Streetwise Professor

October 31, 2020

Why ABCD Are Singing A Happier Tune

Filed under: Commodities,Economics — cpirrong @ 11:12 am

In the past, I’ve written about ABCD singing the blues. That is, in recent years the big ag trading firms have struggled to make money. This year, things have turned around.

And the explanation is what it always is: volumes and margins. Period.

In a nutshell, flows to China have picked up substantially, and flows from US competitors have abated due to weather issues:

China agreed to buy $36.5 billion in agricultural commodities from the U.S. in 2020 under the phase-one trade deal, up from $24 billion in 2017, the year before the trade war started. The Asian nation has already bought record amounts of corn, and soybean purchases for the current season are running at their strongest pace in data going back to 1991. U.S. exports of pork are at a record and there’s also been rising sales of beef and sorghum.

drought that’s delaying planting in Brazil is also boosting prices, as it could force Chinese buyers to buy even more from the U.S. In the Black Sea region, dry weather has also hurt Ukraine’s corn crop and is threatening wheat plantings in top grower Russia at a time countries are bringing purchases forward and hoarding food.

The ABCDs have assets worldwide, but their asset base is still US-focused, so they are are seeing bigger flows through their midstream assets in the US, which translates into bigger margins:

The elevation margin, or the price difference between crops loaded onto ships at Gulf ports and the cost of a bargeload delivered to New Orleans, hit the highest level since at least 2016 earlier this year, according to Bloomberg calculations using Commodity3 data.

Bean crush margins are also very high.

And no, contrary to the standard narrative (and to the BBG piece), it has nothing to do with flat prices rebounding. Zero. Zip. Nada. Corn and soybean prices are not markedly different now than when trader profits were languishing:

Nor (contrary to the lead paragraph in the BBG article) are corn and soybean flat price volatilities markedly higher now than when ABCD were singing the blues.

What matters is flows, and where a firm’s assets are relative to those flows. For a variety of reasons, flows out of the US are strong now. This, in turn, increases the demand to utilize assets (such as barge or ship loading facilities) that handle those flows, increasing the prices thereof (i.e., handling margins). When volumes and margins go up, shazam!, profits go up.

That’s the way it has always been, and always will be.

October 22, 2020

VOLT Redux

Filed under: Clearing,Derivatives,Economics,Exchanges,Regulation — cpirrong @ 6:44 pm

The very first substantive post on this blog, almost 15 years ago, was about a failure of the electronic trading system at the Tokyo Stock Exchange.

Whoops, they did it again!

Apparently believing that misery loves company, Euronext has also experienced failures.

Euronext’s problems seem quite more frightening, because they involve the out-trade from hell: reversing the polarity on transactions:

“It has been identified that some of the 19/10 trades sent yesterday to the CCPs (central counterparty clearing house) had the wrong buy/sell direction”, Euronext said.

Thought you were long? Hahahahahaha. You’re short, sucker!

I hate it when that happens! (Yes, Euronext reversed the trades after it realized the problem.)

The lessons of my “Value of Lost Trade” (“VOLT”) piece still hold. It is inefficiently costly to drive the probability of a failure to zero. Whether exchanges have the efficient probability of failure (or really, the efficient vector of failure probabilities, because there are multiply types of failure) depends on the value of foregone trades when a system is down (or the cost of other types of errors, such as reversing trade direction).

Meaning that system failures will continue to occur, and long after this blog fades away.

“It’s Easy to Win an Argument With Milton, When He Isn’t There”

Filed under: CoronaCrisis,Economics,Politics,Regulation — cpirrong @ 6:30 pm

Raghuran Rajan is a smart guy who has done excellent and rigorus work, and is a gentleman to boot. But even such as he are capable of saying dodgy things, as in his comments to the FT on Friedman’s social responsibility article, in which he said the covid pandemic has exposed flaws in Friedman’s argument:

First, Covid-19 has threatened some companies with the extinction of shareholder value, subjecting businesses to a shock that, despite government intervention, has put their existence in question. “At this point,” Prof Rajan told me, “the best thing [a company with thin resources] could do is focus those resources on survival, because in surviving, it provides a decent job for its workers, it continues making that widget which people buy. It lives for the future.

Not all companies came into the crisis with thin resources. For the tech companies, nursing war chests replenished by tech-hungry consumers in lockdown, this should be a chance to go beyond bare Friedmanite requirements

Amazon, for instance, could “do more for its various suppliers, some of whom may be struggling small and medium business units”, said Prof Rajan. “It could find ways to provide them more credit to last through the pandemic that will get it more loyalty, because people will know it can be a source of insurance, rather than just a platform.”

. . .

This sort of action exposes the “missing part” of Friedman’s thesis, said Prof Rajan. He failed to recognise that “implicit equity stakes” — such as the commitment of a company to the partnership with its workers, suppliers or customers — are “as important, sometimes, as the explicit equity stake”

These things are missing how, exactly? Essentially Rajan is arguing that there are gains from trade to be realized to a corporation from adjusting explicit and implicit contractual terms with “stakeholders” such as workers, suppliers, and customers, in response to an economic shock like covid. But note: such adjustments would enhance the corporation’s profits, by allowing it to capture some of those gains from trade.

Indeed, according to the Friedman norm, such companies, acting as profit maximizers, would benefit not just themselves, but their workers, suppliers, and customers. Thus, rather than being some lacuna in Friedman’s framework, what Rajan emphasizes is precisely why profit maximization in the price system should be encouraged, as Friedman did. It provides an incentive for corporations to engage in mutually beneficial transactions, regardless of the underlying circumstances. That is, profit maximization guides optimal responses to circumstances, even crappy circumstances. Nay, especially crappy circumstances.

Or perhaps I should say “in the contractual system.” For what is involved here is negotiating contracts that maximize joint surplus. As Coase tells us, absent transactions costs, firms and their counterparties will do just that, and profit maximization (or utility maximization by workers, say) is exactly the engine that powers that result.

So the only way to make this critique coherent is to argue that transactions costs could somehow be reduced by reshuffling organizational forms or control rights. This Rajan does not do. Nor has anyone who burps up the term “stakeholders” and proclaims “QED!” Not that I have seen anyways.

As I said in my earlier post: if you are so smart, why aren’t you rich? Why haven’t you–or anyone else–come up with an alternative organizational form that allows the creation and capture of gains from trade that corporations leave on the table?

Indeed, the most coherent restatement of the “stakeholder” argument is that corporations have failed because they aren’t maximizing profits because they are failing to structure transactions with stakeholders that exhaust all gains from trade.

I’m tempted to cut Raghuran some slack because his remarks are impromptu statements made to reporter, rather than in an academic article–or even a blog post. But the fact that something in an FT article is far more likely to resonate than a weighty academic tome or even a not-so-weighty academic blog post arguably cuts the other way: one should be on particular guard against expressing flabby thoughts, when said thoughts may be read by millions–and hence mislead millions. And, to be honest, Raghuran’s thoughts about the errors of Friedman’s thought during times of pandemic are very flabby indeed.

In reading all these critiques of Friedman, 50 years on, I’m reminded of something George Stigler said. “It’s easy to win an argument against Milton when he isn’t there.”

October 18, 2020

Eight Is Not Erdo’s Lucky Number

Filed under: Economics,Military,Politics,Russia,Turkey — cpirrong @ 5:58 pm

Tayyip Erdoğan has been on a real tear. Most recently, the Turkish military test fired S-400 missiles that Turkey had bought from Russia over strenuous US objections. This is a real Kim Jung Un move, the kind of provocative acts that unhinged dictators under pressure undertake. This puts him even more on the bad side of the US.

Moreover, Erdoğan has stoked the fires of conflict between Azerbaijan and Armenia, clearly having given the green light to Azerbaijan to escalate the Nagorno-Karabakh conflict, and providing extensive military support to Azerbaijan. This puts him on the bad side of Russia.

He has ramped up conflict with the EU, and with France in particular, through his provocative drilling expeditions in waters claimed by Greece. Today, according to a connection in Turkey–who sent pictures–this involved sending a Turkish warship to the waters outside of Patara–and therefore close to the Greek island of Kastellorizo.

Which raises the question of why Erdoğan would pick fights with forces far more powerful than he. Perhaps he figures that neither Russia nor the US nor the EU are in a position to do anything to him. (The EU–totes understandable!) The US is embroiled in a contentious election. Russia is facing numerous problems, including covid, protests in the Far East, and the fallout from the Navalny poisoning.

But I think that is only part of the picture. If you’ve watched the Turkish Lira recently (USDTRY) you’ll see that it has plummeted to all-time lows, flirting with 8: it reached 7.94 on Friday. When I was in Turkey a few years ago, it was around 4. This is a good indicator of how parlous Turkey’s economic position is. Eight is a lucky number in China, but not for Turkey, when the lira is involved.

So what’s on the first page of the autocrat’s playbook? When facing domestic economic trouble, create international incidents. This is an especially important play in a non-post-modern country like Turkey, in which nationalism–chauvinism, really–is a potent political force, unlike in Old Europe and wide swaths of the US.

Perhaps a more interesting question relates to Putin’s extremely passive reaction to Erdo’s provocation in a region that Russia considers part of its post-Soviet space. Especially given the large Russian military presence in Armenia. Contrast Putin’s current passivity to Russia’s growling reaction to Turkey’s downing of a Russian Su-24 over Syria in 2015. Putin made harsh threats, and Erdo folded almost immediately.

Today, with Erdo romping in Russia’s backyard–nothing.

Perhaps this reflects Putin’s own problems. While the lira is flirting with 8, the ruble is flirting with 80, having fallen dramatically in recent months. Russia’s economy is stalled, and there is widespread discontent with its handling of covid. Putin has retreated to not so splendid isolation (though he is no doubt isolating in splendor), requiring those who wish to see him to quarantine for 14 days–a dramatic contrast with his “don’t worry, be happy” message to the public on covid. He’s also at loggerheads with Europe over Navalny, though given Europe’s anger at Erdo, Putin could probably earn Brussels brownie points by standing up to him.

Or maybe Putin wants to teach Armenia a lesson. But frankly, it would be stupid to encourage conflict in the post-Soviet space merely to chasten a recalcitrant satrap–especially when that chastening comes largely due to the intervention of a foreign power. I would have thought that a major red line for Putin.

So Erdoğan’s behavior, though extremely rash, is fairly understandable in conventional terms. Putin’s, not so much.

Would that the American establishment pay more attention to that puzzle, rather than descend into another frenzy of allegations about “Russian disinformation campaigns,” this one involving Hunter Biden’s laptop.

Just how would that work exactly? In 2016, Russia allegedly interfered in US elections by buying less than $100K cheesy Facebook ads. Yet apparently within a mere 4 years Russian disinformation has reached such levels of sophistication that it can create a laptop filled with forged material about Joe and Hunter Biden–including lurid photos of the latter doing what the latter is known to do, i.e., smoke crack and patronize hookers, not to mention incriminating emails–get it to some repair guy in Delaware who just happens to give a copy of the hard drive to Rudy Giuliani (after he had told the FBI about it).

Amazing tradecraft, if true. But to anyone who shaves with Occam’s Razor, it’s not true. The story that passes the Occam’s Razor test is that a drug addled Hunter–who, recall, in the past left a crack pipe and cocaine in a rental car because he saw an owl flying over him and thought it was following him so that he figured he might be hallucinating–dropped off the laptop and didn’t pick it up. Probably because he was distracted by too many lap dances, and paternity litigation involving lap dancers.

But what matters now to Biden and the establishment–including the traditional media and especially Twitter, Facebook, and Google/YouTube–is that Joe is able to dodge this until past the election.

At which time this October surprise could turn into the national November hangover.

October 15, 2020

Twitter and Facebook Are Partisan Hacks. QED!

Filed under: Commodities,Economics,Energy,Politics,Russia — cpirrong @ 1:15 pm

As if to add a QED (with an exclamation point) to my last post, Facebook and Twitter cranked the censorship amp to 11 in an attempt to suppress dissemination of the New York Post story about the release of material from one of Hunter Biden’s laptops. Among the censored, inter alia: the NY Post itself, White House press secretary Kayleigh McEnany, and the GOP House Judiciary.

After I read about McEnany’s Twitter account being suspended, I told a friend that I estimated the over/under on how many days before they blocked Trumps account at 2.

The under won. Twitter suspended him today.

This was after Jack Dorsey had said that censoring the article was wrong and that Twitter had made communication errors in explaining its actions.

Translated: “We need to lie better.”

The ostensible justification for this was that the information had been acquired by hacking.


Crack addict whoremaster Hunter dropped off the laptop (3 actually, 2 of which were unrecoverable) for repair. He didn’t pick them up, or pay for them, for 90 days. Meaning that they were the property of the repair shop. No hacking involved. Hunter surrendered this laptop–and the information on it.

And by the way: a real hacker would have blackmailed Hunter/Joe/the DNC.

It’s not as if Hunter doesn’t have a record of such dumbassery. He left a crack pipe and cocaine in a rental car that he dropped off. While he was in rehab.

And as if Twitter, FB, etc., are routinely sooooo cautious about the dissemination of articles that include information not provided voluntarily by the subject.

You know, like articles about Trump’s tax returns, which were metaphysically obtained illegally and without his consent.

Of course the biggest news is that emails on the computer that show Joe Biden was lying about talking with his son about Burisma, or meeting with Burisma people.

The campaign is trying now to tell the truth slowly, by claiming that the meetings weren’t official, and were perfunctory.

Because yeah, when you are trading influence, you always do that in official meetings.

To me the more interesting angle is the revelations about Hunter’s dealings with, and flacking for, and arranging meetings for, CEFC, the dodgy Chinese energy company. So dodgy that its CEO, for whom Hunter carried water, is now in prison.

CEFC, you might recall, was the alleged buyer of a stake in Rosneft. I called bullshit on that deal when it happened.

And yes, it was bullshit. A crooked deal between crooked companies in crooked countries.

These are the kinds of scumbags that Hunter Biden was taking money from, in order to make it rain in DC. Something that wouldn’t have been possible had his father not been Joe Biden.

Birds of a feather.

Insofar as Twitter and Facebook is concerned, the mask is off–as if it was ever really on. These companies are basically arms of the Biden campaign, the Democratic Party, and the anti-Trump establishment. Perhaps it’s not surprising that Jack Dorsey is trying to cover for a drug addict, but the motive goes deeper than that. It is deeply partisan. To the bone.

Which doesn’t make Twitter or Facebook any different than the NYT or the WaPo. But that raises the question: why do they have legal protections as “platforms” that traditional news outlets don’t? And whereas the NYT, etc., face competition–e.g., from the NY Post–as platforms Facebook and Twitter do not. Indeed, they are clearly attempting to quash competing viewpoints.

We are supposed to FREAK OUT over Russians paying less than $100 grand to buy cheesy FB ads because that’s a grave threat to democracy, but we’re supposed to allow Facebook and Twitter to engage in far more consequential election interference?

Why, exactly?

October 11, 2020

Facebook (and Twitter) Delenda Est

Filed under: Economics,Politics,Regulation — cpirrong @ 5:42 pm

I sent to a friend an article describing how WHO–yes, that WHO–is telling governments not to utilize lockdowns as their primary means of combatting Covid-19. I sent it via Facebook Messenger, because my friend lives in a rural area and that is often the only reliable way of transmitting messages: text and email often don’t work. The friend replied that the link didn’t work. I sent it via email, and it did work. Said friend then tried to post it to FB–but FB refused to post it.

So obviously, FB is censoring this information: it is a non-link as far as FB is concerned, consigned to the memory hole.

I’m so old that I remember when Facebook (and Twitter) censored articles that contradicted WHO. Now Facebook is censoring articles that contradict Facebook. Specifically, Facebook’s smelly pro-lockdown orthodoxy–even when that contradiction comes from WHO.

Facebook obviously loves lockdowns, and is going to do its damndest to prevent you from learning anything that might contradict that position.

This episode–and myriad others over the past couple of years–demonstrate that social media as it exists, and specifically as embodied by Facebook and Twitter, need to be subjected to common carrier non-discrimination regulations along the lines of what I advocated over 3.5 years ago.

There are the simplistic minded who claim that since these are private corporations, they should not be regulated. Thereby totally ignoring what I point out in my 2017 post: even in the halcyon days of classical liberalism, market power was understood to provide, under some circumstances, an exception to the general rule that private entities should be permitted to operate without restriction from government.

Some non-simplistic people–notably Richard Epstein, whose writings triggered my idea of applying common carrier regulation to social media–argue that the conditions for the exception do not hold. Even if Facebook and Twitter (and Google/YouTube, etc.) have dominant positions now, those positions are contestable. History suggests that market dominance is ephemeral, and a company that abuses its dominance will be displaced. More broadly, Schumpeterian creative destruction will, before long, consign current social media behemoths to the ash heap of history.

But how long “before long” is matters. It could be that in the long run, we are not just dead, but unfree. Or at least have suffered a grievous blow to our liberties, lost election by election.

In my opinion, Epstein underestimates the enduring impacts of network effects. I have studied exchanges–a classic beneficiary of network effects–for decades. I know how resilient they can be. Maybe Facebook (and Twitter, and Google/YouTube) will indeed be supplanted in 10 years. Hell, even 5. Hell, even 23 days.

What damage can they do in the meantime?

The suppression of information and opinion for days, let alone months or years, can have devastating effects. When the stakes in elections are so high, the distortion of the exchange of ideas and information that result from Facebook’s and Twitter’s and Google/YouTube’s censorship have very real consequences, even if someday, somehow, they will become historical curiosities.

Let’s just do some basic cost-benefit analysis. Lockdowns have caused the losses of trillions of dollars (and euros and yen and rubles and lira and what have you) of economic loss. Actions (such as Facebook’s censorship) that increase the likelihood of re-imposition of these lockdowns by even a small percentage can cause tens of billions, and perhaps trillions in economic harm. (I recall Ronald Coase’s statement that an economist can pay for his lifetime salary by delaying the imposition of a bad regulation by even a day.)

What is the cost of requiring social media platforms to operate on a principle of non-discrimination, and therefore allow supposedly sentient beings to sift through competing claims, rather than substituting their own judgments? Judgments, I might add, that are hardly disinterested. Do you think for a moment that Facebook and the other social media giants have not benefited from having people stuck at home, with little to do?

This issue also speaks to my post from a few hours ago. Yes, Zuckerberg (and other decision makers at Facebook) and Jack (Chase the Dragon) Dorsey and Sundar Pachai are arguably enhancing profits through their censorship policies (by creating a bored group of consumers with too much time on their hands), but they are also indulging their own personal preferences: to the extent that the latter is true, they are violating Friedman’s injunction. Moreover, since they have largely made the state their creatures, they can enhance their power (and wealth) by exercising huge influence over the transmission of information, and hence over public debate, and do so in a way that enhances their power, profits, and the achievement of their ideological goals. (Unpacking all these things is not easy.)

Meaning that actual policy and regulation are likely to deviate grotesquely from any “public interest” standard. Public interest would dictate, at the very least, subjecting Facebook et al to very limited restrictions, such as non-discrimination requirements. Requirements that they operate as open platforms (which could benefit from network effects, btw) and not discriminate or censor on the basis of viewpoint. But for myriad reasons, these social media entities view such restrictions as an anathema, and political economy therefore suggest that such restrictions will never be imposed.

Which makes it tragic, to say the least, that those who claim to advocate liberty shrink from constraining its most deadly enemies.

Milton Friedman vs. 21st Century Lilliputians on Corporate Responsibility

Filed under: Economics,Exchanges,Politics,Regulation — cpirrong @ 3:57 pm

This year marks the 50th anniversary of Milton Friedman’s article on the “social responsibility of business,” in which he argued that business has one responsibility: to maximize profit. The anniversary has unleashed numerous retrospectives, most of them negative, and most of the negative treatments being given by people who have to crane their necks to see the soles of Friedman’s intellectual shoes.

The criticisms can be grouped into two basic categories: (a) the need for “stakeholder capitalism” as opposed to shareholder capitalism, and (b) the need for corporations to work to achieve social goals, such as environmental objectives or racial justice.

Both criticisms are unavailing and unpersuasive. The stakeholder capitalism critique founders on the is-ought fallacy. The social goals criticism founders on the Knowledge Problem.

Stakeholder capitalism advocates elide the “is” and jump right to “ought.” This is a fatal intellectual error, well described by Chesterton’s Fence.

Put differently, before advocating stakeholder capitalism as a superior substitute to shareholder capitalism, it is wise to ask: if stakeholder capitalism is so great, why doesn’t it already exist?

After all, there are numerous alternative ways of organizing and governing the cooperation between and coordination of suppliers of inputs (one subset of “the stakeholders”) to produce output that is sold to consumers (another subset of “the stakeholders”). There are many ways of allocating control rights and cash-flow rights. The corporate form, which makes the shareholders the residual claimants with residual control rights is just one. You can have sole proprieterships, partnerships, worker cooperatives, consumer cooperatives, mutual companies, and even anarcho-syndicalist worker communes:

Yet the corporate form that Friedman focuses on dominated then, and dominates today. It evidently conforms to the “survivorship principle” (a concept elucidated by Friedman’s partner in crime, George Stigler). That is, its dominance is consistent with its efficiency–its maximizing the size of the pie. (I recall a quote, which I thought was attributable to Bertrand Russell but which I cannot track down: “Efficiency is the highest form of altruism.”)

Moreover, this increasing the size of the pie effect must outweigh any distributive inequities “inherent in the system”: its survival means than no coalition of “stakeholders” (e.g., workers, or workers and customers, or workers and suppliers of capital) can make themselves better off by setting up an organization with different control and cash-flow rights than the shareholder corporation. Maybe the distribution of benefits within a corporation is inequitable, according to some theory of justice, but efficiency apparently trumps equity.

Henry Hansmann’s excellent book “The Organization of Enterprise” examines various alternative organizational forms, and finds that the efficiency of different forms of organization (e.g., producer cooperative, mutual) depends on the fine details of the nature of the production and marketing processes, and in particular the effects of these on the costs of contacting. My paper on the organization of financial exchanges provides a very interesting example. Exchanges organized as non-profit mutuals (pretty close to what Dennis advocated) were efficient under one set of technological conditions (floor trading) but not another (electronic trading): when technology changed, organization changed. Almost immediately. (Cf., the wave of exchange demutualizations in the early-2000s.)

Put differently, if “stakeholder capitalism” (or anarcho-syndicalist communes) were so great, either on efficiency or distributive grounds, we would see it in an even moderately competitive environment. Its absence makes it clear that it ain’t so great.

Sorry, Dennis. With the exception of the exchange thing. For a while, anyways.

So what about broader “social” goals? In this regard, it’s well to remember Hayek’s injunction that the addition of “social” as a prefix to any concept, e.g., social justice, usually renders the concept meaningless, or at best confuses rather than clarifies. Moreover, it’s imperative to remember another Hayekian concept: the Knowledge Problem.

The very existence of costs (e.g., pollution) that are not amenable to contract, and hence supposedly require unilateral corporate action to address, demonstrates the enduring legacy of one of Friedman’s colleagues, Coase. The transactions costs of some corporate activities are clearly too high to mitigate efficiently via contract. So, apparently, CEO’s are supposed to take an Olympian perspective and address these problems unilaterally.

That’s where the Knowledge Problem kicks in. Pray tell: where are CEOs supposed to get the information to lead them to make the appropriate trade-offs? The virtue of contract is that it provides a means of generating information about costs and benefits in order to make the altruistic–i.e., efficient–choice. But with “externalities,” contracting is a prohibitively expensive means of acquiring this information, and acting on it in an efficient eay. So where does this information come from?

CEOs–and heaven forfend, their HR departments–are usually sufficiently arrogant to believe they know.

They’re wrong: pride goeth before the fall.

Meaning that corporate decisions made pursuant to environmental or “social justice” goals are certain to be wrong. Very wrong.

Funny, isn’t it, that those who fault corporations for decisions that affect those with whom they have contractual privity blithely assert that they should make decisions with those with whom they do not? This is intellectual incoherence of the highest order.

There is another allegedly anti-Friedman argument, raised by the likes of the FT’s Martin Wolf: Friedman argued that corporations should maximize profits subject to the rules of the game, but since corporations make the rules of the game, this argument has no force and indeed cuts the other direction.

For one thing, Wolf’s argument is superficial and conclusory: “I also increasingly realize that I have changed my mind because I no longer believe in the contractarian view of the firm: that it is merely an aggregate of voluntary contracts which reflect the freedom of individuals to choose.” OK, Marty, I guess you are such an Olympian figure that your opinion, unsupported by argument or evidence, should suffice your disregarding the contractarian perspective and proceeding to other considerations.

But more importantly, one of Wolf’s more substantive arguments has, well, more substance: corporations have undue influence over the the political system, and therefore exert influence that results in the adoption of inefficient, and arguable inequitable, policies.

Well, yes. And Friedman would agree. Wolf’s criticism (and those of others making a similar point) of one Friedman article focused on one particular issue overlooks altogether other major–and indeed primary–streams of Friedman’s thought.

The precise reason that Friedman (and Stigler) opposed regulation and advocated small government was precisely because governments almost always advance special interests at the expense of efficiency and equity. Friedman always–always–asserted (justifiably) that he was NOT pro-big business. He was pro-market (which makes it particularly perverse that the Pro Market blog–which clearly steals from Friedman–repeatedly distributes garbage that traduces Friedman and others of his ilk, such as Aaron Director).

In this, Friedman was merely echoing Adam Smith–who never had a kind word to say about businessmen (a point that Stigler, the eminent Smith scholar of his era, made repeatedly).

Meaning that if your problem (and yeah, I’m looking at you Marty) is with undue corporate influence, rather than reshaping corporations in some way, maybe you should see that they are just responding rationally to the incentives inherent in a political system that gives the government almost unlimited authority to create rules that distribute rents.

That is, don’t limit corporations, limit governments. Corporations are just maze-bright rats. If you don’t want them gaming the maze, take away the cheese.

So to tar Friedman (and by extension other old-school Chicago types) with the brush of enabling corporations to write the rules of the game in their favor, is to ignore a major element of Friedman’s (and other old-school Chicago types’) worldview.

I’m also at a loss to figure out what particular changes to corporate organization and governance will miraculously transform them into more broad-minded entities that eschew exploiting the political system for their benefit. Look at Germany, or Japan, which have more “inclusive” models of governance, and which include other “stakeholders” in the formal governance process. Do you think they don’t influence the government to advance their interests? As. Fucking. If.

And if your response is: “give governments more power,” you are totally hopeless. Due to their comparative advantage in exercising influence over government–something that Wolf et al, in agreement with Friedman believe–that will just give corporations more power to do harm, not less.

In sum, Friedman’s latter-day critics, conveniently arguing when he is in the grave, and therefore unable to demolish them (as he surely would), totally fail to come to grips with his arguments, and in particular the arguments of his entire body of work, not just one article. “Stakeholder capitalism” is a vapid, vaporous concept that fails to address Deirdre McCloskey’s pithy phrase: “if you’re so smart, why aren’t you rich?” Claims that corporations should adopt a new objective function that encompasses “social” objectives, and not just profit, founder on the Knowledge Problem. Defensible criticisms that corporations exploit the political system are not arguing against Friedman–they are agreeing with him, yet arriving at wrongheaded conclusions.

We should all wish that our current thoughts, when evaluated from the perspective of 50 years, hold up so well as Milton Friedman’s. I guarantee that that will not be said of anyone carping on him today.

Friedman was small in stature, but a giant Gulliver in thought. His Lilliputian critics today prove the point.

October 7, 2020

The Real Pandemic: Mass Munchausen’s Syndrome by Proxy

Filed under: CoronaCrisis,Economics,Politics — cpirrong @ 6:21 pm

It’s more than fair to say that we are experiencing a pandemic, but not the one you hear about ad nauseum. No, the pandemic is not a virus, it is a pandemic outbreak of Munchausen’s Syndrome by Proxy which focuses its obsessions on the virus.

Munchausen’s Syndrome by Proxy is a mental illness in which the sufferer fantasizes that others–usually people in their charge, such as children–are suffering from serious illness and require drastic medical intervention.

Observe what has happened over the last 7 months, and what if anything is increasing in intensity today. The obsession with Covid-19. The monomaniacal focus on “cases” (usually the result of hypersensitive tests prone to false positives), with the belief that people who test positive are sick, and huge numbers of those who become sick will die.

Given the actual experience over the last several months, these beliefs are wildly exaggerated–imaginary, fantasized illnesses, with fantasized severity, just the kind of thing that a sufferer of MSbP does.

And there’s more to the diagnosis. MSbP sufferers subject the people whom they imagine are ill with suffocating attention and unnecessary, and often harmful, health-related interventions. You know, like lockdowns; draconian restrictions on movement, social contact, and other features of everyday life; the shutting down of schools and colleges; and strident demands to wear masks–even between bites of your meal if you are in California.

Look at so many governors and mayors, e.g., Gretchen Whitmer of Michigan, Gavin Gruesome–excuse me, Newsom–in California, J. B. Pritzker in Illinois, or Tim Walz in Minnesota. (I could go on. And on. And on. Believe me.) They constantly invoke their power over you. But it’s for your own good! Trust them! Mommy is protecting you! And if you object, you will be punished! How dare you defy Mommy’s tender mercies, you ungrateful brats? If you do, you will be punished! To get your minds right and realize just what danger you are in, and why you need to listen to Mommy and do exactly as she says!

And if it were only limited to “authorities” who make Cartman look pleasant. You probably have neighbors or co-workers who have the Syndrome. Or you run into them in the grocery store. Or maybe it’s the fatso in the pharmacy checkout line. (Yeah, that’s an allusion to a personal experience, but no worries: I doubt said fatso can read.)

It was already bad enough before Trump was diagnosed with Covid. Then a super-virulent strain of the Syndrome appeared, through some Darwinian mechanism apparently. As soon as I saw his first remarks from the hospital–that he had learned a lot about Covid, and he was going to share that information and experience with us–I knew he would say exactly what he did say: it can be a serious illness, but the vast majority of people can beat it, and we shouldn’t let it dominate our lives.

And I knew that this would kick the MSbP crowd into apoplexy. They want a narrative of doom and gloom. They want people to be afraid. They want people to defer to them, and to depend on them, and most importantly to obey their commands. You could get really sick–ALL OF YOU! You could die–ANY OF YOU! Don’t listen to anyone who tells you otherwise! They don’t have your best interests at heart, like Mommy does. And put in your earplugs (so you don’t hear the Bad Orange Man), put on your eye shades (so you don’t read the Great Barrington Declaration), you know where to put the cork (aka the mask that makes it impossible for you to speak intelligibly).

So anything that contradicts the narrative triggers a mass attack of the Munchausens.

Is Covid like the seasonal flu, as Trump said? Well, the more data that comes in, the more it appears that yes it is a danger on the order of magnitude of a bad seasonal influenza strain–the kind we have endured multiple times in the past without draconian measures that cratered economies. And ironically, the data strongly suggest that it is less of a danger to children than the garden variety seasonal flu.

But it is beyond cavil that it is nothing remotely like the last great pandemic disease, Spanish Influenza of 1918-1919. But that doesn’t stop severe cases of MSbP like Gov. Gretchen Ratched from justifying their actions by reference to that episode, and invoking laws passed during that real pandemic to control your life today.

In normal times, most of the objects of MSbP sufferers are children, who have limited power to resist. Often medical professionals are the ones who identify a MSbP situation, and intervene to protect the object.

But today, adults are overwhelmingly the objects. And too many medical professionals enable MSbP (and may indeed be sufferers themselves–just look at the lunatic Twitter timelines of many medicos FREAKING OUT over Trump’s remarks and behavior, i.e., acting like someone suffering the flu, or a cold).

Given the coercive powers of the most important MSbP sufferers, the said governors, mayors, bureaucrats, etc., this pandemic–the MSbP pandemic–is wreaking untold havoc. We need more people to say we aren’t going to take it. We need more people to push back. We should not be in the thrall of the mentally ill.

But alas, we are. Because there are so goddam many of them, and they infest the executive branches of government at every level.

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