I receive this from my friend Antonio Foglia. It seemed brilliant and worth sharing (with his permission). Last night I saw the documentary on George Soros directed by Bob Dylan’s son. To explain how Macro investing works, George explains in an old interview that he was once skiing in St. Moritz and had picked up the FT before going skiing. Reading it on the chairlift he learned that the UK government was bailing out Rolls Royce. Looking at the company’s history that should have happened in February, 1971. Informational advantages were often part of Macro trades at least since Rothschild’s pigeons were carrying messages from the Waterloo battlefield. But George’s case his edge has always rather been his ability in processing information and foreseeing developments faster and further than anyone else I ever met. George says in that interview that by the time he got to the top of the mountain he had decided to instruct his broker to sell short Gilts, the UK government’s bonds. The interviewer looks at him perplexed an George explains that such a huge corporate bailout would have caused the UK government deficit to rise, would have required the issue of more Gilts to finance it, and hence Gilt yields would have to rise to attract buyers and their price would fall. This would have allowed him to buy them back cheaper than at the price he had originally sold them short. Now that was back in 1971. At the time there were controls on capital movement in the UK, the Gold standard and fixed exchange rates prevailed and no futures markets where to easily sell Gilts short existed. Today we think of that period as an era of barbaric financial repression that allowed socialist governments to do all sorts of turpitudes to capital to the detriment of economic efficiency and growth. You don’t need a rich fantasy to immagine the same scene Today. First, Rolls Royce is in trouble again. Immagine the UK government bails Rolls Royce out once more after fudging with EU rules that in theory would forbid corporate bailouts. Other EU governments have already bailed firms out and Brexit is happening shortly anyway. If a Macro manager had been smart enough to anticipate the collapse of Rolls Royce, and had already sold short the stock, the fudge is likely to cause him losses as the stock would now rise because of the governmental help to the company. Say that Today’s macro manager reasons like George and decides to short Gilts. Tough luck, since the Bank of England is buying tons of them in the secondary market sustaining their prices in order to keep interest rates low. But no, the Bank of England assures you, this is Quantitative Easing, nothing to do with monetisation of government debt which only happens when they buy on the primary market. This may satisfy the layman, but not a sophisticated Macro manager who knows that part of a Central Bankers’ job is to say whatever lie policy requires with a straight face. So, the Macro manager thinks, if we have monetisation in the UK and rates are kept at artificially low levels surely the Pound Sterling must weaken against currencies with a stronger economic backdrop. Hence our Macro manager sells Pounds and buys Swiss Francs. After all Switzerland has a modest amount of government debt, its Covid induced deficit is easily financiable and its current account surplus has been extremely high for well over a decade. If the Macro manager is really sophisticated, he might even have noticed that Swiss pension funds have hedged for a decade their substantial purchases of foreign securities, implying that the local professionals also expect an appreciation of the Swiss Franc. Tough luck again, though. The Swiss National Bank is selling all the Swiss Francs anyone may want to buy to keep it from appreciating. And this is happening in an extraordinary rich country considered a bastion of free market economy and with a vast surplus in its international trade balance. Deprived of any opportunity to help the markets price events rationally, and to profit in the process, our contemporary Macro manager drops on his sofa and switches on his TV. Just in time to hear the end of a very recent interview with George Soros who laments that Today’s economic policies set by “free markets fundamentalists” are ruining the world. (0 COMMENTS)

In a rare bit of good news out of DC, it seems as though the “stimulus” part of the new fiscal package may be dropped: Direct cash payments to most American households were one of the most popular and efficient measures Congress enacted as part of its response to the coronavirus pandemic earlier this year, but lawmakers seem to have lost interest in another round of checks. Legislators this week resuscitated talks over a new coronavirus relief package, which includes new unemployment assistance, money for vaccine distribution and more aid for businesses and state governments. But none of the potential compromise proposals includes another round of stimulus checks. “We’re sending money out as a relief for people in distress, as opposed to a stimulus. This is not a stimulus bill,” Sen. Mitt Romney (R-Utah) told HuffPost about bipartisan $900 billion legislation he is crafting with other moderate senators. The main factor holding back the economy is not a lack of disposable income; indeed areas where people are free to spend (retail sales, housing, etc.) are booming.  Rather the recession is heavily concentrated in services where social distancing is a problem.  Once the vaccines are widely available in the early spring, those sectors will bounce back strongly.  Many people who skipped summer vacation this year will be anxious to take a vacation next summer.  As an analogy, consumption rebounded strongly after the WWII-era rationing came to an end.  The postwar depression predicted by Keynesian economists never happened. I have not examined the proposed legislation in detail and thus don’t have a position on the overall bill.  But right now the economy does not need fiscal stimulus.  If any fiscal package is going to be enacted, it makes sense to focus on those who are negatively affected by the crisis, especially the unemployed and small businesses adversely affected by Covid-19.  There is no obvious reason to send $1200 checks to Americans with good jobs. I wouldn’t be opposed to a bit more monetary stimulus, although I suspect the Fed will hit its 2% average inflation target sooner than most economists expect.  The Fed did not actually do very much monetary stimulus in 2020.  They have plenty of ammo. (0 COMMENTS)

Epistemology (the philosophy of knowledge) is important because it underlies the problem of truth in economics and in all other area of rational research and discourse. Epistemology is also relevant to conspiracies theories. As philosopher Robert Nozick pointed out, in the social sciences, invisible-hand explanations are always preferable because otherwise the conclusion is planted in the premises–a vindication of Adam Smith and classical-liberal economics! The Ptolemaic system of astronomy also faced an epistemological trap in explaining the movement of planets and stars with the help of epicycles (cycles moving on other circles). When an empirical observation contradicted the system’s predictions, the astronomer only needed to add an epicycle to make the theory fit the fact. Similarly, adding one new conspirator or a new conspiratorial component can always explain away, ad infinitum, any objection to a given conspiracy. Only much later, with the work of mathematician Jean-Baptiste Joseph Fourier in the 18th century, did we start understanding that any smooth curve or movement in space can be approximated with a sufficient number of epicycles. Ptolemy’s theory was more complicated than needed to understand, and to better understand, the movement of planets and stars. Just like Ptolemaic astronomy, conspiracy theories (at least complex ones) violate Occam’s razor, that is, the principle that “pluralitas non est ponenda sine necessitate,” or “plurality should not be posited without necessity.” In other words, of two explanatory theories, the simplest one should be preferred ceteris paribus. Granted that it is not always clear what “the simplest” means. Conspiracies are not impossible, but the more complex and the less incentive-compatible they are, the lower their probability. (See my post “Why a Vast Election Fraud is Highly Implausible” and its complement, “Implausible Conspiracy and Unfair Election.) The shaky epistemological status of conspiracy theories can be illustrated by a recent Facebook post of mine and the comment of Professor Sinclair Davidson, an economist at RMIT University in Australia. I posted: Here is another [I should have written: “the correct”] conspiracy theory: The Deep State approached Trump around 2015 and asked him to run for president, assuring him of their support. “We know how to run elections,” they told him. The Deep State needed some puppet or clown who would make individual liberty (including the 1st and 2nd Amendments) look totally cranky, thereby preparing the terrain for a future dictator. They told Trump that only he, with his genius, his legendary honesty, and his golf game, could play this important role. Alas, Trump fell in love with the job (as he did with the North Korean dictator), the tweets, the honors, the constant attention, and broke with his Deep State handlers. We saw the consequence on November 3. Sinclair Davidson brillantly commented: I have a different theory: Deep state approached Trump exactly like you said but lost control of the 2016 election. He was the patsy meant to lose. Now we see 2020. Conspiracies can explain any event (even in the physical world if the gods, like Greek gods, engage in conspiracies), and a large number of different conspiracies can explain the same event. Hence conspiracy theories are generally useless, at best. (0 COMMENTS)

With 5 more states legalizing pot last month, there are now 15 states where the drug is legal and 35 where medical marijuana is legal. Most people assume that complete legalization is more libertarian that merely legalizing medical marijuana. That’s been my view as well. A recent article in Politico, however, makes a strong case for the proposition that Oklahoma has the nation’s freest pot market, despite not legalizing recreational marijuana. There are two parts to this argument: 1. It’s so easy to get a medical marijuana license in Oklahoma that for all intents and purposes the drug has been fully legalized: Oklahoma is now the biggest medical marijuana market in the country on a per capita basis. More than 360,000 Oklahomans—nearly 10 percent of the state’s population—have acquired medical marijuana cards over the last two years. By comparison, New Mexico has the country’s second most popular program, with about 5 percent of state residents obtaining medical cards. Last month, sales since 2018 surpassed $1 billion. . . . If a patient can persuade a doctor that he needs to smoke weed in order to soothe a stubbed toe, that’s just as legitimate as a dying cancer patient seeking to mitigate pain. The cards are so easy to obtain—$60 and a five-minute consultation—that many consider Oklahoma to have a de facto recreational use program. 2. The supply of marijuana is much less heavily regulated in Oklahoma than in even states that opted for full “legalization”: To meet that demand, Oklahoma has more than 9,000 licensed marijuana businesses, including nearly 2,000 dispensaries and almost 6,000 grow operations. In comparison, Colorado—the country’s oldest recreational marijuana market, with a population almost 50 percent larger than Oklahoma—has barely half as many licensed dispensaries and less than 20 percent as many grow operations. In Ardmore, a town of 25,000 in the oil patch near the Texas border, there are 36 licensed dispensaries—roughly one for every 700 residents. In neighboring Wilson (pop. 1,695), state officials have issued 32 cultivation licenses, meaning about one out of 50 residents can legally grow weed. (I use scare quotes for “legalization” as the drug is still illegal at the federal level, which restricts access to the banking system and increases the cost of production.) All of this is occurring in a very conservative state: “Turns out rednecks love to smoke weed,” Baker laughs. “That’s the thing about cannabis: It really bridges socio-economic gaps. The only other thing that does it is handguns. All types of people are into firearms. All types of people are into cannabis.” Indeed, Oklahoma has established arguably the only free-market marijuana industry in the country. Unlike almost every other state, there are no limits on how many business licenses can be issued and cities can’t ban marijuana businesses from operating within their borders. In addition, the cost of entry is far lower than in most states: a license costs just $2,500. In other words, anyone with a credit card and a dream can take a crack at becoming a marijuana millionaire. Pot legalization is one of those rare issues where the biggest divide is not left vs. right; rather it’s elites vs. average people: Though polls indicated the measure was getting roughly 60 percent support from voters, Republican Gov. Mary Fallin and practically every member of her cabinet opposed the legalization referendum, as did the entire Oklahoma congressional delegation. Police and prosecutors came out against it, along with every major religious organization, the Oklahoma State Medical Association and most of the business community, including the State Chamber of Oklahoma. Even the Democratic Party elites have been slow to warm to the idea, which is why conservative states that allow referenda often legalize pot faster than liberal states (like New York) where the legislature determines the issue.  Even President-elect Biden is skeptical of the idea. Age is another factor, and Biden is of course from the “silent generation” that preceded the Baby Boomers. Perhaps now Oklahoma can begin to repair the damage done to so many of its citizens: At that time, the overwhelming consensus among the state’s lawmakers was that the best way to deal with illegal drug use—including marijuana consumption—was to lock up lots of Oklahomans for long periods of time.“ I knew that we were ruining families,” Sapp says of the state’s harsh criminal penalties. “It literally will take generations to repair the damage that we’ve done to people and their children and their grandchildren.” (0 COMMENTS)

Like many who have studied economics at George Mason University during the last forty years, I had the great privilege of studying price theory with Walter Williams. The class was very much taught in the UCLA price theory tradition of Armen Alchian. His personal history—growing up in a housing project in Philadelphia, serving in the army, fighting for civil rights, working his way from cab driver to economics professor, and his nearly fifty year marriage to a woman he was clearly deeply in love with—were also important in his teaching. Economics is about the real world and he’d never let you forget it. His autobiography Up From The Projects and the short documentary film Suffer No Fools are both excellent windows into his thoughtfulness, courage, and kindness. And I say that having never met an economist who wasn’t also a bit prickly, and knowing very well that many who read this will likely know that side of him better than I. Williams never shied away from tough ideas and delighted in challenging the preconceived notions of his students and his readers. His book The State Against Blacks, now in its third printing, is full of thoughtful economic insight, important history that should not be forgotten, and ideas that many will find uncomfortable. Getting uncomfortable when exploring the big questions is important exercise, regardless of what you ultimately decide to keep and what you decide to leave behind. He was so committed to this work that he worked right up to the last days we were lucky enough to have him with us here on the mortal plane. Here are a few articles by Williams that I find challenging and informative. I make no claim to them being his best or most important—he was prolific enough to make that determination tricky, and there are many others in a better situation to make that call than I am anyway—but I believe they are a fair representation of his work and priorities. “Discrimination: The Law vs. Morality” (2003) explores the concepts of discrimination and prejudice, and what the state can and should be about such matters. His conclusion could be summed up as a kind of Hippocratic oath for economic policy: above all, governments need to stop interfering in ways that exacerbate discrimination. Indeed, in a much earlier article entitled “Why The Poor Pay More: An Alternative Explanation,” Williams makes that exact point: “the first thing that researchers and policymakers must insure, when dealing with the problems of poverty, is that they do no harm. To insure against doing harm requires dispassionate analysis that avoids the mere characterization of behavior” (1973, p. 379). The main point of this article is that in focusing too much on observed outcomes around creditworthiness, the true struggles of those facing poverty and discrimination are obscured. He pick up this issue again later in “False Civil Rights Vision and Contempt for Rule of Law.” This is a short, critical piece in which he discuss the importance of prioritizing equality of process over equality of outcome. As Williams writes, the levers that are available to us to manipulate an observe outcome may not have any relationship to the actual cause of an injustice. As such focus on outcomes rather than equality in rights and process “allows the true villains to go undiscovered and therefore unconfronted” (1991, p. 1782) “How Business Transcends Politics” (1987) addresses apartheid in South Africa, another case he studied in depth along with that of Jim Crow law and Civil Rights in the United States. He reminds us in this article that markets make racial discrimination costly, and that there are many examples of governments forcing people to behave in prejudiced ways for one political reason or another. In short, sometimes the solution is actually the problem. In “The Argument for Free Markets: Morality vs. Efficiency” (1996), Williams lays out his argument in favor of a moral argument for free markets, lamenting the “invisible victims” of minimum wage and other interventionist policies who are overlooked both by advocates of those policies and those who focus exclusively on the efficiency of markets. If you are so moved, I think reading one of these today—even and maybe especially if it makes you a little uncomfortable—would be an excellent tribute. (0 COMMENTS)

I ignore the news, in part, because I deem it unreliable.  That’s right, “I don’t trust the media.”  But what exactly do I mean by this seemingly conspiratorial statement? All things considered, when I hear the media report on direct observations, I believe them.  If they say rioting is happening in DC, I am highly confident that rioting is happening in DC.  If they quote a politician, I am highly confident that the politician said the quote.  If they say that a person was convicted of a specific crime, I believe that the person was indeed convicted. But my trust largely ends there.  When the media makes claims about any of the following, I habitually roll my eyes. 1. Causation. I distrust media claims about causation – about claims like “X caused event Y” as well as “Event Y caused Z.”  If the media says a politician won an election, I believe them.  When they try to tell me why the politician won, however, I scoff.  If they try to tell me what will happen as a result of the politicians’ victory, I scoff again.  Why?  Because causation is notoriously difficult to untangle, and few journalists have the slightest training in causal inference.  (They are however masters of hyperbole). 2. Meaning. I distrust media claims about what events mean – about claims like “X shows Y” or “X is part of broader trend Z.”  Why?  Because putting any particular event in context requires long-term statistical reasoning, and few journalists have more than mediocre training in statistics.  So if journalists claim that a notorious crime illustrates a general pattern about crime, I skeptically shrug. 3. Importance.  Whenever the media cover a story, there’s a subtext.  And the subtext is: This is important! The goes goes when the media ignores a story.  The subtext is: This is not important! Even if I knew nothing about the world, I would wonder, “What qualifies these people to adjudicate events’ importance?”  And since I do know a great deal about the world, I am convinced that the media’s sense of importance is radically defective.  These are the kind of people who would rather cover an insensitive tweet than Uighur concentration camps.  They would rather report a fatality-free nuclear accident than the vastly greater health damage of coal.  They would rather investigate the latest terrorist attack than discuss the global murder rate.  These are not isolated shortcomings.  The media’s main function is to distort viewers’ priorities. 4. Politics. Even on utterly apolitical issues, I consider the media deeply unreliable on causation, meaning, and importance.  Once causation, meaning, and importance become political, however, I deem it absurdly, insultingly unreliable.  Why?  Most obviously, because of the media’s overwhelming left-wing bias.  You can tell simply by reading the headlines; diction alone is a dead giveaway.  Less obviously, because of the media’s unthinking nationalism.  Despite their cosmopolitan pretensions, even very left-wing journalists are nationalists at heart.  That’s why a minor terrorist attack against fellow citizens gets a hundred times as much attention as mass murder of foreigners.  That’s why token cuts in domestic welfare programs outrage the media a hundred times as much as massive cuts in the admission of refugees.  When critics attack the media as “globalist,” it’s a case of 99% nationalists lashing out at 90% nationalists.   Personally, I should add, journalists almost always treat me very well.  When they interview me, they’re not just consistently fair and respectful; they also accurately report my positions.  What gives?  Much of the reason must be self-selection: Journalists who interview me tend to be favorably disposed.  A secondary reason, though, is that journalistic vices are often a response to consumer demand.  On some level, most journalists know that plane crashes are grossly over-covered; but alas, “If it bleeds, it leads.”  In a one-on-one conversation, though, the media is more thoughtful and open-minded than their output suggests.  Another possibility, admittedly, is that when you interview someone as averse to Social Desirability Bias as myself, you can get a good story without bending the truth… (1 COMMENTS)

I learned from Don Boudreaux this morning that Walter Williams died either this morning or last night. For those of you who don’t know, he was a long-time economics professor at George Mason University. I’ll have more to say later but I want to give one appreciation. Walter liked smoking and he also hated the TSA. Some years ago, the combination of no-smoking regs on planes and intrusive groping by the TSA caused him to vow never to fly by commercial airline again. When he received offers to give speeches  that were far enough away that driving was infeasible, he negotiated for a private airplane to take him there. In February 2013 Armen Alchian died and there was a memorial service for Armen at UCLA in March. I arrived hours early because I didn’t want to take the chance on a later flight. (Flights between Monterey and LAX do not have a good on-time record.) One of the earliest people to arrive, as I tell here, was Walter Williams. Walter was an even bigger fan of Armen than I was. When I heard Walter was there, I walked out to say hi and he was sitting in his rental car trying to figure out where to park. (This was UCLA, after all.) “Walter,” I said, “I’m surprised to see you here. I’m sure no one paid for you to fly by private jet. You must have flown commercial.” Walter smiled that beautiful smile and said, “I had to do it for Armen.” (0 COMMENTS)

  Lisa: Where does a man get inspiration to write a song like that? Jeff: He gets it from the landlady once a month. The above answer from Jeff (Jimmy Stewart) to Lisa (Grace Kelly) in Rear Window, which I rewatched on Thanksgiving weekend, is one of my favorite lines from a great movie. I think it’s self-explanatory. I thought of it when I read the following: While President-elect Biden’s choice to chair his Council of Economic Advisors [it’s actually spelled “Advisers,” as I was told regularly when I worked there], Cecilia Rouse, didn’t call for canceling student debt, she expressed awareness of the impact debt has on borrowers in a 2007 research paper. Rouse, in a paper co-authored with Jesse Rothstein, now a public policy and economics professor at the University of California, Berkeley, found that holding student debt made it more likely for students to choose high-paying careers and eschew lower-paying ones like teaching. In the study, Rothstein and Rouse, who is now dean of Princeton University’s School of Public and International Affairs, examined students at an anonymous university that had stopped giving out loans and only gave students financial aid through grants. They found that every $10,000 in debt reduces by 5 to 6 percent the chances that a student at the university would take a job at a nonprofit, in the government or in education. This quote is from Kery Murakami, “Biden’s Pick to Head Economic Advisors Seen as Sympathetic to Loan Borrowers,” Inside Higher Ed, December 1, 2020. Murakami’s tone suggests that he thinks it’s bad that students in debt would focus more than otherwise on getting a high-paying job. He also seems to think, possibly correctly, that Rouse and co-author Rothstein think it’s bad. But is it? If graduates are choosing higher-paying jobs rather than working in nonprofits, government, or education, there’s a higher probability that they are serving people. Huh? Isn’t it the opposite? Haven’t we been told incessantly that those in government are public servants and that people in nonprofits are pursuing noble goals? Yes, we have. But repetition doesn’t make those claims more likely to be correct. How do we know when people are serving others? There’s one main test: are those others willing to pay for the service? Because the vast majority of government workers are paid by taxes, we don’t have a good market test. Postal workers are the rare exception: most of their pay comes from stamp and shipping revenue, not from taxes. And people who work for nonprofits, while they are serving the donors, are not necessarily serving others. Education is more mixed. In private non-subsidized schools, there is a market test. For the vast majority of schools, K-12 and college, a large percent of salaries is paid for by taxes. By the way, Murakami’s news story is nicely balanced, something you can’t always expect nowadays. (Maybe you never could.) He writes: The idea of canceling student debt, however, remains controversial. In a working paper released Sunday, researchers at the University of Chicago’s Becker Friedman Institute for Economics argued that widespread debt cancellation would primarily help higher-income borrowers, because those on income-driven repayment plans will have their remaining balances forgiven anyway after about 25 years, depending on the plans. Expanding income-driven repayment plans to more people, they wrote, would be more likely to help lower-income borrowers than widespread debt cancellation. When that’s taken into account, researchers Sylvain Catherine and Constantine Yannelis said, the top-earning borrowers would receive $5,944 in forgiveness, while those with the lowest incomes would receive $1,070 in forgiveness.     (1 COMMENTS)

After his visit to America in 1831, Alexis de Tocqueville returned to France and published the first volume of Democracy in America in 1835, and the second in 1840. The work is remarkably timely. Here I have selected a few words from the final pages. The work is full of warning, especially toward the end of the second volume. In what follows, one sees how he inspired Friedrich Hayek’s title The Road to Serfdom. But the final words also sustain a note of hope. When Tocqueville speaks of certain “more enlightened” people, it is with irony:   Among our contemporaries, I see two contrary but equally fatal ideas. Some perceive in equality only the anarchic tendencies to which it gives birth. They dread their free will; they are afraid of themselves. Others, fewer in number, but more enlightened, have another view. Next to the route that, departing from equality, leads to anarchy, they have finally discovered the path that seems to lead men invincibly toward servitude. They bend their souls in advance to this necessary servitude; and despairing of remaining free, at the bottom of their hearts they already adore the master who will soon come. The first abandon freedom because they deem it dangerous; the second because they judge it impossible. If I had had this latter belief, I would not have written the work you have just read… Let us therefore have that salutary fear of the future that makes one watchful and combative, and not that sort of soft and idle terror that wears hearts down and enervates them… As for myself, having come to the final stage of my course,…I feel full of fears and full of hopes. I see great perils that it is possible to ward off; great evils that one can avoid or restrain, and I become more and more firm in the belief that to be honest and prosperous, it is still enough for democratic nations to wish it.   Dan Klein is professor of economics and JIN Chair at the Mercatus Center at George Mason University. (0 COMMENTS)

I’ve promised to write a post on Klaus Schwab’s “great reset” but the truth is that I’m a bit uneasy about writing it now. The term has elicited the attention of people willing to see cabals and plots everywhere, as Oliver Kamm aptly writes here. Kamm is certainly right: the global economy is too complex a matter to be managed by whatever malign elite. And yet a well-meaning, and good-hearted, elite sometimes may speak in ways that suggest they would love to be able to manage the global economy themselves. Consider this article by Professor Schwab for Time magazine. Here’s a passage that sounds exactly like Rahm Emanuel’s “we should not allow a good crisis to go waste”: Since those early moments of the crisis, it has been hard to be optimistic about the prospect of a brighter global future. The only… …immediate upside, perhaps, was the drop in greenhouse-gas emissions, which brought slight, temporary relief to the planet’s atmosphere. It shouldn’t have come as a surprise that many started to wonder: Will governments, businesses, and other influential stakeholders truly change their ways for the better after this, or will we go back to business as usual? Looking at the news headlines about layoffs, bankruptcies and the many mistakes made in the emergency response to this crisis, anyone may have been inclined to give a pessimistic answer. Indeed, the bad news related to COVID-19 came on top of the enormous economic, environmental, social and political challenges we were already facing before the pandemic. With every passing year, these issues, as many people have experienced directly, seem to get worse, not better. It is also true that there are no easy ways out of this vicious cycle, even though the mechanisms to do so lie at our fingertips. Every day, we invent new technologies that could make our lives and the planet’s health better. Free markets, trade and competition create so much wealth that in theory they could make everyone better off if there was the will to do so. But that is not the reality we live in today. Schwab is a spectacularly capable intellectual entrepreneur, who put Davos on all the world grandees’ map. He provided corporate CEOs and politicians with an important forum to meet at and had great success in developing a staggering network and exporting his own model. I should confess I am not familiar with his first book, published in 1971, but Wikipedia (not always the best of sources) describes it as foreshadowing the now popular idea of “stakeholder capitalism”. I think that is the key point of Schwab’s great reset. Schwab is the siren of a world where “rather than chasing short-term profits or narrow self-interest, companies could pursue the well-being of all people and the entire planet. companies must be freed from economic calculation”. Their performance ought then to be measured not only on profits but also on “nonfinancial metrics and disclosures that will be added (on a voluntary basis) to companies’ annual reporting in the next two to three years, making it possible to measure their progress over time”. For Schwab, the rethinking of the capitalist system is not necessarily more urgent because of the pandemic crisis, but it becomes easier, more within our reach, because of the growing role that governments have taken on in recent months. So, let’s not waste a good crisis. While seeing this as a conspiracy just because “it comes from Davos” is ridiculous, I would appreciate if people could read Schwab with a bit of realism. Profit is not only a motive but also a yardstick. It is the yardstick against which shareholders can measure directors’ actions. The latter know the company much better than the former. Having to make a profit, having a clear objective, makes it easier for the owners of companies to evaluate their performance. We know this is never easy: scandals and fraud remind us of it. But what would happen if the directors could really say that they are operating, not to make a profit for the benefit of their shareholders, but in the name of some higher ideal? Why should those “nonfinancial metrics” benefit the company as a whole? It is not clear. If a company is profitable, it is more likely to be able to maintain employment levels and afford to constantly renew its technologies, thereby reducing its environmental impacts. But if a director claims to have given up a share of profits today in the name of a desirable social purpose, who can be sure that this is true? It seems to me that Schwab’s “improvable capitalism” is above all a more manager-friendly capitalism: managers like those who attend the Davos meetings and who certainly, like each of us, prefer to have a free hand in their decisions as much as possible. “Stakeholder capitalism” sounds nicer than “managerial capitalism” but it is difficult to tell the difference between one and the other. Increasing shareholder value is certainly a clearer formula: it gives you something to assess management’s performance against. But what is stakeholder value? Who are the most relevant stakeholders; whose interests should be prioritized? What if the interests of one group of stakeholders (say, suppliers) are actually in conflict with those of another (say, all those who inhabit a given territory, that risks depletion because of the above-mentioned suppliers)? Why should the managers of a corporation play the umpire between such conflicting interests? I would be content with this point being clearer in the public debate: if you prioritize other objects than profit, you are actually giving more latitude to managers. This should not ignite crazy conspiracy theories but help us in having a more vigilant public opinion. It is quite bizarre that we tend to divide the world between awful private interests and those who use glowing words. Perhaps glowing words can be aligned with some private interests too. (0 COMMENTS)