Dictator for a Day

I’ve been talking to Matt about our economics situation. He is quite a bit better informed on the issue and the subject of macroeconomics in general than I am.

He put up a post of his actions as dictator of the United States for a day.

Both of us have issues with the distribution of wealth being unequal. Whereas I say take away the ungodly piles of money (who needs to be paid a billion dollars?) to reduce incentives to be greedy, he, reasonably, asks what happens to that money when not concentrated in the hands of a few people.

To some extent there would simply be less money since much of our problem is a whole lot of the money we theoretically have currently is fictitious. Bankers created it by managing to sell things at far beyond their actual value. Coming to terms with the reality of how much actual value there is in things is an adjustment that has to be felt somewhere.

I think my favorite of his suggestions has to do with an increase in shareholder rights. It would help dilute the concentration of power in the hands of a few so that even if they were inclined to let their greed to get them to do something shady, they can’t.

He also discusses the extent to which the government should do things like bail out Bear Stearns — “privatize profits and publicize losses.” He argues that so long as there’s money to be made someone will come to take their place.

My position is less certain for the same reason that I’m more of a proponent of public policy changes to affect corporate behavior. We are very likely headed into a recession not because of the mortgages or even because of the over leveraging. There has certainly been an over extension beyond real value, but what will make the readjustment painful is the speed at which it is likely to happen.

The reason economists discuss consumer confidence is business is about making things to be consumed. If people are insecure about needing stuff then businesses get insecure about having bunches of stuff on their shelves. If businesses order less stuff then manufacturing needs less people to make stuff and eventually start laying people off. This cycle slows the economy down in a variety of ways.

Note that this starts only tangentially related to actual money. The economy isn’t simply individual workers fighting for their piece of the pie. Particularly in the financial markets, bad behavior doesn’t just risk the livelihoods of the people making bad decisions, as we are seeing right now it can put middle class families on the street without a job.

The public has a right to control how corporations are run, not only because corporations only exist because we decided as a society to make them pseudo-people, but because the system is now intertwined to an extent that their actions affect everyone.

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