Readings: Greenspan

"Why did corporate governance checks and balances that served us reasonably well in the past break down? At root was the rapid enlargement of stock market capitalizations in the latter part of the 1990s that arguably engendered an outsized increase in opportunities for avarice. An infectious greed seemed to grip much of our business community. Our historical guardians of financial information were overwhelmed. Too many corporate executives sought ways to "harvest" some of those stock market gains. As a result, the highly desirable spread of shareholding and options among business managers perversely created incentives to artificially inflate reported earnings in order to keep stock prices high and rising. This outcome suggests that the options were poorly structured, and, consequently, they failed to properly align the long-term interests of shareholders and managers, the paradigm so essential for effective corporate governance. The incentives they created overcame the good judgment of too many corporate managers. It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously."
Alan Greenspan, before the Senate Committee on Banking, Housing, and Urban Affairs, July 16, 2002

Readings: After Horace

O Postumus, alas! I hear the bells go tinkle-tinkle!
Zip! goes another flitting year! here comes another wrinkle!
And though I hate to hang the crape -- no skill and no endurance
Can keep your folks from putting in a claim for your insurance.

If daily you endow a school and forty-two Foundations,
Would that put off a single day your last disintegrations?
No! What though you be prince, or prune, a slacker or a hero,
The sum of all your wealth and woes is ultimately zero.

Some day you'll bid your wife good-bye, and -- this no prognosis --
That afternoon they'll say it was arterio-sclerosis;
And in a year, or maybe less, a man of greater merit
Shall spill upon your marble floors the wine he will inherit.
Franklin P. Adams, "As The New Year (18 BC) Dawned" (1917), after Horace 2.14

Readings: The Treasury

"For FY 2008, GAO has issued a 'disclaimer' of opinion on the accrual-based consolidated financial statements, as it has for the past eleven years, for the fiscal years (FY) ended September 30, 2008 and 2007. This means that sufficient information was not available for the auditors to determine whether the financial results were reliable."
2008 Financial Report of the United States Government

Readings: Jim Grant

"Revolutions, once begun, rarely proceed as the revolutionaries intended, and the chief beneficiaries of new inventions are not always the people who dreamt them up, invested in them or promoted them (they are sometimes the children or even the grandchildren of those individuals). Thus, for example, when Willis Haviland Carrier was awarded patent No. 808897 for an 'Apparatus for Treating Air,' on Jan. 2, 1906, the father of air conditioning almost certainly did not anticipate a future hole in the ozone layer or the political consequences of a 12-month congressional season. 'The introduction of air conditioning in the 1930s did more, I believe, than cool the Capitol,' reminisced Rep. Joseph W. Martin, a Massachusetts Republican, in 1960, 'it prolonged the sessions.' Would American statism have come full flower in a non-air conditioned capital city? Always, in technology, there are debits and credits."
Jim Grant, "The Economic Consequences of Air Conditioning" (1999)

Readings: Krauthammer (1)

"Who defines reality: there lies the difference between this Administration and the last. Clinton let Russian opposition define reality. Bush, like Reagan, understands that the U.S. can reshape, indeed remake, reality on its own.

In the liberal internationalist view of the world, the U.S. is merely one among many--a stronger country, yes, but one that has to adapt itself to the will and the needs of "the international community." That is why the Clinton Administration was almost manic in pursuit of multilateral treaties--on chemical weapons, biological weapons, nuclear testing, proliferation. No matter that they could not be enforced. Our very signing would show us to be a good international citizen.

This is folly. America is no mere international citizen. It is the dominant power in the world, more dominant than any since Rome. Accordingly, America is in a position to reshape norms, alter expectations and create new realities. How? By unapologetic and implacable demonstrations of will."

Charles Krauthammer, "The Bush Doctrine," in Time, 3/5/01

Readings: Levin-McCain

"On February 7, 2002, President George W. Bush made a written determination that Common Article 3 of the Geneva Conventions, which would have afforded minimum standards for humane treatment, did not apply to al Qaeda or Taliban detainees. Following the President’s determination, techniques such as waterboarding, nudity, and stress positions, used in SERE training to simulate tactics used by enemies that refuse to follow the Geneva Conventions, were authorized for use in interrogations of detainees in U.S. custody...

"Secretary of Defense Donald Rumsfeld’s authorization of aggressive interrogation techniques for use at Guantanamo Bay was a direct cause of detainee abuse there. Secretary Rumsfeld’s December 2, 2002 approval of Mr. Haynes’s recommendation that most of the techniques contained in GTMO’s October 11, 2002 request be authorized, influenced and contributed to the use of abusive techniques, including military working dogs, forced nudity, and stress positions, in Afghanistan and Iraq...

"The abuse of detainees at Abu Ghraib in late 2003 was not simply the result of a few soldiers acting on their own. Interrogation techniques such as stripping detainees of their clothes, placing them in stress positions, and using military working dogs to intimidate them appeared in Iraq only after they had been approved for use in Afghanistan and at GTMO. Secretary of Defense Donald Rumsfeld’s December 2, 2002 authorization of aggressive interrogation techniques and subsequent interrogation policies and plans approved by senior military and civilian officials conveyed the message that physical pressures and degradation were appropriate treatment for detainees in U.S. military custody. What followed was an erosion in standards dictating that detainees be treated humanely."
Senate Armed Services Committee Report of its Inquiry into the Treatment of Detainees in US Custody (Levin-McCain Report), December 11, 2008

Readings: von Mises

"If it should be thought that index numbers offer us an instrument for providing currency policy with a solid foundation and making it independent of the changing economic programmes of governments and political parties, perhaps I may be permitted to refer to what I have said in the present work on the impossibility of singling out any particular method of calculating index numbers as the sole scientifically correct one and calling all the others scientifically wrong. There are many ways of calculating purchasing power by means of index numbers, and every single one of them is right, from certain tenable points of view; but every single one of them is also wrong, from just as many equally tenable points of view. Since each method of calculation will yield results that are different from those of every other method, and since each result, if it is made the basis of practical measures, will further certain interests and injure others, it is obvious that each group of persons will declare for the methods that will best serve its own interests. At the very moment when the manipulation of purchasing power is declared to be a legitimate concern of currency policy, the question of the level at which this purchasing power is to be fixed will attain the highest political significance."
Ludwig von Mises, preface to the English edition of The Theory of Money and Credit (1934)

Readings: Bachus

"I wonder whether Secretary Paulson and Mr. Kashkari, back when they were still working for Goldman Sachs, would ever agree to a deal where billions of dollars changed hands based on a two-page application, without asking what the money was going to be used for or whether it was going to be paid back."
Rep. Spencer Bachus (R-AL), December 9, 2008

Readings: Bastiat

"We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us.

"We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds -- in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat."
Frédéric Bastiat, "A Petition from the Manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting" (Sophismes économiques, 1845)

Readings: Bagehot

"Political economists say that capital sets towards the most profitable trades, and that it rapidly leaves the less profitable and non-paying trades. But in ordinary countries this is a slow process, and some persons who want to have ocular demonstration of abstract truths have been inclined to doubt it because they could not see it. In England, however, the process would be visible enough if you could only see the books of the bill brokers and the bankers. Their bill cases as a rule are full of the bills drawn in the most profitable trades, and caeteris paribus and in comparison empty of those drawn in the less profitable. If the iron trade ceases to be as profitable as usual, less iron is sold; the fewer the sales the fewer the bills; and in consequence the number of iron bills in Lombard Street is diminished. On the other hand, if in consequence of a bad harvest the corn trade becomes on a sudden profitable, immediately 'corn bills' are created in great numbers, and if good are discounted in Lombard Street. Thus English capital runs as surely and instantly where it is most wanted, and where there is most to be made of it, as water runs to find its level.

"This efficient and instantly-ready organisation gives us an enormous advantage in competition with less advanced countries--less advanced, that is, in this particular respect of credit. In a new trade English capital is instantly at the disposal of persons capable of understanding the new opportunities and of making good use of them. In countries where there is little money to lend, and where that little is lent tardily and reluctantly, enterprising traders are long kept back, because they cannot at once borrow the capital, without which skill and knowledge are useless...

"But in exact proportion to the power of this system is its delicacy I should hardly say too much if I said its danger. Only our familiarity blinds us to the marvellous nature of the system. There never was so much borrowed money collected in the world as is now collected in London. Of the many millions in Lombard Street, infinitely the greater proportion is held by bankers or others on short notice or on demand; that is to say, the owners could ask for it all any day they please: in a panic some of them do ask for some of it. If any large fraction of that money really was demanded, our banking system and our industrial system too would be in great danger."
Walter Bagehot, Lombard Street (1873)

Readings: Hobson

"To support Imperialism by direct taxation of incomes or property would be impossible. Where any real forms of popular control existed, militarism and wars would be impossible if every citizen was made to realise their cost by payments of hard cash. Imperialism, therefore, makes everywhere for indirect taxation; not chiefly on grounds of convenience, but for purposes of concealment. Or perhaps it would be more just to say that Imperialism takes advantage of the cowardly and foolish preference which the average man everywhere exhibits for being tricked out of his contribution to the public funds, using this common folly for its own purposes. It is seldom possible for any Government, even in the stress of some grave emergency, to impose an income-tax; even a property-tax is commonly evaded in all cases of personal property, and is always unpopular. The case of England is an exception which really proves the rule."
John A. Hobson, Imperialism (1902)

Readings: Anonymous (1)

"We all had the feeling it could come apart in quite a serious way. As I saw it, it was a choice between Britain remaining in the liberal financial system of the West as opposed to a radical change of course because we were concerned about Tony Benn precipitating a policy decision by Britain to turn its back on the IMF. I think if that had happened the whole system would have begun to come apart. God knows what Italy might have done; then France might have taken a radical change in the same direction. It would not only have had consequences for economic recovery, it would have had great political consequences. So we tended to see it in cosmic terms."

US State Department official recalling UK negotiations with the IMF in 1976, quoted in Sunday Times, May, 21, 1978.

Readings: Viner

"But the 'postulates' of the classical political economy, while restricted and scanty enough, were not as hypothetical or 'assumed' as was supposed by the economists who formulated them. The psychology of the 'economic man,' faulty and unsatisfactory as it was, in the one characteristic essential to the economist above all others was not nearly as remote from reality as his creators supposed. In fact it may almost be said that the 'economic man' was an actual Englishman of the commercial world, the description of whose behavior was correctly obtained by inductive inference from observation, but marred and distorted by faulty deductions from an inaccurate introspective, speculative psychology, in an attempt to obtain a rational explanation of the motivation of his behavior. In his commercial activity, with which the economist is primarily concerned, man is thoroughly economic. As economists we are concerned with his ends and not with his motives. His motives may be numerous enough and complex enough to merit the abstractions of the old economists, but in his ends he is simple enough for inductive investigation. The bottle of medicine for a dying child, or of wine for himself; the tools for his trade; the supplies for a home for the aged, bought as a contribution to the home from a future inmate -- all are bought with the same end of getting the most for the least, whatever the motive for the purchase may be. Nor in asserting that the ordinary individual, in his economic activity, of his possible alternatives follows the one he most desires to follow—which is all the economist need assert -- do we preclude ourselves from the admission that a laborer will not necessarily seek the higher wage if it involves the harder work or the longer day."
Jacob Viner, "Some Problems of Logical Method in Political Economy" (1917)

Readings: Keynes (4)

"What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914! The greater part of the population, it is true, worked hard and lived at a low standard of comfort, yet were, to all appearances, reasonably contented with this lot. But escape was possible, for any man of capacity or character at all exceeding the average, into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages. The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice."
John Maynard Keynes, The Economic Consequences of the Peace (1919)

Readings: Weber

"It is not the rentier, the shareholder, and the banker who suffer the ill will of the worker, but almost exclusively the manufacturer and the business executives who are the direct opponents of workers in wage conflicts. This is so in spite of the fact that it is precisely the cash boxes of the rentier, the shareholder, and the banker into which the more or less unearned gains flow, rather than into the pockets of the manufacturers or of the business executives."
Max Weber, Economy and Society (1922)

Readings: Altgeld

"We have had thirty years of colorless politics in which both of the political parties were simply conveniences for organized greed. There was nothing to arouse the deep, slumbering patriotism of the masses and a race of politicians came to the front, most of whom had no convictions and many of whom straddled every proposition and then waited to be seduced. They were men who made every promise to the laborer, and then betrayed him. These men became the instruments through which the corporations worked."
John Peter Altgeld, "On Municipal and Government Ownership" (September 5, 1897)

Readings: Kucinich

Rather than prevent foreclosures by acquiring troubled mortgage assets as EESA authorized, Secretary Paulson announced on Wednesday that TARP would not buy mortgage assets. Instead, Treasury would exclusively continue along the path of providing preferred equity injections to hand-picked companies. Thus, the only significant use by Treasury of the funds Congress authorized to address the mortgage crisis underlying the financial crisis includes, among other things, propping up a Beverly Hills banker to the stars; subsidizing the evisceration of National City Bank and the laying-off of thousands of Clevelanders who worked there; and indirectly funding the payment of bonuses, compensation, and dividends by financial firms that could not have afforded to make them without the TARP capital infusion. I think it’s fairly obvious that Congress would have never passed the EESA had it known how Treasury would marshal the resources it was given.
Dennis Kucinich, November 14, 2008

Readings: Bush

"Ultimately, the best evidence for free market capitalism is its performance compared to other economic systems. Free markets allowed Japan -- an island nation with few natural resources -- to recover from war and grow into the world's second-largest economy. Free markets allowed South Korea to make itself one of the most technologically advanced societies in the world. Free markets turned small areas like Singapore, Hong Kong, and Taiwan into global economic players. And today, the success of the world’s largest economies comes from their embrace of free markets."
President George W. Bush, November 13, 2008

Readings: Rubinstein

"The word 'model' sounds more scientific than 'fable' or 'fairy tale' but I don't see much difference between them. The author of a fable draws a parallel to a situation in real life and has some moral he wishes to impart to the reader. The fable is an imaginary situation which is somewhere between fantasy and reality. Any fable can be dismissed as being unrealistic or simplistic but this is also the fable's advantage. Being something between fantasy and reality, a fable is free of extraneous details and annoying diversions. In this unencumbered state, we can clearly discern what cannot always be seen from the real world. On our return to reality, we are in possession of some sound advice or a relevant argument that can be used in the real world. We do exactly the same thing in economic theory."
Ariel Rubinstein, Lecture Notes in Microeconomic Theory (2007)

Readings: Han Fei

"There was a farmer of Song who tilled the land, and in his field was a stump. One day a rabbit, racing across the field, bumped into the stump, broke its neck, and died. Thereupon the farmer laid aside his plow and took up watch beside the stump, hoping that he would get another rabbit the same way. But he got no more rabbits, and instead became the laughing stock of Song. Those who think they can take the ways of the ancient kings and use them to govern the people of today all belong in the category of stump-watchers!...

"When the sage rules, he takes into consideration the quantity of things and deliberates on scarcity and plenty. Though his punishments may be light, this is not due to his compassion; though his penalties may be severe, this is not because he is cruel; he simply follows the custom appropriate to the time. Circumstances change according to the age, and ways of dealing with them change with the circumstances."
Han Feizi 49 (3rd cent. BC)