Friedman said "the war on drugs and the harm which it does are simply manifestations of a much broader problem: the substitution of political mechanisms for market mechanisms in a wide variety of areas." He estimated that "the United States today is a little over fifty percent socialist," as measured by the resources the government commands through taxes and regulation.While Joel Miller says "Happy 90th":
If you're looking for the father of the 20th century libertarian renaissance, start your paternity tests with Uncle Milty. Certainly fingers should point in the direction of Mises, Hayek, and other such luminaries. Murray Rothbard and Ayn Rand were both making sizeable waves as Friedman was wading into the pool. But Friedman really deserves the brass ring for creating both academic and popular support for the idea of reducing government controls and increasing individual freedom.Go visit Free to Choose to wish Uncle Milty a Happy Birthday if you haven't done so already.
If you were interested in finding a culprit for the deluge of bad news that has engulfed American business and brought the stock market crashing down, the name of Lee Iacocca would probably not be high on your list of suspects. But if it weren't for Iacocca, it is unlikely that we would be talking about Enron and WorldCom today.Poorly thought out stock options get their share of blame too:
As economist David Yermack of New York University has shown, stock option grants tended to be issued just before good news was released (thereby locking in a lower price for the option). Issuing more options didn't increase executives' stake in companies. They just cashed in existing options. And the way options were awarded encouraged executives to adopt risky strategies. If stock prices skyrocketed, they got massive options grants as a reward; if stock prices plummeted, they got massive options grants as an incentive, or they had their options repriced. Either way, executives couldn't really lose.Yermack has a web page, of course, but the relevant study, "Altering the Terms of Executive Stock Options", is not online unfortunately.
The current rule is that companies disclose their options and provide a Black-Scholes estimate of value. Earnings per share are calculated on a diluted basis, which means that they reflect options that are in the money. Investors can then make of all this what they will. The disclosures could and should be expanded, but the basic system is simple, clear, and cheap to implement. The proposed changes will make the system complex, murky, and expensive, with a degradation rather than an improvement in the quality of the information available to investors.
There are alternatives to having a stock market ruled by mobs. Unfortunately, those alternatives are probably worse.Kling concludes with the fact that he is "comfortable putting a higher portion of my portfolio into stocks than I had at any time in the past 5-1/2 years".
We could restrict stock market investing to licensed professionals. However, the pros are just as subject to mob psychology as the amateurs. Overall, market consensus tends to be wiser than the opinion of even the smartest investors.
We could try to increase the cost of trading, through taxes and/or restrictions on certain types of trades. However, it is not clear that doing so would reduce volatility. Such interventions in fact could be destabilizing.
Neither Republican President Herbert Hoover or his Democratic successor Franklin D. Roosevelt had a clue about economics or a policy that made any sense.Sowell hopes that we don't make similar mistakes in the present:
Both sought to keep prices -- including wages -- up, despite the fact that the money supply had declined by one third. How was the country supposed to buy all the output at existing prices, and employ all the workers at existing wages, when there was so much less money?
If Congress passes laws that put corporate crooks behind bars for a long time, that is fine. But if it passes laws that will enable politicians to micro-manage businesses, that is a proven formula for big economic problems for a long time to come.There's also some great tidbits about Hoover as humanitarian, before he became president.
But the Canadian pharmaceutical system is no more a reason to embrace pharmaceutical price controls than Canada's single-payer health system is a reason for America to adopt national health care. Canada may export some cheap prescription drugs, but it also exports citizens who can't get timely medical care at home because of long waiting lines in government-run hospitals. It has also been exporting a fair number of its doctors and medical researchers. Like much of the rest of the world, Canada is getting a free ride on an American medical system that is still rooted in a competitive price system.Read "Premium Pain Relief" for the rest.
Some medical specialties and geographical areas are suffering from a glut of doctors and hospitals, these experts say. Supply seems to drive demand. More hospitals in an area mean many more days spent in hospitals with no discernible improvements in health. More medical specialists mean many more specialist visits and procedures.
Take the idea, pushed by Senator John McCain, the Arizona Republican, and others, that executives shouldn't be able to sell their stock until they've left the company.However, I think Ms. Postrel misses the cause of the current shenanigans:
Rather than encourage sound management that builds good companies, that would actually punish long-term commitments. Executives who devoted their careers to a single business would be financial fools, never able to diversify their personal portfolios.
Managers who really did build value would need to move on after a few years to reap the rewards of their tenure. Corporate America would increasingly be run by job-hopping generalists, not long-term chief executives with deep knowledge of their particular business. And in exchange for assuming more financial risk, top managers would demand even higher salaries.
Making executives look out for shareholder value is, after all, why companies skewed their compensation systems toward stock options and other equity compensation.It's more likely that poorly thought out legislation, like the law capping the deductability of CEO compensation at one million dollars, set the stage for the current stock option-induced mess.
The goal was to give decision makers a strong incentive to keep the stock price high. They would then act in the owners' interests rather than pursuing less-profitable pet projects, avoiding painful spending cuts, or lavishing money on their personal perks.
Within the administration, the economic advisers clearly lost out to the political staff this year on two important matters. In March, the administration decided to impose tariffs on imported steel. In May, the president signed a bill with vast new subsidies for farmers. Both steps violated cardinal conservative Republican free-market economic principles.It's unfortunate that the article makes it appear that "free market economic principles" are just an ideology in the GOP rather than good economics, period. The tariffs and farm subsidies were disgusting and atrocious decisions.