Misc. Master

lefty blogger, works cheap

Sam Uretsky

Sam Uretsky
Location
Wantagh, New York, US
Birthday
July 31
Bio
I have two degrees in a field that no longer particularly interests me, and a growing interest in economics, history and politics. At this point, I consider myself a full fledged member of the Ancient and Hermetic Order of the Shrill.

MY RECENT POSTS

AUGUST 24, 2011 7:27AM

Regulations -- they're good for business

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On August 20th, the New York Times published an editorial “Surely They Can Read a Spreadsheet.”  The paper’s position is that corporations and their organizations, such as the Chamber of Commerce, performed in a disappointing manner during the recent debate over the federal debt limit.  They’re right.  The corporations sent a message to both congress White House asking for less regulations, lower taxes, reconsideration of entitlements, and more spending on infrastructure, all the while lowering the deficit and national debt.  The editorialists wrote:

Last week, the chamber (of commerce) wrote a letter to the Congressional “supercommittee” demanding that it “address entitlements” — meaning cut the benefits of Social Security, Medicare and Medicaid — and restructure the tax code. But it said nothing about raising revenues or asking for greater shared sacrifice through higher income and estate taxes for the wealthy.......

The Chamber of Commerce and the Business Roundtable want tax cuts too. But how exactly do these executives imagine this spending would be paid for, if not through higher taxes? Or do they really want the elderly and low-income families to give up some of their safety-net benefits to widen interstate highways, while high-income money managers sacrifice nothing?

Congress is a mess, bogged down by the Tea Party’s unwillingness to compromise on any issue but making demands that would destroy the United States’ economy and possibly then world’s.  It seemed as if our last hope was that corporations would use their power to pressure the Republicans to reach a reasonable balance.  Instead, they seemed willing to go along with with the most extreme and absurd notions of the Right Wing – finance everything by eviscerating the life-lines of the elderly and poor while cutting taxes for anybody who can afford to pay more.  This is a disappointment.

It doesn’t take much in the way of education to be a politician, in fact, with the reaction to elitism, a lack of education may be an advantage.  Getting elected may owe more to finding the right strategist than having the right policies.  On the other hand, success in business usually calls for ability.  Sometimes the ability is tempered by nepotism, other times by the ability to play corporate politics, but as a general rule business leaders are those who managed to turn a profit and understand why some systems work and others don’t.  That’s why corporate repetition of GOP talking points is a serious disappointment.

Paying more taxes, providing the government with more revenues, may not make anybody happy, but there are times when the pump has to be primed.  Countercyclic budgeting (Keynesian theory) is easier for liberals to understand than it is for conservatives, but with a modest effort it’s possible to see why, under some circumstances, economic stimulus is the only way to reverse a downturn.

Government regulation may be more difficult to accept.  It’s true that government can, and does, tend to micromanage – but it’s also worth keeping in mind that government is almost always reactive rather than proactive.  Point to a regulation and it will be in response to something.  The Food and Drug Act was a response to the elixir sulfanilamides tragedy when hundreds of people were poisoned by a medicine with as toxic solvent.  The regulations dictating the width between bars on infants cribs came about only after infants and toddlers died from getting their heads caught between crib bars.  Regulations may seem onerous, but they shouldn’t be condemned without reviewing their history.  

Beyond that, regulations may help protect companies from themselves.  The Dodd-Frank Act is a typical example.  The current Great Recession, or as it’s now being termed Lesser Depression, can be traced to a pattern of banks discovering that they could make a lot of money by doing stupid stuff.  For a while it worked, until it didn’t.  The details still have to be worked out, but the consideration, from the viewpoint of CEOs and CFOs, is that not only have millions of people lost their jobs, thrown the economies of Europe and the United States into disarray, but it also resulted in the failure of some of the companies involved.  The members of the Chamber of Commerce may not care about the millions of people facing loss of their homes or the long term unemployed, but they must miss Bear Sterns and Lehman Brothers.  Merrill Lynch has been folded into Bank of America.; JP Morgan Chase got WaMu (Washington Mutual), Wells Fargo got Wachovia. 

The problem is, one company had a novel idea – lend money to people who can’t afford to pay it back, then sell the loan to a sucker who has more money than brains.  It was an original notion, contrary to banking tradition, and no doubt many old-line bankers rejected it as contrary to the way things are supposed to be.  But...the banks who followed this new and innovative plan started showing immense profits, and soon the more conservative banks and bankers were less profitable than the new, innovative, aggressive banks.  When corporations are compared with others in the same group, the comparisons are based on profits, stock price and total return.  Maybe a small number of analysts go into enough detail to know whether the profits are the result of good practices or irrational behavior that will turn and bite them like a snake.     

Without regulations, competition often turns into a race to the bottom.  A classic case was the Ford Pinto, where documents that have been released showed the company compared the estimated costs of fixing the fuel leakage problem was $138 million while settling the costs of injuries, including 180 deaths, was $50 million.  Automobile safety regulations set a minimum standard for all manufacturers so that no company could save money by making a more dangerous vehicle.  (Note the following from the New York Times: web site 2/25/10  “The Pinto has its defenders. A 1991 Rutgers Law Review article by Gary T. Schwartz, “The Myth of the Ford Pinto Case,” maintains that the Pinto was not significantly more dangerous than other cars of the time, and that the internal memo reflected accepted federal safety standards then in place.”) 

Regulations level the playing field, they protect companies from making unwise decisions, or being forced to follow other companies in order to maintain comparable profits.  At the present time. President Obama has a panel reviewing Federal regulations, which will provide a report on which ones can be deleted and simplified.   But among those being most bitterly fought is the Sarbanes–Oxley Act of 2002, whichn was a response to the accounting scandals at Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom..  These seem like enough examples to show that regulations are called for, and while opponents claim that the law and the related regulations inhibit the United States’ ability to compete in world financial markets, another interpretation is that it gives US corporations a competitive edge, since these companies carry a guarantee of honest accounting.

CEOs and CFOs complain about taxes and regulations – they don’t appreciate how much worse  things would be if they got their way.



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Comments

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Great idea - deregulate EVERYTHING - Let's have anarchy running wild in the streets.

Let's hold a deregulate and anarchy for all, barbecue in the Rose garden of the White House.


-R-
how far would you get trying to explain quantum mechanics to a medieval aristocracy?

the aim of corporations is profit, not public spirit. as long as you are willing to play by their rules, you lose.
You are right on target Sam. The little we have in effective regulations helps business. They give them guidelines to operate within and not hurt the American people. Without them we will have, as you wrote, a race to the bottom. Corporate America cannot help themselves. They also cannot help lobbying for their ridiculous policies that will destroy our middle class.
I think Al makes an important point. Regardless of the opinion of Mitt Romney and the Supreme Court, corporations aren't people, they're creatures without souls. As in Jewish folklore, they're animated by the power of words, but unlike the golems of folklore, it doesn't take a particularly holy person to animate one -- in fact these days it seems to be just the opposite.