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August 7, 2012

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 06 Jul 2012 01:17 AM PDT
Mitt Romney's record in the business world -- a cornerstone of his campaign -- should be a cause for concern rather than comfort:
Off and Out With Mitt Romney, by Paul Krugman, Commentary, NY Times: In a better America, Mitt Romney would be running for president on the strength of his major achievement as governor of Massachusetts... In reality, however, Mr. Romney is ... bitterly denouncing the Supreme Court for upholding the constitutionality of his own health care plan. His case for becoming president relies, instead, on his claim that, having been a successful businessman, he knows how to create jobs.
This, in turn, means that ... the nature of that business career is fair game. ... Was ... what was good for Bain Capital, the private equity firm that made him rich, ... also ... good for America?
And the answer is no..., the tools of macroeconomic policy — interest rates, tax rates, spending programs — have no counterparts on a corporate organization chart. Did I mention that Herbert Hoover ... was a great businessman...?
In any case, however,... Bain didn't build businesses; it bought and sold them. Sometimes its takeovers led to new hiring; often they led to layoffs, wage cuts and lost benefits. On some occasions, Bain made a profit even as its takeover target was driven out of business. ... And then there's the business about outsourcing.
Two weeks ago, The Washington Post reported that Bain had invested in companies whose specialty was helping other companies move jobs overseas. The Romney campaign went ballistic... What was more interesting was the campaign's insistence that The Post had misled readers by failing to distinguish between "offshoring" — moving jobs abroad — and "outsourcing,"... having an external contractor perform services that could have been performed in-house.
Now, if the Romney campaign really believed in ... free-market principles, it would have defended the right of corporations to do whatever maximizes their profits, even if that means shipping jobs overseas. Instead..., the campaign effectively conceded that offshoring is bad but insisted that outsourcing is O.K....
That is, however, a very dubious assertion... Why, for example, do many large companies now outsource cleaning and security...? Surely the answer is, in large part, that outside contractors can hire cheap labor that isn't represented by the union and can't participate in the company health and retirement plans. ...
[I]f Bain got involved with your company, one way or another, the odds were pretty good that even if your job survived you ended up with lower pay and diminished benefits. In short, what was good for Bain Capital definitely wasn't good for America. And ... the Obama campaign has every right to point that out.
Posted: 06 Jul 2012 12:06 AM PDT
Posted: 05 Jul 2012 01:08 PM PDT
Robert Reich is pleased to see the Justice Department crackdown on "Big Pharma," but doesn't think think the government is doing anywhere near enough to solve the problem:
How Not to Get Big Pharma to Change Its Ways, by Robert Reich: Earlier this week the Justice Department announced a $3 billion settlement of criminal and civil charges against pharma giant GlaxoSmithKline — the largest pharmaceutical settlement in history — for improper marketing prescription drugs in the late 1990s to the mid-2000s.
The charges are deadly serious. Among other things, Glaxo was charged with promoting to kids under 18 an antidepressant approved only for adults; pushing two other antidepressants for unapproved purposes,... and, to further boost sales of prescription drugs, showering doctors with gifts, consulting contracts, speaking fees, even tickets to sporting events.
$3 billion may sound like a lot of money, but during these years Glaxo made $27.5 billion on these three antidepressants alone,... so the penalty could almost be considered a cost of doing business. 
Besides, to the extent the penalty affects Glaxo's profits and its share price, the wrong people will be feeling the financial pain. ... Not a single executive has been charged — even though some charges against the company are criminal. ...
The Glaxo case is the latest and biggest in a series of Justice Department prosecutions of Big Pharma for illegal marketing prescription drugs. ... The Department says the prosecutions are well worth the effort. By one estimate it's recovered more than $15 for every $1 it's spent.
But what's the point if the fines are small relative to the profits, if the wrong people are feeling the financial pinch, and if no executive is held accountable? 
The only way to get big companies like these to change their behavior is to make the individuals responsible feel the heat.
An even more basic issue is why the advertising and marketing of prescription drugs is allowed at all, when consumers can't buy them and shouldn't be influencing doctor's decisions anyway. Before 1997, the Food and Drug Administration banned such advertising on TV and radio. That ban should be resurrected.
Finally, there's no good reason why doctors should be allowed to accept any perks at all from [drug] companies... It's an inherent conflict of interest. Codes of ethics that are supposed to limit such gifts obviously don't work. All perks should be banned, and doctors that accept them should be subject to potential loss of their license to practice.  
Simon Johnson, summarizing Dennis Kelleher of the blog Better Markets, says banks have the same problem:
... Global megabanks have an incentive to deceive customers, including both individuals and nonfinancial corporations. Their size confers both market power and the political power needed to conceal the extent to which they engage in economic fraud. The lack of transparency in derivatives markets provides them with an opportunity to cheat, but the abuses are much wider – as the Libor scandal demonstrates. The ripoff is not just of retail investors. ...
This has motivated Samuel Brittan of the Financial Times to rethink his view of competitive markets. Sort of:
As one of the few commentators to have always favored competitive market capitalism I have had to ask myself a few questions. Apart from scandals such as the Libor rate fixing, we have had the behavior of banks before the great recession; a trend to much greater concentration of income and wealth, squeezing the living standards of ordinary citizens; and one could go on.
So, after asking himself these questions, what does he propose?:
Yet if anyone expects me to issue a clarion call for more state ownership and control, they will be disappointed. ... What then has gone wrong? ... Few of us like competition; and the tendency to form closely knit groups to keep outsiders at bay is probably as old as the human race. For pre-capitalist examples one has only to think of the medieval guilds, whether of craftsmen or Master Singers. More subtle are the practices of bankers, as they come disguised as services for customers. In summary, success has depended more on whom you know than what you know. Hence the catchphrase "crony capitalism". ...
The biggest obstacle to reform is that insiders can devote time and energy to maintaining their position. For ordinary citizens, political reform is a sideshow that hardly repays such efforts. The protests in financial canters are a well-meant but ill-focused attempt to offset this bias.
Yet nil desperandum. The UK corn laws were repealed and the US antitrust acts were passed; and in time both the financiers and the Eurocrats will be brought down.
So, no cause for despair? Not so sure about that (the changes he describes did not come easily). It feels a bit like the Libor scandal has produced a turning point, but the power hold on politicians is still as strong as ever. We've seen how some Democrats react if Obama so much as points a finger in the direction of the financial industry, and if Romney is elected does anyone think the government will get tougher with big banks, big pharma, or big anything else?

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