Friday Reads

Good Morning!

I thought I’d try to focus on some interesting news today and ignore politics. We’ll see how well I do.

BBC News reports that “an iceberg twice the size of Manhattan has broken away from the Petermann Glacier in northern Greenland”. You can see the NASA satellite picture at the link.  Is this yet another symptom of global warming?

Scientists have raised concerns in recent years about the Greenland ice shelf, saying that it is thinning extensively amid warm temperatures.

No single event of this type can be ascribed to changes in the climate.

But some experts say they are surprised by the extent of the changes to the Petermann Glacier in recent years.

“It is not a collapse but it is certainly a significant event,” Eric Rignot from Nasa said in a statement.

Some other observers have gone further. “It’s dramatic. It’s disturbing,” University of Delaware’s Andreas Muenchow told the Associated Press.

“We have data for 150 years and we see changes that we have not seen before,” Mr Muenchow added.

Okay, here’s another one of my grave stories. No “seriously”, it’s another story about a grave.  This time they think they may have located Mona Lisa’s remains in Florence.

Scientists claim that they might have found the skeleton of the woman who posed for Leonardo Da Vinci’s most famous painting.

Most art historians agree that Lisa del Giocondo was the woman who inspired Da Vinci to create his iconic work.

Now the archaeologists working in Florence are pretty convinced they have found the remains of the lady, merchant Francesco del Giocondo’s wife Lisa Gherardini.

The skeleton was unearthed beneath the medieval Convent of Saint Ursula in Florence. Knowing she became a nun after her husband died and lived in the convent until her death in 1542, a team of archaeologists began excavation works at the abandoned convent last year.

Sheila Bair is still on the stump for financial regulation.  She answered some questions on Wednesday on the state of Dodd-Frank.

Horwich: So going after systemic risk suggests safety, it suggests caution. Then we have this other important aspect of our economy where we say financial institutions are supposed to be taking risks on deserving people and businesses. How do you reconcile what seems like a real contradiction there?

Bair: Well, I think we do want banks to take risks but we want them to take risks on economic activities that have some real economic benefit. I mean, trading CDS indexes with a bunch of hedge funds — I don’t know what kind of positive economic benefit we would get from that. It’s the kind of risk you take and whether you’re taking a well-measured, well-understood, well-evaluated risk, that’s really the question.

Horwich: There are many people out there who would have liked to have seen and might still like to see banks fail — especially big banks fail — that they think have been misbehaving. What do you say to them?

Bair: Well, I say that we should have a let a couple fail. It makes me angry that we didn’t and I think there were tools there that could have been used that were not. You know, there were a couple of institutions that were clear outliers in the terms of their mismanagement — the risks that they took — and they should have been put into a bankruptcy-like process and they weren’t. I think if we had done that; that would have been more powerful than all the rules that we’re writing now to try to correct these misbehaviors. Be that as it may it’s a legacy of the bailouts and it’s something we have to deal with now.

Here’s one of my favorite Brit Economists Robert Skidelsky on “The Bad Society”. He raises some interesting points on income inequality.

There is a strange, though little-noticed, consequence of the failure to distinguish value from price: the only way offered to most people to boost their incomes is through economic growth. In poor countries, this is reasonable; there is not enough wealth to spread round. But, in developed countries, concentration on economic growth is an extraordinarily inefficient way to increase general prosperity, because it means that an economy must grow by, say, 3% to raise the earnings of the majority by, say, 1%.

Nor is it by any means certain that the human capital of the majority can be increased faster than that of the minority, who capture all of the educational advantages flowing from superior wealth, family conditions, and connections. Redistribution in these circumstances is a more secure way to achieve a broad base of consumption, which is itself a guarantee of economic stability.

The attitude of indifference to income distribution is in fact a recipe for economic growth without end, with the rich, very rich, and super-rich drawing ever further ahead of the rest. This must be wrong for moral and even practical reasons. In moral terms, it puts the prospect of the good life perpetually beyond reach for most people. And, in practical terms, it is bound to destroy the social cohesion on which democracy – or, indeed, any type of peaceful, contented society – ultimately rests.

Is Syria collapsing and what will this to do its ally Iran?  Better yet, what will this do to further instability in the region?

The fall of the Assad government would remove Shiite Iran’s last and most valued foothold in the Arab world, and its opening to the Mediterranean. It would give Saudi Arabia and other Sunni Arab states their long-sought goal of countering Iranian influence in the region, finally splitting the alliance between Tehran and Damascus that has lasted for decades. And it would further erode Iran’s role as a patron of the Middle East’s revolutionaries, a goal that moderate Arabs and the United States have long sought.

Already the militant Palestinian group Hamas, long dependent on Syria and Iran, has thrown its support behind the Syrians in the streets seeking Mr. Assad’s overthrow.

Worse might follow, from Tehran’s point of view. Iran and Syria’s last revolutionary ally, the Hezbollah party that dominates Lebanon, would lose its source of weapons and financial support. And Lebanon’s fragile sectarian balance might be torn apart, raising the threat of another civil war there.

On Wednesday, Hezbollah was quick to respond to the government’s worst day so far to make its strongest declaration yet that it would not abandon Mr. Assad.

Meanwhile, intense global pressure is being brought to bear on Putin and Russia. Russia and China once again vetoed a Syria resolution.

Russia and China again vetoed a Western-backed U.N. resolution Thursday aimed at pressuring President Bashar Assad’s government to end the escalating 16-month conflict in Syria.

The 11-2 vote, with two abstentions from South Africa and Pakistan, was the third double veto of a resolution addressing the Syria crisis by Damascus’ most important allies.

The defeat leaves in limbo the future of the 300-strong U.N. observer mission in Syria, which was forced to suspend operations because of the intensified fighting. Its mandate, to monitor a cease-fire and implementation of international envoy Kofi Annan’s peace plan, expires Friday.

Britain’s U.N. Ambassador Mark Lyall Grant, who sponsored the Western-backed draft, said he was “appalled” at the third double veto of a resolution aimed at bringing an end to the bloodshed in Syria and creating conditions for political talks. The resolution had threatened sanctions if the Syrian regime didn’t quickly stop using heavy weapons.

“The consequence of their decision is obvious,” he said. “Further bloodshed, and the likelihood of descent into all-out civil war.” Activists say more than 17,000 people have been killed since the uprising began in March 2011, most of them civilians.

“The consequence of today’s action is the situation will continue to deteriorate,” U.S. Ambassador Susan Rice told reporters.

The Smithsonian Magazine tell us that Ocean Acidity is just as much of a challenge for us as Climate Change.  WTF are we doing to Mother Earth and Mother Nature?

Rising ocean acidity is now considered to be just as much of a formidable threat to the health of Earth’s environment as the atmospheric climate changes brought on by pumping out greenhouse gases. Scientists are now trying to understand what that means for the future survival of marine and terrestrial organisms.

In June, ScienceNOW reported that out of the 35 billion metric tons of carbon dioxide released annually through fossil fuel use, one-third of those emissions diffuse into the surface layer of the ocean. The effects those emissions will have on the biosphere is sobering, as rising ocean acidity will completely upset the balance of marine life in the world’s oceans and will subsequently affect humans and animals who benefit from the oceans’ food resources.

The damage to marine life is due in large part to the fact that higher acidity dissolves naturally-occurring calcium carbonate that many marine species–including plankton, sea urchins, shellfish and coral–use to construct their shells and external skeletons. Studies conducted off Arctic regions have shown that the combination of melting sea ice, atmospheric carbon dioxide and subsequently hotter, CO2-saturated surface waters has led to the undersaturation of calcium carbonate in ocean waters. The reduction in the amount of calcium carbonate in the ocean spells out disaster for the organisms that rely on those nutrients to build their protective shells and body structures.

The link between ocean acidity and calcium carbonate is a directly inverse relationship, which allows scientists to use the oceans’ calcium carbonate saturation levels to measure just how acidic the waters are. In a study by the University of Hawaii at Manoa published earlier this year, researchers calculated that the level of calcium carbonate saturation in the world’s oceans has fallen faster in the last 200 years than has been seen in the last 21,000 years–signaling an extraordinary rise in ocean acidity to levels higher than would ever occur naturally.

So, today we have a moment without US Presidential Politics.  Take a deep breath, then tell me what’s on your reading and blogging list today?

American Entrepreneurship on the Decline … Yet … not for the reasons you’d think

One of the great symbols of US spirit has always been its small businesses. It’s one of those myths that seems to carry everywhere  including to views of us in other countries.  There are two related memes that go along with this mythic American institution that are not borne out by statistics.  The first is that small businesses are the source of employment growth in the country.  This is not true. Most small businesses that do not fail stay small.  The majority of job growth comes from medium to large businesses.  Midsize business are far more important. (Data from the BLS.) The second meme is that either too much regulation or uncertainty created by the government is causing depressed job growth.  This is simply not true either.

What does this mean? By any reasonable interpretation, it is mid-size companies that are generating the bulk of the jobs in the recovery. From an economic development perspective, it means that job growth is more likely to come from mid-size companies that are adding several workers or perhaps a couple of dozen new employees, rather than the smallest or largest businesses.

And what are these businesses most worried about today? According to a recent survey by the National Federation of Independent Business (here):

“The two principal impediments to current small-business growth are business uncertainty and weak sales… The single most important indicator that would renew small-business owner confidence in business conditions is increased sales in their businesses.”

The economic recovery is a demand issue.

There is also some strange set of lies out there that the increase in taxes proposed by the Obama Administration on those making over $250k is going to kill small business.  Not true again! This tax hike would likely impact only about 3.5% of small businesses. The majority of these are partnerships formed by doctors and lawyers.  They are not your average mom and pop store.  I just heard Haley Barbor repeat this lie on CNN last night.

But to what extent would Obama’s tax plan actually affect small businesses?

In its latest estimate last month, Congress’s nonpartisan Joint Committee on Taxation found that in 2013, just 3.5 percent of small business tax filers would pay a higher rate — about 940,000 individuals, many of whom are lawyers and doctors in partnerships. But those few percent account for 53 percent of all small business income.

GOP aides accept those facts but they say those few small businesses are the ones overseeing growing companies whom the nation is counting on to hire. According to a variety of analyses, the lion’s share of the tax hike would be absorbed by Americans earning well over $1 million.

Late in 2010, when the same debate played out, William Gale, co-director of the nonpartisan Tax Policy Center, called it a “myth” to suggest that ending the tax cut on top marginal rates would hurt small businesses.

“This claim is misleading,” Gale wrote in the Washington Post. “If the objective is to help small businesses, continuing the Bush tax cuts on high-income taxpayers isn’t the way to go — it would miss more than 98 percent of small-business owners and would primarily help people who don’t make most of their money off those businesses.”

There’s a new study covered by The Washington Monthly that shows that entrepreneurship and small business ownership is on the decline.  Get ready for this result.  It’s primarily Republican policies that are killing small businesses and not over regulation, over taxation or over anything else.  Here’s some interesting information about the decline and how some of it is due to other things too.

Data kept by the Small Business Administration, for instance, shows that the share of the working-age population that is self-employed has been declining since 1994. The share fell steadily until 2002, stayed level between 2003 and 2006, then began to drop again. Overall, between 1994 and 2009, the share declined nearly 25 percent.

This drop in the number of self-employed citizens relative to the overall working population is also captured by the Bureau of Labor Statistics, which isolates nonfarm workers. The BLS survey asks workers if they are employed by a private company, a nonprofit organization, or the government, or are self-employed. Self-employed workers are further separated into those who have incorporated their businesses and those who have not.

According to the BLS, the number of Americans who are both self-employed and not incorporated has fallen significantly as a share of the working-age population, from 461 per 10,000 in 1990 to 359 in 2011. This decline—more than 22 percent—reversed a long trend in the opposite direction during the 1970s and ’80s. The BLS data shows a somewhat different picture when it comes to self-employed persons who incorporate their businesses. As a share of the working-age population, their ranks grew 35 percent between 1989 and 2008, before dropping off sharply in 2009. Yet this increase in incorporation may be evidence not so much of rising entrepreneurship as of existing unincorporated one-person firms deciding to change their legal status—to take better advantage of new limited liability laws in many states, for instance, in order to cut their tax bills.

Even if we accept this number without question, however, the total share of the self-employed dropped steadily over the last two decades. In 1994 there were roughly 663 self-employed (incorporated and unincorporated) for every 10,000 working-age Americans; by 2009 this number was down to 606, an 8.5 percent decline.

If anything, there’s good reason to believe that this decline in entrepreneurship is even steeper than government data shows, thanks to what appears to be systematic miscategorization by the government of what counts as a true independent company. Since the 1990s, large companies have increasingly relied on temporary help to do work that formerly was performed by permanent salaried employees. These arrangements enable firms to hire and fire workers with far greater flexibility and free them from having to provide traditional benefits like unemployment insurance, health insurance, retirement plans, and paid vacations. The workers themselves go by many different names: temps, contingent workers, contractors, freelancers. But while some fit the traditional sense of what it means to be an entrepreneur or independent business owner, many, if not most, do not—precisely because they remain entirely dependent on a single power for their employment.

Again, it’s not taxes and it’s not over-regulation responsible for the decline.  Here are the two major reasons.

Perhaps the most common complaint among small business entrepreneurs is a shortage of financing. While the rise of the venture capital business might give the impression that financial support for entrepreneurs has never been easier to obtain, the truth is that only a tiny fraction of start-ups have access to venture funds. To get their businesses up and running, the vast majority of entrepreneurs today tend to rely at first, as they always have, on a combination of personal savings and contributions from family and friends. But with family balance sheets ravaged by stagnant wages and skyrocketing costs for health care and higher education, fewer and fewer average families have the savings needed to invest in a small business.

The effects of the radical consolidation in the banking industry that began in the 1980s are equally dramatic. Relatively few bank officers today have the leeway and local knowledge to lend to established local businesses, much less new ventures. This is especially true in bad times, when big institutions come under great pressure both from Wall Street and regulators. In Maryland, for example, Bank of America made 312 SBA-guaranteed loans to local businesses in 2007. In 2010, it made two. Consolidation also concentrates the power of a few financial institutions over small businesses, and radically raises the risk that entire funding systems can collapse all at once. The near breakdown of CIT Group in early 2009—averted only by a last-minute deal with bondholders—would have cut more than a million small businesses off from some of the most important forms of day-to-day business financing.

The single biggest factor driving down entrepreneurship is precisely the radical concentration of power we have seen not only in the banking industry but throughout the U.S. economy over the last thirty years. This revolutionary remaking of almost every economic activity in the nation was set in motion in 1981, when officials in the Reagan administration all but suspended traditional enforcement of America’s antimonopoly laws, a change in policy then adopted by every subsequent administration. Since then, regulators have done almost nothing to stop the great waves of mergers and acquisitions, with the result that control over most major economic activities is now more consolidated than at any time since the Gilded Age.

The effects have been nowhere more dramatic than in those sectors that have always been most congenial to individual proprietorships, like retail, services, farming, and small manufacturing. These were the activities most affected, for instance, by the type of “roll-up” strategies pioneered by financiers like Mitt Romney’s Bain Capital. In the case of the office-supply retailer Staples, Bain’s investment helped propel the company from a one-store operation to a 2,000-store international behemoth. Similar plays resulted in Home Depot capturing a vast proportion of the nation’s hardware business, in Best Buy capturing a vast proportion of America’s electronics business, and in Macy’s capturing a vast proportion of all department store sales. Just one company, Wal-Mart, now controls upward of 50 percent of some lines of grocery and general merchandise business—commerce that a generation ago was divided among tens of thousands of families.

So, next time you think that Republicans are the small business friendly party, think again.  It’s clearly the drive towards monopoly, market concentration and policies that benefit the One Percenters that’s killing US small business.


Capturing the Regulator

The original vampire squid: Standard Oil.

We continue to experience fallout from the banking crisis and see that many of the problems were caused by captured regulators. Problems with Fannie Mae were ignored by Barney Frank and the House committee appointed to oversea the mortgage giant’s activities. The NY Fed under Timothy Geithner appears to have been closer to Goldman Sachs and other large banks that its regulatory charter demands. We’ve seen this at the SEC also, as investment banks were able to convince the agency and the senators and congressmen who oversee its activities that deregulating risky activity was a good thing that wouldn’t led to market meltdowns as it had in the past.

We’re still seeing the fall out from continued rent-seeking activity by huge megalocorporations and their captured regulatory agencies and politicians. It’s in more industries than just the financial ones. Since the Reagan years, we’ve seen ongoing defunding of agencies and capture of agencies by the regulated who find ways to buy politicians through lobbyist activities. All of this had led to huge messes in nearly every sector. has further examples of this public-welfare destroying behavior in Regulators Hired by Toyota Helped Halt Investigations. We learn in this piece that many lives were lost because Toyota insiders at the National Highway Traffic Safety headed off “at least four U.S. investigations of unintended acceleration by company vehicles in the last decade, warding off possible recalls, court and government records show.”

Christopher Tinto, vice president of regulatory affairs in Toyota’s Washington office, and Christopher Santucci, who works for Tinto, helped persuade the National Highway Traffic Safety Administration to end probes including those of 2002-2003 Toyota Camrys and Solaras, court documents show. Both men joined Toyota directly from NHTSA, Tinto in 1994 and Santucci in 2003.

While all automakers have employees who handle NHTSA issues, Toyota may be alone among the major companies in employing former agency staffers to do so. Spokesmen for General Motors Co., Ford Motor Co., Chrysler Group LLC and Honda Motor Co. all say their companies have no ex-NHTSA people who deal with the agency on defects.

Possible links between Toyota and NHTSA may fuel mounting criticism of their handling of defects in Toyota and Lexus models tied to 19 deaths between 2004 and 2009. Three congressional committees have scheduled hearings on the recalls.

“Toyota bamboozled NHTSA or NHTSA was bamboozled by itself,” said Joan Claybrook, an auto safety advocate and former NHTSA administrator in the Jimmy Carter administration. “I think there is going to be a lot of heat on NHTSA over this.”

Another corporate whistle-blower is showing how corporate negligence may cost cities and states millions of dollars to replace exploding and cracking PVC pipes. This is from the NY Times. It’s typical corporate behavior. The certification agency here was not ‘informed’ of the changes used to increase production, decrease costs, and of course, feed the bonus class kitty.

JM Eagle was created in 1982, after the bankruptcy of Johns Manville, the first major corporation to seek protection from asbestos claims by filing for bankruptcy. The elder Mr. Wang bought the pipe division out of bankruptcy that year, renamed it JM Manufacturing and added it to his empire. (The company became JM Eagle after acquiring PW Eagle in 2007.)

PVC pipe had been just a small part of Johns Manville’s business, but Mr. Wang made his acquisition at a time when the plastic was fast catching on among cities replacing their older, decaying water systems. For several years, managers stayed on at the company and participated in the development of new standards for plastic pipes.

Mr. Hendrix said in his complaint that after Walter Wang became chief executive in 1990, many of the longtimers resigned or retired, and people who had minimal backgrounds in engineering or failure analysis replaced them.

JM Eagle also put a premium on cutting costs, Mr. Hendrix said, hiring people like him straight out of college. It even maintained a boarding house near Livingston for Taiwanese employees who could not afford suburban New York housing on their modest salaries.

One of his first jobs was to field customer complaints, which he said came in at the rate of at least one a day. He said he was trained to look for ways to attribute leaks and ruptures to the governments and contractors who installed and maintained the pipes.

Only when he was assigned to oversee certain tests did Mr. Hendrix begin to think the complaints stemmed from the company’s own cost-cutting measures. He said he realized JM Eagle had started buying a lower grade of raw materials from Formosa and had speeded up its production lines without reporting the changes to the certification agencies as required.

Republicans continue to label these instances of corporate malfeasance as pending “junk lawsuits” while lives and taxpayer monies indicate they are anything but nuisance. Who is going to pay for these faulty pipe systems? (These are problems economists study and we find the costs of “externalties” usually go to the taxpayer.) Will it be the same folks that are paying for the financial industry meltdown; the U.S. taxpayer? It most certainly will not be the C.E.O. whose short-sightedness and cost reducing behaviors are firmly rooted in bonuses present and past. They cannot be held legally accountable with either their personal network or their freedom because, the corporation is a legal entity all to itself. The worst we can do is watch them go bankrupt and then re-organize to avoid the financial penalties. You can’t put Toyota in Jail. You can see that JM Eagle was a corporation that formed out of the ashes of an earlier corporation that folded to avoid lawsuits from asbestos deaths. They are not unique at all in that behavior. It’s been going on since the courts decided that corporations get limited liability treatment.

One of the stories that I use for my economics class to illustrate these problems is the Radium Dial painting women whose jobs were basically to paint the luminous paint on watch and clock hands back in the 1920s. The original paint contained incredible levels of radioactivity. I saw the documentary about them and the horrible cancers that killed them in a documentary released in the mid 1980s. Many of them died so full of tumors and so full of radio-activity from licking the tips of the brushes or decorating themselves with the radioactive paint–because they were never told of the dangers–that the government has had to go back to their graves and encase them in led boxes because they emit high levels of radioactivity. The company folded to avoid all the costs of clean-up and the survivor lawsuits. The sites of the old factories continue to be problems in places where the factories were located.  The most famous was located in Ottawa, Il.  Many of our regulatory agencies were formed to avoid situations just like this. There’s a book that you may want to read if this interests you also. Here’s a quote from the link provided above.

It isn’t clear how well known the dangers of radium were in 1917 but no warning was given to the workers. The radium companies denied the dangers of imbibing radium despite the consensus of opinion among most medical experts and government officials that it was dangerous. The dialpainters were such a minority and lacked any financial resources to have any clout in dealing with industry. The battle for recognition of this health hazard to these women went on for many years.

A book titled “Radium Girls: Women and Industrial health reform, 1910-1935” by Claudia Clark was published by The University of North Carolina press, Chapel Hill and London in 1997 (ISBN 0-8078-2331-7 cloth and ISBN 0-8078-4640-6 paperback.) This is an excellent source of information on the subject. It is well documented with many references and an extensive bibliography.

A 1-3/4 hour film titled “Radium City” was made in 1986 about the aftereffects of two radium dial painting companies based in Ottawa, Illinois. The city of Ottawa, IL is about 80 miles southwest of Chicago. The Radium Dial Company (RDC ) moved from the East Coast to Ottawa in 1922. Joseph Kelly was president. The first problems of radiation exposure occurred with the young women who applied the radium paint to the dials. According to the film, RDC went out of business in 1934 after being faced by many lawsuits. Luminous Process Incorporated (LPI) started soon after also headed by Kelly. It operated from 1932 to 1978 when the NRC shut it down. Both factories were demolished, RDC in 1969 and LPI in1984 and much of the material was used as land fill. As a result there are 13 areas today with above normal radiation in Ottawa. The major contaminant is radium-226 and the by-product, radon-222. For more information see the Petitioned Public Health Assessment, Ottawa Radiation Areas, Ottawa, Lasalle County, Illinois

It isn’t known if the radium dials used by Jefferson starting in 1949 were painted by their employees or even done by Jefferson at all. They may have been sent out to be painted. In any case, working conditions were improved by that time but use of the paint was eventually banned.

This is the primary problem with granting corporations their own legal status. Investment bankers used to be mostly be professional partnerships. Recently, they switched to the corporate structure and many are saying that the limited liability (in other words if you screw up they can’t come after your net worth) is one of the reasons they took on so much risk. They no longer have “any skin in the game”.

There is, however, a better solution: expose players in the financial game to greater personal loss if their risk-taking fails. When you worry that a mistake will cause you to lose your second home, your stocks and bonds and your club memberships, then you’re less likely to take the kinds of risks that expose the rest of society to your failures.

A simple mechanism exists to achieve this purpose: the private partnership. Partners face liability that extends to their personal assets. They aren’t protected by the corporate shield that limits losses to what the corporation itself owns (as well as the value of the stocks and bonds the corporation has issued). Unfortunately, the partnership is a legal form of business organization that was largely abandoned by banks over the past quarter-century. Our advice is to bring it back. In other words, don’t nationalize; partnerize.

Even John Gutfreund — the man who kicked off the dramatic change in investment-banking culture and structure when he took Salomon Brothers, a longtime partnership, public in 1981 — confirms our thesis. Michael Lewis wrote in the December issue of Condé Nast Portfolio that Mr. Gutfreund now believes “that the main effect of turning a partnership into a corporation was to transfer financial risk to the shareholders. ‘When things go wrong, it’s their problem,'” said Mr. Gutfreund.

But when the personal wealth of executives is put at risk, as it is in a partnership, their behavior changes. Risk aversion increases. Few partnerships would leverage themselves to the hilt to load up on risky subprime loans.

Not only do these corporations give their management cover for bad decisions, they can raise tons of money in public markets and then use that money to buy political influence and now, after the supreme court decision, to buy ads to further influence elections. These giant corporations whom we give too-big-to-fail status, will in fact place themselves into bankruptcy or collapse to avoid the costs of their externalities. One of the biggest costs is the overproduction of products and services because they don’t reflect the true costs of doing business until it’s usually too late for any one to do something about it. This is exacerbated by neutered or captured regulators. Something that buying the political class achieves.

We need to take a serious look at what many folks are peddling out there as free market capitalism because it’s not free market capitalism. Regulations are there to protect us from bullies just like laws are supposed to do. Third party payers and huge megalocorporations in highly concentrated markets with huge market powers and the ability to influence the market are not what Adam Smith had in mind when he spoke of the invisible hand. Regulation exists to even the playing field when these power players exist,to ensure that markets function under proper conditions, and to hold entities responsible for the costs they create when they make messes.

Since the Reagan years, we’ve gotten one mess after another in one market after another from not realizing and acting on corporate malfeasance. Yes, they create jobs and products but those are by-products of their real purpose which is to maximize profits. They may run ads about loving fuzzy animals, but that is to create an image to help them further their profits. We need major changes in laws that recognize that not all byproducts of economic enterprise by businesses are positive. Most of the good stuff does not come from the huge bully boys. It’s time to evaluate and change the laws surrounding incorporation and to enforce the Sherman Antitrust law again. If we can’t lock them up in jail for doing harmful things to people, then they shouldn’t be granted the same status in the courts as people.