Posted by Marc Hodak on November 30, 2007 under Invisible trade-offs | 
I think this picture presents a pretty compelling case for why spreading a little more civilization would be a good idea–for someone else to try.
These images will be impossible for the Muslim Council of Britain to overcome no matter what they say. The Sudanese ambassador is whistling in the wind by calling this affair a tempest in a teacup. Politicized Islam, however ugly, is not too different, of course, from politicized Christianity, except for a few centuries of civilization.
Posted by Marc Hodak on November 25, 2007 under History |
On this day in 1867, Alfred Nobel patented dynamite–a stable compound of nitroglycerine and silica that could be remotely detonated with a blasting cap. We could now literally move mountains.
Thirty years later, Nobel’s will was executed with a 31 million kronor (about $5 million at the time) endowment for the prizes for which he is now best remembered. Whether or not he created a “Peace” prize out of a sense of guilt, as some historians contend, I highly doubt. But there is no doubt that his invention made both large-scale construction and large-scale killing much easier, and he was acutely aware of the implications of the latter for his legacy.
If Nobel’s impact on the world is considered by some (not me) ambiguous, the value of his Peace prize is (at least, I think) far more so. Here is an excellent primer on what it takes to win one.
Posted by Marc Hodak on November 22, 2007 under History |
The first Thanksgiving story, as they teach it in school:
Our national holiday really stems from the feast held in the autumn of 1621 by the Pilgrims and the Wampanoag to celebrate the colony’s first successful harvest.
The Pilgrims would not have survived at Plimouth without the help of the native Wampanoag people and their leader Massasoit. So it was fitting that they joined the Pilgrim’s feast. Massasoit sent several men to hunt deer as a gift to the English for their feast.
And this entry from Wikipedia:
The early settlers of Plymouth Colony in Massachusetts were particularly grateful to Squanto, the Native American and former British slave who taught them how to both catch eel and grow corn and also served as their native interpreter. Without Squanto’s assistance, the settlers might not have survived in the New World.
This story sounds so nice, full of cooperation, success, and good food.
Here’s the Thanksgiving story you might have missed:
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Posted by Marc Hodak on November 20, 2007 under Unintended consequences |
Derek Jeter says he lives in Florida, just because he’s there, oh, most of the time. New York says he is “domiciled” there because his Manhattan apartment, in which he spends about 30 days a year, contains “certain personal items near and dear.” You can’t make this stuff up. This matters because New York wants Jeter’s money. (Actually, they want more of his money than they’re already getting, but let’s stay on point.)
The opportunity cost for New York in this tax case is so high precisely because it’s income taxes are so high. That’s why New York is unusually aggressive in pursuing people who try to claim out-of-state residency. I guess this has worked for New York so far because wealthy people still flock there, don’t they? Well, Jeter, it turns out, has some well-off neighbors down there. Those famous New Yorkers George Steinbrenner, A-Rod, Joe Torre, and many other Yankees live in Florida. Much of the major league, and a good part of the rest of the entertainment world lives in Florida or Texas or Nevada or other states that have no income tax. That’s because rich people have an unusually high number of options about where they can live and spend their time.
The tax authorities are basically counting on “the people” regarding Jeter as greedy because he’s behaving exactly as any of us would if we were in his position. He’s legally choosing to decide for himself where to spend his money rather than voluntarily give up that decision to one of the most venal and corrupt legislatures in the country. But because headline writers can’t resist a rhyme, they have taken to calling Jeter a tax cheater, which a normal person would consider libelous under the circumstances, but public figures are expected to simply take it with a grin.
Let’s strip away the b.s. and look at the economics.
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Posted by Marc Hodak on November 17, 2007 under Executive compensation |
For those of you who may not have taken my class on compensation and corporate governance, how much did each these recently departed CEOs get in severance pay?
Stan O’Neal:
1) As much as $250 million
2) $160 million
3) $159 million
4) $0
Chuck Prince
1) $95 million
2) $40 million
3) $29.5 million
4) $0
(If you took my class and didn’t ace this, you’ll need to return your course credit.)
Posted by Marc Hodak on November 14, 2007 under Scandal |
The cases covered in my History of Scandal class are designed to highlight forces behind the evolution of our markets. But many of the questions I raise about the coverage of scandals apply just as well to non-business stories. Take the death of Kanye West’s mother after plastic surgery in light of new findings that her semi-famous surgeon had DUI and malpractice judgments against him. Since the facts are presented without much context, this story provides the illusion of objectivity. But these facts are editorially selected to create a set of predictable inferences by the reader:
a) This guy was a bad doctor
b) Mr. West should perhaps have checked into his background before entrusting his mother to his care
The mainstream media is too careful to make those accusations explicit. They are, instead, taking advantage of their readers’ hindsight bias to connect the dots. Of course, what the reader doesn’t have in this connect-the-dots exercise are all the facts that either weren’t selected, or were deemphasized according to the inverted pyramid model or reporting. Here are some facts I would have liked alongside the ones that were presented:
1) Was Ms. West’s death related to the surgery?
2) If it was related to the surgery, was it related to actions or decisions made by this doctor?
3) If it was related to the doctor’s decisions or actions, was he drunk or otherwise impaired at the time of the operation?
4) Is the number of malpractice judgments against a doctor (at least in the number this doctor has had) a reliable indicator of a doctor’s competence?
The first question, which one might think is pretty important before a person’s reputation is trashed, was sort of answered in 12th paragraph out of 15 in this story–there is no conclusive evidence that this doctor had anything to do with Ms. West’s death. A negative answer to this question would, of course, make the rest of these questions moot, meaning that the “facts” selected for this story would be meaningless.
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Posted by Marc Hodak on November 11, 2007 under Invisible trade-offs |
Hershey’s, the renown candy company, is controlled by the Hershey Trust, a school for disadvantaged kids. The Chairman of the Hershey Trust is former Pennsylvania Attorney General, LeRoy S. Zimmerman. Says Zimmerman:
The Hershey Trust, which is obligated to manage its assets solely for the benefit of Milton Hershey School, a school for children in need, has made clear it has not been satisfied with the Company’s recent results.
This comment is difficult to take seriously from a man who was swept in on a promise not to maximize the value of the company for the trust.
Zimmerman became chairman after a previous group of trustees in 2002 voted to sell the Hershey’s company to Wrigley’s for $12.5 billion. Local Pennsylvania politicians vehemently opposed that takeover, and successfully thwarted it. The trustees that had voted for the takeover were kicked off the board, leaving the trust firmly under the control of people with strong ties to the local community, but without any direct interest in the trust or the company. And now, Zimmerman insists that that trust’s “resolve to retain its controlling interest (is) an obligation both of our stewardship, and of Pennsylvania law.”
I would think that one’s stewardship might involve some concern about the 25 percent premium that Hershey’s shares commanded as a result of Wrigley’s takeover bid, then lost and never recovered after the bid was scuttled. That’s about $3 billion, about $1.2 billion of which is no longer available to those children in need.
Beyond that, Zimmerman’s comment is a lie. Trust experts say that Hershey’s documents do not stipulate how its assets are to be invested. Basic portfolio theory says that being invested in a single company is just about the least prudent management for the funds of any school. In fact, if they had sold out at any time during or after the Wrigley’s bid, for about the next year, and reinvested the proceeds in the S&P 500, the trust would today have been over 50 percentage points better off than with their investment concentrated in Hershey’s.
Even before the Wrigley’s bid, a Pennsylvania law exempted the Hershey Trust from any duty to diversify its investments. After the failure of that bid, the state passed additional legislation requiring a trust to take into account “the special relationship” and the “economic impact” of any business asset sale “on the community”.
Thus, Pennsylvania politicians who effectively control the Hershey trust have proven themselves willing to sacrifice the interests of needy children for the sake of local politics. And now, they get to act outraged about the poor performance of a company they can’t manage, but upon whom they all depend.
Posted by Marc Hodak on November 5, 2007 under Unintended consequences |
Black representation among major company CEOs has taken quite a hit in the last week with the departure of Stan O’Neal at Merrill Lynch and the announced departure of Dick Parsons at Time Warner. It’s not as if blacks aren’t already “underrepresented” among major company CEOs. An obvious reason is the legacy of discrimination. But stories about black underrepresentation seem to invariably go the next, unhelpful step.
“When African-Americans enter the corporate arena, they enter with a trust deficit,” said Jessica Faye Carter, author of “Double Outsiders: How Women of Color can Succeed in Corporate America.”
“There’s a perception they have to overcome, even if they have a law degree from Harvard or an MBA from Harvard,” she said. “The indicia of power in corporate America is still white and male.”
This seems to me a nice way of saying racism. But racism, although it certainly exists in corporate America (as everywhere else), is a weak explanation for black underrepresentation in business, especially big businesses, which bend over backward to achieve diversity.
I think a more likely source for a “trust deficit” is the perception, right or wrong, that blacks coming out of Yale aren’t as qualified as whites coming out of Yale because they weren’t as qualified going in.
The null hypothesis is that blacks will continue to grow in the ranks of business, all the way up to the top. Nothing will stop that. But nothing will slow it down like the institutionalized perception that blacks “need the help” of lower standards at certain points along the way. Not even racism. And there is only one way to eliminate that perception–stop official discrimination on the basis of color.
Posted by Marc Hodak on under Invisible trade-offs |
The big voucher vote in Utah is coming tomorrow. It doesn’t look good for the forces of choice–the betting is that the vote will be about 60% to 40% against vouchers.
I see this outcome as a consequence of path dependence. Public schooling still holds sway for the majority of Americans who went to perfectly good public schools. The only people who know how bad public schools can get are the inner city poor, who tend to support vouchers in large numbers. What does this have to do with path dependence? Consider this counter-factual: if we had all gone to private schools of varying quality, i.e., say schools in wealthier parts of town being much better than schools in poorer sections, as they are today, and the choice was vouchers as proposed (i.e., higher amounts for poorer people) or the creation of government-run schools, how much of the vote do you think would go for the voucher option? I think vouchers would win, and I don’t think it would be anywhere as close as 60-40.
The fact that we’re starting from a reality of public schools give unions huge financial power, of course, since the public sector is the only place a union can thrive. It also gives them the ability to say things like this:
Union members understand the idea of privatization. When you start to privatize anything, you lose the control of quality, such as highly qualified educators and how the money is spent.
For poor kids stuck in crappy public schools, the first part of that–“quality”–may seem like a sick joke. But most suburbanites got theirs, and they don’t want to risk losing it just so some poor (often read: minority) kids can get some, too. The second part–“how the money is spent”–is, of course, what the unions really understand.
Posted by Marc Hodak on November 4, 2007 under Unintended consequences |
Dale Carnegie once noted that no sound is as sweet to a person as their own name. Imagine having a building or road named after you. Very rich people have things named after them because they created them, as in a business or institute, or because they gave money that enabled their creation. Having something big named after you is a huge status prize, arguably one of the more expensive consumption goods in any society. It’s a great motivator to achieving the wealth to build such things.
It’s also a great motivator to building such things with other people’s money. Political leaders have been using taxes to build monuments to themselves for as long as civilization has existed. This tendency was, presumably, one of the more distasteful aspects of tyranny. It offended the sensibilities of our democratic forebears.
The edifice complex is a powerful one. Politicians have found ways to get their names on all sorts of public projects in their own lifetime. This is one of the rewards to being on a powerful Senate committee, for instance. The committee chairmen hold the purse strings for allocating billions of dollars of taxes, and few have resisted the opportunity to play Santa Claus with these funds, and to use the draw of tribute to wield this power or benefit from it.
Nobody has played this game as well as Senator Byrd of West Virginia. Byrd is the apotheosis of pork–a master of tax-funded narcissism. He even got around West Virginia state law by having a statue of himself erected in the state capitol. Even wealthy people who become Senators leverage their committee power into this personal benefit.
I know that all that pork doesn’t add up to much of a fraction of total government spending, especially at the federal level. But pork is the grease that enables the rest of the government spending machinery to operate so profligately. So, why not a constitutional amendment that prohibits any public project from being named after a politician, living or dead? That would take a away a huge incentive to tax us for things we may not really need, but for which some politician gets a largely private benefit. One might ask: Don’t certain politicians deserve recognition? Sure. But monuments can be, and often are, privately funded. That’s the difference between people choosing to show their respect for politician, and people being forced to pay tribute to a politician.
Tribute has always been an incentive to conquest, taxation, and enslavement. A free people is not forced to provide tribute.
