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Archive for February, 2011


Since when was interest and survival being greedy?

Greed is not good.

Although Leeson is able to quote Gordon Gecko’s character saying “greed is good”, greed harms us all. A good movie’s one liner is by no means reason to equate greed with self-interest and survival. Greed is stealing, fighting, or deceiving without limit to achieve more for yourself regardless of how badly it hurts others. I was tempted to give a know-it-all response and provide a dictionary definition of greed, but my point is their is a HUGE difference between greed and working, providing a service, or getting a job in order to survive, albeit often in comfort in America.

The problem here is all about definition. Leesons equates greed with simple “regular, even routine, profit-driven behavior” (pg. 177). I don’t. To Leeson and indeed many members of the class from the post’s I’ve read, the act of going to college, working a job, or even getting a meal according to this logic, is greedy. Basically, I want greed used to define extraordinary circumstances, when severe ethical lines have been crossed for the selfish pursuit of money–not survival.

I do however agree with the  underlying theme here that all individuals act according to their own self-interest–a world where morals, ethics, values, and meaningful personal relationships still exist, even in the market. In the end Leeson probably (highly speculative) used greed instead of self-interest here to make his book more “groundbreaking”. I can see the review now, “Challenging America’s ideas  and morals in the economic world”, but don’t they all say something like that? Back to the text, it says, “The beauty of markets is that they harness individuals’ greed and make it a service to other peoples desires.” (pg. 178) Its not about greed, but efficiency that causes individuals to become specialized and create a market. As political theory (Locke particularly) will tell you, in the state of nature, or before institutions were organized, everyone basically fended for themselves. Eventually humans learned that they could maximize their utility and usefulness by becoming a specialist and trading their products for other things needed to survive. In my short and incomplete example, farmers began producing more food than they needed to trade for clothes a seamstress made extra of, or a shelter the builders and carpenters had. Greed is not the motive, but instead efficiency and maximizing utility for survival is the natural reason for butcher, brewer or baker, Adam Smith.

Ultimately, I urge those who think greed, in the proven, traditional sense of the term, is good, to watch the movie used to propagate it here, Wall Street (the new one). Before Hollywood is able to give it a happy ending, Gecko is incredibly rich and influential yet incredibly lonely with nothing to live for. That’s is, my friends,  true greed.

Incentives

The chapter on pirate management was interesting to say the least.  The ingenious use of incentives really hit home to me in many ways.  It seems almost obvious when we think about the need for incentives in order to accomplish anything but there are so many examples of organizations or institutions that don’t have incentive compatibility.

My boss recognized the need for incentives when I was working on his construction crew.  My boss offered a $500 bonus to every member of the crew if we finished a huge house within a certain time period.  We all reacted to that incentive and started putting in 10 hour days instead of the normal 8-9.  We were able to finish the house is an amazing quick amount of time and make my bosses a lot of money because of the incentive.  We increased our production because the companies profits and our profits were linked.  I have found that a huge percentage of people don’t feel a loyalty to their employers and are willing to cut corners whenever possible because they receive an hourly rate.  However, if their paychecks are linked to the company’s performance they seem to work harder.

An organization that has really big incentive problems is our government.  The government has incentives for elected officials to make policies that aren’t advantageous to the public as a whole.  In general politicians have incentives to satisfy those people who elect them and fund their campaigns, such as special interest groups.  These incentives lead to policies that are inefficient or the lack of efficient policies.

An more specific example of this is the incompatibility of the needed reforms with social security.  In order for the needed changes to take place politicians would have to reduce benefits or increase taxes.  If a politician ran on this platform it would be extremely detrimental to their career.

Pirates and certain business succeed because they have aligned their incentives correctly as to maximize their outputs.  Human nature can rarely be changed to act against their own self interest.

Greed is Good

Gecko really had it right in the movie Wall Street.  “Greed is Good.”  This concept to me is something that initially I struggled with.  What part of greed is good?  Greed is the reason people are killed in the streets for a watch (extreme case), wars are fought, and families torn apart.  Greed is also the driving force behind how the world functions.  Greed is not only good, but, necessary.  Greed is the reason I woke up this morning and went to work at 7:00 a.m., well, greed and the need to pay my bills and my baby’s mama’s bills.  But, Leeson makes a really interesting point that he says comes from Adam Smith.  He says that the reason that butchers cut meat, that bakers bake bread and that milkers milk is not out of their own sense of good and want of helping people, but rather, there sense of making money.  Greed.  An interesting concept indeed.  But this goes further.  Their greed benefits in so many ways.  Without the greed of politicians we wouldn’t have the quality local and national leaders we have.  Granted, some of them aren’t doing it for pay or personal gain, I believe that the majority of them see it as a job with ALOT of perks.  So then I guess in this sense maybe greed isn’t our best friend.  Greed pushes creativity as well.  The more I think about it the more I realize that the reason that people invent and imagine is based on greed and wanting to make their way in the world.  People revolutionize in order to capitalize.  I don’t want to say that people like Thomas Edison didn’t create the light bulb and immediately say that he wanted it for the better good.  Not to mention the But, do you think that Thomas didn’t make some money off of it? and did it lead him to want to continue onward?  Answers to these questions on Thursday.  Also, included will be some nice quotes and things.

If there is really no way to surely protect patents or copyrights…why are there laws protecting them? It is simpler to protect copyrights because it applies to the exact words in the text, usually in a book. As for patents, it seems more complicated. It seems easier to find a loophole in a patent because there is always more than one way to get a result. For example, in a basketball game there are plenty of ways for a team to win. Each player could produce different stats at the end of a game. Say the point guard got three steals, seven assists and ten points with four rebounds. Then, in another game, that same player could have ended up with only one steal, ten assists, two points and six rebounds. In both situations this effort, along with the efforts of four other players, resulted in a win. However, the performances of the particular player were significantly different in each game. Copyrights are used to protect written work, which is essentially the same for as long as there has been writing – a good story is a good story and they don’t become obsolete. In manufacturing, there are new processes invented all the time because there are new products being created all the time. Old products fall out of use and new products and their processes replace them, continually creating new patents for all the new inventions. The argument in each case becomes what is a “significant” or “substantial” change in the story or the process that would lead the “reasonable person” to say that the story or product or process is “new.” And who rules the courtroom? The deep pocketed corporations. If your idea is stolen, can you afford to litigate? The laws are well intended, but enough money can provide for a favorable decision. Like in the movie about Kearns versus the Ford Motor Company who stole the idea for intermittent windshield wipers documented in “Flash of Genius.” The big corporation finally had to pay, but only after the inventor ruined his marriage and his life by pursuing an award to the bitter end.

Copyright: to infinity and beyond?

Friedman’s explanation of the differences between patents and copyrights was excellent. As he said, any time I publish something (story, poem, artwork, etc), no matter the format, I automatically gain copyright ownership of the material in question. Filing for a copyright helps codify this ownership for the future. If someone were to copy my work, I could then point to the paper that says I had copyright ownership first. Part of the problem I have seen, however, is that there is virtually no limit as to how long I have copyright. Typically I would maintain copyrights for however long I live plus 50/70 years. Sometimes Congress will grant an extension. Take the Disney franchise, for example. Mickey Mouse was created in 1928 by Walt Disney and first appeared in the short film “Steamboat Willy.” Walt Disney, who held the copyright, passed away in 1966. Following the traditional rules for copyright, Mickey Mouse should have become public property for anyone to use in 2006. However, that copyright was extended, and I still can’t publish pictures of that first version of Mickey without obtaining a license from Disney. So theoretically, as long as I leave ownership to the copyright to someone in my will, that person could continue to ask for extensions to the copyright, thus keeping it securely out of the public’s hands. I’m not saying this is an economically bad thing, but I have had discussions where people have wondered if anything will ever become public domain again. If Congress is willing to continually say yes, how do we know when it will finally say that enough is enough?

Free Music.

Friedman says that “copyright protection against literal copying creates a form of property that is easy to define [and] cheap to enforce” (136).  By and large, this is true, but copyright protection for music has become hazy, at best.

Before modern technology, maybe it was simpler for musicians.  The only copyright infringement would have come in the form of another band performing your music.  Copyrights only protect expression and not the idea (I learned from Friedman); this is why songs like “Teach Me How to Dougie” and “Teach Me How to Jerk” can both exist.  Call me crazy, but someone stole the idea for one of those songs.  Is it legal to ‘cover’ the songs of a band?  Those performing at the Radiohead cover concert last weekend only used the ideas for Radiohead songs–they weren’t able to ‘express’ it the way Radiohead does (not even close, unfortunately, in some cases).

For much of history, these were probably the extent of copyright controversies for the music industry.  But then the technology to ‘burn’ music was distributed to the people–and our lives would never be the same.

Friedman addresses this issue by a discussion about computer programs, but it is the same for music.  Large-scale infringements of copyright, like Napster, are likely to be caught and prosecuted.  But the chance that you will be caught and prosecuted for burning a CD for your friend is very near zero.

Friedman makes the following two points: as people find that they cannot protect intellectual property directly, they will find other ways of making money from it; and that technology will eventually be able to provide a level of protection far beyond what copyright law is supposed to provide.  The latter may or may not be true of computer software, I don’t know.  It seems unlikely, though, because the pirates will also get more sophisticated.  But I’m fairly certain that this isn’t true of music.  If anything, as technology improves, it becomes easier to ‘burn’ and transfer music.

The solution is found in Friedman’s first point–that people will find ways to make money from intellectual property other than relying on copyrights.  The market calls for the eager entrepreneur.  Oh the genius of economics and free-market capitalism.

I only recently learned of grooveshark.com, where you can listen to almost any song you want for free.  I don’t know how it can be legal–or if it is legal–but there is this infinitely large market of consumers who want music but are willing to break the law to get it rather than pay for it.  In my experience this describes almost every human alive.
Copyrights for intellectual property are complicated, but they create great incentives–incentives for people to ‘create’ the intellectual property, and interestingly, in our modern world of technology and science and wonder, they create this new market to make that intellectual property free for the consumer.  Two incentives working together to bring us free music.  Amazing.

Weird Economics of the Green Fee

Disclaimer: I think the environment is important, but I don’t like the idea of the green fee.  I do other stuff that I feel can help, so nobody blow up at me for being environmentally apathetic.

Since I’ve learned about incentives, the current situation surrounding the “green fee” to be added to the student fees is puzzling.  As far as I understand, it is a very small fee that proponents claim will eventually add a sustainability office, student jobs and scholarships, and money to use on “going green” around campus (I think purchase of recycled goods as well as other things).  What confuses me is that for a fee, campus will reduce its environmental impact.  The incentives here are way off.  Why would I pay more to use less?  Shouldn’t I benefit from making the right choice? Isn’t there a way to cut my fees because I walk and don’t drive?  You have to reward correct behavior, and discourage wasteful behavior with rewarding alternatives.  These students who acquire jobs through the fees will be taking money, (to go to seminars and learn about sustainability) but are not benefiting their employers (us).  I already pay taxes and student fees to pay people to take care of public services, and I won’t be able to enjoy anything they will provide in the future.  The small fee will take them too long to acquire an office, and start-up fees for me to see any part of it.  They will not produce anything once they get going either.  They may reduce costs of the university as a whole, but It would have to save enough to lower my current fees for me to want to pay them for it.

When I saw the green fee on the ballot, I thought about this class and said, “I’ll bet no one votes for that green fee.  They are punishing themselves for doing the right thing.  If people really are self-interested, they won’t fall for it.”  I was wrong.  It passed. I guess economic models can’t take into account everything, especially when the majority of the voting students are liberal on environmental issues.  I wonder what would happen if the country were asked to vote on this?  I think that the outcome would be closer to what I predicted. As a whole, I think personal finances are currently more important than environmental issues for people who pay for all of their own things.

Greed is Good

It didn’t take long for me to find something to blog about in the reading this time.  On the second page of chapter 8 in Lesson’s book the statement is made that “Greed is good.”  Leeson then goes on to show that people who are motivated by greed can do great things for the public in general.  He uses Adam Smith’s example of the milk man to prove this.  The milk man is motivated solely from a desire to make himself better off.  He doesn’t care about the people who he is giving the milk.  All he cares about is making as much money as possible.  Yet that doesn’t stop him from providing a public good.  In fact his greed will spur him to give us the best milk possible so that I don’t decide to use his competitions milk.  I get the best milk for the best price, and he gets to most money he could make.  A win, win situation I would say. 

It is the simple statement that “greed is good” that caused me to stop and think.  I understand the economic principle behind it.  It just goes against everything I have been taught as a kid growing up.  I was always told not to be greedy, but to share.  I was told that sharing was the best thing.  I was lied to.  Sharing doesn’t bring me any economic gain.  The only thing it might do is bring me a little extra utility, but that is only if I am sharing an ice cream sundae with a pretty girl.  But then is it sharing the ice cream or the girl that makes me happy.  It’s hard to say because I love ice cream.  However most of the time I would rather have my own ice cream and my roommate can go eat out of his own damn carton.

I might have taken that to the extreme but the point Leeson and other economists are trying to make is that without the motivation to get ahead and beat the other person out, there would be little reason for people to innovate and create new things.  Greed may hurt a few people but it helps the general population.  

“workers democracy”

The more I read Lesson “the Invisible Hook”, I become more impressed with the way pirates organized themselves and the more I can see how we have incorporated some of their customs into our system today.   It also amazes me how well their system worked and how fast they seemed to have put it together.  Lesson brings up a few things that I question for example he talks about three friends with bartending experience start their own small little bar.  They organize their partnership to where each one had an equal vote in decision making, lesson referred to it has “workers’ democracy”.   I think there would be several problems with this idea one being one of the owners not putting their fair share in running the business has the others do.  Therefore the others feeling  they put more time in the business their vote should count more than the other that is slacking.  Which ultimately creates hostility and disputes among them. I think with this type of system here it sets up a good opportunity for free riding.   I also don’t think it would be as efficient as if it had more of a  autocratic management.   What I mean by this is it would take longer for things to get accomplished to opposed to having someone make the decisions.   Now I think this on small scale business like this example but on large scale firms I don’t think that would be for the best.  For large cooperation there is going to be a lot of people affected by the decisions so I believe there needs to be more opinions and ideas thrown around and put to a vote.  I can see how “workers democracy” worked for pirates, one being they all lived together on the ship so they didn’t have any other choice but also when they became a pirate they also became a outlaw.  They didn’t have anywhere else to go so they had no other option than to work together and since there were all in the same boat the only possible way to make it work was to make every man equal.  They all had the same amount to lose, their lives.

Greed Is Good?

“Greed is good”. According to Leeson via Gordon Gecko greed is good. This concept is fairly foreign to me. I have been taught my whole life that I should not be greedy and that I need to be grateful for all the blessings that I have received in my life.

When I read the phrase greed is good I wondered how this possibly could be? But now that I have thought about it, it really does make quite a bit of sense. Although my mother taught tried her best to teach me not to be greedy, she did in fact teach me to be greedy. I am sure that all of our parents did in some way or another. My poor mother would die if she knew that I was writing this but it has to be said. My mother always taught me to value education and placed an emphasis on getting a good education. This leads to greed. One of the biggest reasons that she wants me to become successful is because she does not want me to have to worry about money when I get older. Although she never outright taught me to be greedy, in a more subtle manner she did. This situation also demonstrates what Leeson talks about on page 187. He states that sometimes governmental regulations can backfire and uses the ADA to illustrate this point. Although the motivations of the government were in the right place the act did not have the desired outcome. My mother thought she was instilling in me that greed is bad however through others means what she really was telling me is to be greedy in education so that I can have money later.