicians have debated how to reconcile the undoubted power of markets with the reassuring protections of social insurance. America's supply-siders claim that the best way to achieve well-being for America's poor is by spurring rapid economic growth and that the higher taxes needed to fund high levels of social insurance would cripple prosperity. Austrian-born free-market economist Friedrich August von Hayek suggested in the 1940s that high taxation would be a "road to serfdom," a threat to freedom itself.

Most of the debate in the U.S. is clouded by vested interests and by ideology. Yet there is by now a rich empirical rec-ord to judge these issues scientifically. The evidence may be found by comparing a group of relatively free-market economies that have low to moderate rates of taxation and social outlays with a group of social-welfare states that have high rates of taxation and social outlays.

Not coincidentally, the low-tax, high-income countries are mostly English-speaking ones that share a direct historical lineage with 19th-century Britain and its theories of economic laissez-faire. These countries include Australia, Canada, Ireland, New Zealand, the U.K. and the U.S. The high-tax, high-income states are the Nordic social democracies, notably Denmark, Finland, Norway and Sweden, which have been governed by left-of-center social democratic parties for much or all of the post–World War II era. They combine a healthy respect for market forces with a strong commitment to antipoverty programs. Budgetary outlays for social purposes average around 27 percent of gross domestic product (GDP) in the Nordic countries and just 17 percent of GDP in the English-speaking countries.
. . .
On average, the Nordic countries outperform the Anglo-Saxon ones on most measures of economic performance. Poverty rates are much lower there, and national income per working-age population is on average higher. Unemployment rates are roughly the same in both groups, just slightly higher in the Nordic countries. The budget situation is stronger in the Nordic group, with larger surpluses as a share of GDP.
. . .
Von Hayek was wrong. In strong and vibrant democracies, a generous social-welfare state is not a road to serfdom but rather to fairness, economic equality and international competitiveness.

Posted by The Unknown at 10:14 AM | Permalink

Barron's reader Al Connelly lays it out in the September 18 issue's Mailbag:

We should let Wal-Mart be Wal-Mart when Wal-Mart gets its hands out of our pockets. I want Wal-Mart to be in a free market, not get a free ride. We taxpayers are subsidizing Wal-Mart by providing benefits to their employees: We provide Medicaid, food stamps, Section 8 housing assistance, tax credits, and free and reduced-price school lunches. An August 2004 study by the University of Califromia Labor Center estimated that Wal-Mart cost taxpayers $86 million per year and that was just in California.

I will be happy to leave Wal-Mart alone when it pays its workers enough to keep them from taking my tax dollars. At that point, we'll be square. Yes, prices will then be higher at Wal-Mart. That's the free market.

Posted by The Unknown at 5:27 PM | Permalink

Aftenposten reports that the Norwegian Government Pension Fund has washed its hands of Wal-Mart and Freeport McMoRan :

[Finance Minister] Halvorsen's office cited "serious" and "systematic violations of human rights and labour rights" as its reason for pulling out of its Wal-Mart investments.

Halvorsen was quoted in a government statement as saying that the exclusions "reflect our refusal to contribute to serious, systematic or gross violations of ethical norms in these areas through our investments in the Government Pension Fund - Global."

Posted by The Unknown at 3:12 PM | Permalink

Poor Merrill Lynch. Seems the judge who kept dismissing investor suits against them for trotting out the likes of Henry Blodget to tout stocks that their investment banking side had heavy interest in died, forcing Merrill to negoitiate a $164 million settlement to close out 23 remaining suits.

Don't you worry about Merrill, though. According to their spokesman the settlement ``doesn't change the fact that it was a record quarter and a record year.'' That's the spirit!

As for Blodget, well he's holding forth over at Slate, still reportedly getting his feelings hurt by the occasional nasty email message, and offering such helpful advice as this:

"when a Wall Street analyst rates a stock "Buy," is he or she advising you to buy it? Actually, no. In most cases, a "Buy" rating—or, for that matter, a "Sell," "Hold," "Outperform," "Accumulate," "Avoid," "A," "D," or other term—is not intended to advise you, a specific investor with specific goals, circumstances, and requirements, to do anything."

Posted by The Unknown at 10:05 AM | Permalink

Japan: A laughing stock trade
By Chris Johnson

TOKYO - The trader was supposed to sell one share for 610,000 yen ($5,065). Instead, 610,000 shares valued at $3.1 billion were offered for 1 yen each.
. .
Somebody made a typing mistake, said the brokerage unit of Mizuho Financial Group, Japan's second-largest bank. The error set off a frenzy of trades, and cost the unit at least 27 billion yen ($224 million) as it tried to buy back the shares, the bank said.
. . . more

Posted by The Unknown at 8:51 PM | Permalink

The Washington Post reports that Big Oil execs met with Dick Cheney's "Energy Task Force" in 2001. Son of a gun. Last week some of these same Big Oil execs were telling the US Senate that the meetings didn't happen.

The document, obtained this week by The Washington Post, shows that officials from Exxon Mobil Corp., Conoco (before its merger with Phillips), Shell Oil Co. and BP America Inc. met in the White House complex with the Cheney aides who were developing a national energy policy, parts of which became law and parts of which are still being debated.

Chevron was not named in the White House document, but the Government Accountability Office has found that Chevron was one of several companies that "gave detailed energy policy recommendations" to the task force. In addition, Cheney had a separate meeting with John Browne, BP's chief executive, according to a person familiar with the task force's work; that meeting is not noted in the document.

As the Post points out, Big Oil wasn't under oath, but fines and prison sentences up to five years are available for those who willingly make false statements to the US Congress.

Posted by The Unknown at 8:56 PM | Permalink

The Tennessean reports these words from the always amusing Senator Bill Frist:

"There are people who are going to say, 'You said this, you said that,' and that's all legitimate. I could be more precise, but at any point in time I don't know how much, and that's the point. That's the blind part of the trust."

Posted by The Unknown at 10:01 AM | Permalink

Willamette Week Reports that a big player in a massive pension fraud is back behind his desk (after collecting a $2 million bonus and $350,000/year salary while behind bars):

After what he referred to in a statement as a 14-month "leave of absence," financial wunderkind Andy Wiederhorn walked out of federal prison Tuesday in Minnesota. Four months shy of his 40th birthday, Wiederhorn will re-assume the reins of the Portland-based Fog Cutter Capital Group. Contrite after his June 2004 guilty pleas to charges of filing a false tax return and paying an illegal gratuity to a pension plan official? "I believe it was wrong for the government to prosecute me," Wiederhorn says.

An update: The Oregonian reports on October 16 that the Bureau of Prisons is stopping Wiederhorn from going back to work until his release from custody in a Northeast Portland halfway house. Meanwhile, the New York Times business section echoes the Willamette Week story.

Posted by The Unknown at 1:30 PM | Permalink

Steve Clemons brings us economist Pete Morici's note on the money Delphi execs hope to give themselves at the expense of bondholders. Excerpt:

Delphi CEO Robert S. Miller is proposing a sweetheart severance packages for 21 top executives and improved compensation for 600 executives in the form of stock options. This is a raid on bondholders and should be disallowed by the bankruptcy court.

These top managers bear considerable responsibility for Delphi's sad situation. As experience in the airline industry demonstrates extra pay for failed managers will do little to improve their performance. There is no reason to believe, as Miller claims, these executives are being paid less than they are worth right now. In fact, they are likely not worth what they are currently being paid.
. . .
Ultimately, the extra pay for executives will come out of what goes to bond holders. That's legalized pilfering.

Posted by The Unknown at 7:30 AM | Permalink

Hilariously inept pseudo-patriot Larry Kudlow repeatedly referred to US Senator Conrad Burns as "Governor Conrad Burns" on Kudlow's always awful CNBC show today. It's worth noting that Burns is a crony of indicted Republican money-man and apparent hit-squad associate Jack Abramoff and is facing at least two tough Democratic contenders in March: State Auditor John Morrison and State Legislator Jon Tester (favored by bleating rockers Pearl Jam, as well as by the blogospheroids at The Swing State Project, who really haven't really explained why Tester is their man, set aside this condescending read on the apparent hicks from my home state, written by a guy who fled Montana for San Francisco -- Hello, Mr. Brigham? A "big city lawyer" from Missoula? One suspects the Swing State Projectors are Pearl Jam fans, or are perhaps simply starstruck by the link to their blog from the platinum rockers' official site).

Posted by The Unknown at 6:29 PM | Permalink

Remember July 24, 2002, when the S&P 500 hit an intra-day low of 775? I do, because that was the day I saw a seasoned investor finally lose it, and place a bunch of "sell" orders on good solid stocks that he had held for a long time.

This champion of the previously gloat-worthy American-style capitalism and its vaunted, unparalleled "transparency," had finally lost confidence in the institution that he had crowed so loudly over for so long. The mendacities of Meeker and Blodgett hadn't gotten this investor to this point. The shell-game accounting fraud of Enron hadn't gotten this investor to this point. But the massive and shocking misstatements by Worldcom finally sent this guy over the edge. And he sold many stocks close to the bottom of their multi-year values, reaping himself some nice losses, and including himself in the big club that locked in their losses from the $8.5 trillion slide in American corporate market value.

Ironically, but not surprisingly, I found myself butting heads with this same doctrinaire gentleman a few months later while discussing the merits of proposals by former NYSE head Felix Rohatyn involving greater regulatory scrutiny of corporate representations to shareholders and the public. The ape regards his tail. Repeats until he fails.

Worldcom's Bernie Ebbers is supposedly soon to be off to the big house (though he just won another delay of his sentence), and today some of his helpers, the usual suspects at Citigroup and elsewhere, were asked to shell out just a little bit too:

AP Reports on the Worldcom settlement

Sept. 21, 2005

NEW YORK - A federal judge Wednesday approved legal settlements that will return more than $6.1 billion to investors who lost money in the WorldCom accounting fraud.
. . .
The largest chunks are a $2.58 billion payment by Citigroup Inc. and a $2 billion payment by JPMorgan Chase & Co. Investors claim the companies, which were among those that underwrote or traded WorldCom securities, should have been aware of the fraud.A federal judge has approved settlements worth more than $6 billion in civil lawsuits related to the WorldCom accounting fraud.

Posted by The Unknown at 11:03 AM | Permalink