Essential Truths
of Corporate Business

In 1999, economist Milton Friedman issued a warning to technology executives at a Cato Institute conference: "Is it really in the self-interest of Silicon Valley to set the government on Microsoft? Your industry, the computer industry, moves so much more rapidly than the legal process that by the time this suit is over, who knows what the shape of the industry will be? Never mind the fact that the human energy and the money that will be spent in hiring my fellow economists, as well as in other ways, would be much more productively employed in improving your products. It's a waste!"

He predicted: "You will rue the day when you called in the government. From now on, the computer industry, which has been very fortunate in that it has been relatively free of government intrusion, will experience a continuous increase in government regulation. Antitrust very quickly becomes regulation. Here again is a case that seems to me to illustrate the suicide impulse of the business community."

L. Gordon Crovitz, "Silicon Valley's 'Suicide Impulse'," The Wall Street Journal, Monday, January 28, 2013, color added

  1. Corporations are not natural supporters of Capitalism. Instead, in an environment of rent-seeking politics, they are natural supporters of Mercantilism, the economic system that Adam Smith himself attacked in his Wealth of Nations [1776]. Under Mercantilism, the principle is the protection of business, and of producers, rather than consumers. This all goes back to business in the Middle Ages, when the sentiment was that no one had any right to engage in business without the permission of the government, i.e. the sovereign. A purely Feudal economy, of course, had no need of trade, money, merchants, or cities. The introduction of such things could be seen as unnecessary, or perhaps an independent source of power for the sovereign. Thus, a ruler would charter an enterprise, almost always with a monopoly of commerce. This was seen as best for the business and consequently best for the ruler, who would tax the business and benefit along with it. That the subjects in general, the consumers, would benefit from products being provided was a concern that came a distant second. After all, a great deal of trade was in expensive luxury goods, like soap or spices, and most subjects of European monarchies could not afford those things anyway. And if they began to use soap, they might begin to get above their station.

    In the modern context, businessmen may understand that they are serving a mass market of consumers; but they may also think that they are doing a good enough job, thank you, and will resent competition that drives down prices and threatens business as usual. The solution may well be selling a fairy tale to the government and getting protections -- licenses, regulations, tariffs, import quotas, legal cartels, subsidies, price supports, public contracts, mandates, etc. The purpose of such things is to impose greater costs on entry, i.e. on new competitors, or on existing competitors, or to shut out competition altogether. Thus, we have charming institutions like the California dairy cartel, which is able to do what most people probably think is universally illegal, to collude in price fixing on dairy products. Most people may not care if the prices of peanuts, or sugar, or tobacco, or even cheese are driven up by government action, but they may also find it hard to believe that the government cooperates in driving up the price of milk. Somehow, the crusading anti-capitalist press suddenly goes blind when monopolies and price-fixing are sanctioned by the government. At the same time, when something like the price of sugar is driven up, companies resort to substitutes, like corn syrup for sweetening, which drives up the price of corn. With federal mandates for the pointless (but vote winning) use of ethanol in gasoline, also manufactured from corn (which will bag Iowa), the price of corn is driven up even on the international market, resulting in food protests in Mexico City (February 2007) and elsewhere.

    Thus we begin to see all the irrationalities of a "planned" economy. But there is method behind the madness. What is irrational to the consumer may make perfect sense to the rent-seeking business (such as rent-seeking ethanol producers like the Archer Daniels Midland Company), pining for the days of chartered monopoly corporations. It is not the sense of a free market. Raised on Cargo Cult economics and anti-Capitalist propaganda, politicians and the public may not even know the difference.

  2. Businesses are tax collectors, not tax payers. While politicians hand out subsidies and protections to favored businesses, they can also make political capital by attacking them in public. Nothing sounds better than raising business taxes and making those blood-sucking capitalist exploiters pay for the privilege of alienating the workers. Unfortunately, the taxes that businesses pay to the government are collected as part of the prices that they charge the consumer. In the rhetoric of class-warrior politicians (i.e. mostly Democrats and Leftists), one would think that the taxes simply come out of bloated and unnecessary profits. A profitable business, indeed, may choose to eat the costs and lose some profit in order to remain competitive. However, not all businesses are all that profitable. Many operating at the margins can simply be put in the red when an extra cost, like a tax, is imposed on them. They may have a limited time to cut costs before going bankrupt. If they fail, well, then the established and comfortably profitable businesses have lost some competitors -- they are not going to lose any sleep over that. Indeed, since higher taxes can harm the competition, maybe it will occur to the corporate fat cat (i.e. Warren Buffet or Ted Turner) to suggest to his politician friends that raising taxes on business might be a good idea. Everyone should pay their "fair share." Then, having done their good deed, they can retire to their ranches in Montana and enjoy federal subsidies for not growing food. The good works never cease. [note]

  3. "Capital is a coward," says The Wall Street Journal [January 25, 2011, A14]. Hollywood's preferred villains these days are businessmen. Movies about terrorism may even avoid making the terrorists Arabs or Muslims lest, by offending Arabs or Muslims, more Arabs or Muslims become terrorists. This seems to be the reasoning. But when businessmen are portrayed as unprincipled, vicious, cruel, or ruthless, no one who is politically important is going to be offended. We all know, I suppose, that they are really like that. Usually, quite the opposite is true. All those professional managers with their MBA degrees are more like scared rabbits. Politicians, bureaucrats, or prosecutors threaten, and they jump. The gumption of true "robber barons," with rare exceptions like Ross Perot, Rupert Murdoch, or Donald Trump, is long gone. In recent history, Wall Street gave more money to Democrat politicians, including Barack Obama, than to the Republicans. In other words, they don't seem to know who their friends are, since the Republicans presumably are the lackies, tools, chums, etc. of business. But businessmen know a protection racket when they see it, and they buckle under like a broken chair under William "the Refigerator" Perry. Verily, they do have their reward. In the financial collapse of 2008-2009, first the Republicans but then also the Democrats were all for massive bailouts of "troubled assets." All executives had to do was sell their souls, promise "green jobs," and they could happily sail away on a raft of federal money, all sins forgiven. Many Wall Streets brokers, publicly vilified by the Press and by Democrat politicians, ended up with cushy jobs in the Obama Administration. This should tell us something. Most people in business, especially the ones who have come to it through their education rather than through an "up from the mailroom" apprenticeship, are not Darwinian predators:  They are timid prostitutes, flinching at every whim of their politician pimps.

    Of course, no sooner than I cite Donald Trump as a businessman who still has some gumption than I find out that he has donated $50,000 to Rahm Emanuel's campaign to be mayor of Chicago. There is almost nothing that Rahm Emanuel believes in that Trump would agree with. I thought that people knew, as Trump certainly should know, that once you pay the Danegeld, you never get rid of the Dane. Apparently in our day, all capital, unless we can count on Rupert Murdoch to bust some more unions, is indeed a coward.

  4. Corporate profits go to widows and orphans. We all know how evil corporate profits are. At least politicians and the press keep telling me that. Some guy is living on a hilltop in Beverly Hills because of corporate profits. Or maybe he is a lawyer, movie star, plastic surgeon, or professional athlete. We know they get their money honestly. On the other hand, the profits from a business are either reinvested in the business, allowing for new products, improvements, or greater productivity (reducing costs), or they are paid out in dividends to the stockholders -- after the profits are taxed by the government, which then gets to tax the dividends all over again. Who are the stockholders? In the publicly owned and traded corporation, anybody can buy stock. People invest for their old age. Pension funds invest for the old age of pensioners. The largest institutional investor in the world is the California Public Employee Retirement System (CalPERS). If the return on investment for CalPERS does not cover the cost of the benefits that the system pays out to retirees, then the California taxpayer gets to kick in the difference. Serves them right. After all, how can the taxpayer in good conscience avoid taxes by allowing corporate profits to pay for the retirement of selfless public servants (like me)? They better just pay their fair share and let the government take those profits to build bridges to nowhere and fund the National Trout Fishing Museum.

    Recently (May 2009), Chrysler Corporation filed for bankruptcy and, in a deal imposed by the federal government, holders of $6.9 billion in Chrysler bonds were coerced into accepting a $2 billion payout. President Obama characterized the bondholders as "a small group of speculators" [The Wall Street Journal, Thursday, May 21, p. A18]. Now we learn that the "speculators" included the Indiana State teachers' and police pension funds, and a State fund that finances roads and bridges, which lost millions of dollars. These institutional investors had paid more for "secured" status, which should have given them priority in the event of a bankruptcy; but this was ignored by the Feds, who gave preferred status to the United Auto Workers (see "Labor Unions are Corporations" below). Thus we see the fruit of the political smear of investors, which rebounds on public employees and public investment, which expected to benefit rather than suffer from political attacks on capitalism. It is perhaps a rude awakening. Rather than boldly defending widows and orphans against the socialists, Republican politicians are, naturally, missing in action.

  5. The incentive is for hired management to serve itself, not the company or the stockholders. Publicly owned corporations are going to have management which is hired by the Board of Directors and confirmed in some pro forma vote at a stockholders' meeting. When Henry Ford or John D. Rockfeller ran their companies, their interests were pretty much identical with those of the company. But for a hired management it is different. They indeed have a fiduciary responsibility, moral and legal, to honor the interests of the company and the stockholders, but this is a little different from their own personal interest, which is not necessarily tied to a company from which they might eventually be fired. As no more than hired hands, they must keep that in mind. One of the principal elements of their self-interest is to protect their own position, i.e. they want to cover their ass. This does neither the company nor the stockholders nor consumers any good. Managers have a great deal of power to accomplish their purposes, since they can control hiring, putting their own supporters in key positions, even on the Board of Directors, and they can control a great deal of the knowledge that Directors, stockholders, and the public think that they have. In other words, Management begins to play politics with the company, regardless of the effect this may have on the quality of the company's product or service, or on the long term prospects and reputation of the company. Curiously, playing politics may include going along with political lies that are damaging to the company, to consumers, and to business in general. It may happen that Managers simply don't understand macroeconomics and politics enough to identify the lies, which means they might actually believe them, or their judgment may be that the difficulty and cost of fighting the lies, when few Managers are eloquent public spokesmen for anything, may be greater than the costs of simply going along to get along. This is not unlike the "me too" Republicans, including the Bushes, who hope to be regarded as "kinder and gentler" or "compassionate" if they go along with lesser versions of the socialism of the Democrats. Of course, they could never do enough, and the cooperation of the Bushes only earned them the contempt as well as the hatred of the forces (like W's "good friend" Ted Kennedy) they were trying to appease. For businessmen with similar attitudes, including many such Country Club Republicans, politicians may even gratefully and happily bestow mandates and protections that help the co-opted business. The Left likes to think that Corporations are then secretly buying and running the government. It is not clear that this would actually be worse than what does happen, which is a folie à deux whereby rent-seekers and politicians feed off of each other. The socialist answer of handing ownership and control of everything over to the government simply makes everyone a rent-seeker, without the possibility of an honest market exchange. As Thomas Jefferson said, "But it is not by the consolidation, or concentration of powers, but by their distribution, that good government is effected... Were we directed from Washington when to sow, and when to reap, we should soon want bread" [Autobiography]. Since something of the sort was attempted in the Soviet Union, and consumers did want bread, one might think that educated American academics would know better by now. But, of course, as brilliant fools, they don't.

  6. Corporate buyouts can remedy bad management. When Management fails to run a company well, and profits go down, then dividends go down, and the price of company stock goes down. The Board of Directors should fire the Management at that point, but sometimes that doesn't happen, for whatever reason (as when the Board is stacked by Management with friends). But, when the price of the stock falls far enough, it becomes possible to buy the company for less than it is worth. This is a good deal for anyone who can get the money together. Profiting from the deal, of course, depends on turning the company around enough, at least in perception -- starting with cleaning out the old Management -- that the stock can then be sold at more like the proper value. If the company is an unwieldy conglomerate, with various enterprises whose value is lost in the confusion of the combination, it may be possible to restore market values simply by breaking up the company and selling the parts separately.

    Either way, Managers, of course, hate the very possibility of this. One way to fight it is to go to friendly politicians and have them make buyouts more difficult, protecting Management. This can be sold by demonizing the "corporate raiders" who go looking for undervalued companies to buy. If the public thinks that such people are the Goths, and Management consists of innocent, virginal victims, then the fix is in. In the 1980's, Management propaganda was remarkably effective, as even the Press and the Hollywood Left, in their clueless ignorance, fell for the fairy tale. Thus, we have movies like Pretty Woman [1990], where Julia Roberts tells Richard Gere that buying companies, breaking them up, and selling off the constituents is like "selling parts from stolen cars" -- overlooking, apparently, the stipulation that the company, unlike the cars, has been purchased. Buying cars and selling the parts is liable to be a welcome service for the owners of old cars [note]. We got similar follies in Barbarians at the Gate [1993 -- see, I meant it about the Goths], about a non-fictional buyout of RJR Nabisco, and Wall Street [1987], with a memorable Michael Douglas as the "greed is good" corporate raider "Gordon Gecko," who apparently loves to buy companies just to wreck them ("because it is wreckable"). The result of incompetent Executives selling themselves as the slaughtered innocents of Reagan Era Greed can be seen in a more recent movie, DodgeBall, a True Underdog Story [2004], where at the end of the movie good guy Vince Vaughn tells bad guy Ben Stiller that he has bought Stiller's company and is firing him. This cannot now happen. Vaughn would not be allowed to even begin buying stock in Stiller's company, with the intention of a buyout, without warning Management, i.e. Stiller, what he is up to. Otherwise the Securities and Exchange Commission is going to be mad, and Vaughn is liable to end up "perp" marched into a courtroom and smeared in the press as, well, a 21st century Gordan Gecko. Perhaps he and Martha Stewart can room together at Club Fed.

  7. Big corporations become inefficient. Some people hear the phrase, "economies of scale," and think that it means the bigger, the better. This explains much of Stalinism, even before we hear about the Communism part. Part of that was wishful thinking. If companies get bigger and bigger, and eat all the competition, and are the last ones standing, then it is a simple and natural step to nationalize them. Nothing messy about it. Have all the public own the company rather than just some selfish stockholders. That's how we got the Tennessee Valley Authority (TVA) during the Stalinist-wanna-be New Deal. Indeed, there would be nothing more natural than such a transition, so long as bigger is better. If it isn't, this throws a different light on the matter. Big corporations do get to be rather like governments in that their internal dynamic starts to become political and bureaucratic rather than economic. Any kind of office politics is bad enough, but when such things start to determine the management of the company, disaster is likely to follow. Also, if market prices send essential signals about supply and demand, then when a company becomes large enough, it may be difficult to determine the efficiency of producing one product that simply becomes an input in another part of the company. In other words, we start getting a mini-command economy, and the other problems of Stalinism, apart from mere bigness and bureaucracy, begin to be felt. In a company of any size, various kinds of inefficiencies are likely to become a problem. The virtue of a market economy is the ultimate test of the ability of a company to deal with them, i.e. whether they can still earn a profit against their competition. If not, then they are going to be bought, reorganized, or bankrupted. The "natural" process of bigness, monopoly, and then nationalization unfortunately allows the process of inefficiency and irrationality to continue without a check. Politics and bureaucracy quickly become the dominant forces. Thus, the saying about the British National Health Service is that "useless work replaces useful work." Anyone working for a large organization will see something of the sort begin to happen eventually. In a government, it is inevitable, unless the dead weight is ruthlessly cut away with some regularity. Whether that gets done at all depends, indeed, on the politics.

  8. Labor unions are corporations. Labor unions are rent-seeking corporate bodies, with their own management and income, whose purpose is to monopolize a certain commodity, namely labor, and to seek political and legal endorsement and protection for this goal. The purpose of a monopoly is to limit the supply of something and drive up its price. Unions certainly have the public goal of driving up the price of labor -- wages and benefits. Economically, the flip side of that is the limitation of supply -- i.e. the creation of unemployment. Unions can never publicly admit, however, that their purpose, or the effect of their purpose, is to create unemployment -- the membership and the public are led to believe that unions want to protect and increase employment. Many people are aware, however, that many unions actually limit their own membership. You can't just pay some dues and get admitted. In States that allow a "closed shop," where only union members can be hired, this means limiting the labor force itself. Nevertheless, even with this restriction, the membership of such unions, like the Screen Actors Guild, may still be mostly unemployed. Otherwise the impression we get of union thinking is that they expect employers to maintain employment, increase wages and benefits, and just absorb the loss -- i.e. they must be making enough money already and are just greedy for not increasing wages and benefits on their own. Curiously, there were industrialists, like Henry Ford, who actually did believe in raising wages given the opportunity, and did so. In general, however, it is the rare company, let alone small business, with sufficient profits that it can increase compensation without otherwise affecting its solvency. Companies that operate at the margin of profitability cannot increase compensation without cutting their work force or going into bankruptcy. Since they originally judged that they needed the work force they had, cutting it means that they can only compensate by increasing productivity -- making the labor more capital intensive. The dynamic then is, if wages and benefits are artificially driven up by labor union action, the boat will right itself with decreased employment and increased productivity.

    The effect of this is actually positive, as long as capital is free enough to start new enterprises and absorb the excess labor elsewhere. If this is so, then we could even say that the monopolistic practices of labor unions can increase wealth and do not result in diseconomies. However, the action of the unions may have other effects. Union "work rules," which are notorious for their irrationality (e.g. one union changes the light bulb in one place while another union has the job of changing the light bulb in another place -- and no other worker can change either bulb), may prevent increases in productivity. The affected business must then try and pass along the cost to its customers. This can result in a secular increase in consumer prices in products that previously had seen progressive decreases in prices. The auto industry is a good example. Henry Ford's $300 Model T of 1920 would, with inflation, go for not much more than $3000 in recent prices. Since moderately priced new cars now go for even ten times this amount, something peculiar has happened -- what in the Eighties was called "sticker shock." Part of the increased price has come from government mandated safety equipment and other add-ons. But the largest part of the price of anything is still labor, and the United Auto Workers union has done its job of making Detroit automobiles some multiples more expensive than they need be -- the consumer is paying monopoly rents to the union.

    The credit collapse of 2008, which was in the housing market, then pushed all the Big Three Detroit auto makers to the edge of bankruptcy, with Chrysler into it and General Motors bailed out at the cost of ceding a large part of the ownership of the company to...the United Auto Workers. Companies have sometimes been bought and owned by their own workers, including, not long ago, United Airlines. Unfortunately, as with United, such a provision does not resolve the economic problems of the companies, or ensure that they will be managed more wisely. Quite the contrary. In this case, little wisdom can be expected, especially when the UAW hasn't even bought its share -- it was handed ownership in a political deal. This is a formula for folly on a large scale. Historically, the best example of unions destroying productivity and locking an industry into stasis were the British unions of newspaper workers. They absolutely prevented upgrading to modern technology like electronic type setting, because, after all, that would cost jobs. This sort of thing came to be called the "British Disease." Finally, the unions were simply broken by Rupert Murdock (who bought the newspapers) and Margaret Thatcher -- the jobs were lost but, since Thatcher freed up the economy, British unemployment remained lower than in Euro-Socialist France or Germany. The United States, with the Democrats triumphant in 2008 (and making it increasingly plain that they simply don't believe in capital), may be in for a long bout of the British Disease and a strong push into Euro-Socialism.

  9. Governments are corporations. When one sees great levels of hostility directed at corporations, the reasonable question to ask is, "What instead?" If some activist, like Michael Moore, doesn't like corporations, what does he prefer? There are really only two choices:  (1) anarchy, or (2) government. Even anarchists, however, like Noam Chomsky, want to use government to destroy corporations, which implies a more complacent view of government than of private business. Since Chomsky thinks that Communist governments in Eastern Europe were a "paradise" compared to the United States, it should be clear that his complacency is of a naive, vicious, and dangerous sort. For the truth is that governments are themselves corporations, i.e. organized "corporate" bodies (Latin corpus = "body"), which are directed for collective action by a formal leadership. The objection to corporations, therefore, is not that they are corporations, but that they are private. While someone like Chomsky is willing to set aside his (presumed) antipathy to governments in order to destroy private corporations, open sympathizers of Cuban or Soviet Communism, like Moore, have no scruple over preferring a totalitarian government over a liberal and democratic society with private property and private association. What open preference for government gets the anti-corporate activist is a dream of absolute power. Governments have police powers and prisons. The will of a government is enforced by men with guns. While popular fiction likes to portray corporations as criminal enterprises with armed forces, private entities in civil society, corporations or individuals, only have the right to use force in self-defense. Governments, ideally, are there to stop them or punish them if they act otherwise. Michael Moore prefers an entity that can use armed force for all its purposes. And we know what he thinks of self-defense, since he made an Academy Award winning "documentary" attacking the private ownership of guns. One might wonder, indeed, why "liberal" opinion is opposed to armed citizens; but "gun control" and anti-corporate propaganda are part of a seamless ideology of absolute state power. Since this is an ideology that rejects the very idea of governments of limited and enumerated powers, it is then not surprising, when a reporter recently asked Speaker of the House Nancy Pelosi where in the Constitution the Federal Government is given the authority to require citizens to buy health insurance, that Pelosi answered, "Are you serious? Are you serious?" Since Pelosi, as a modern Democrat, believes in absolute and unlimited government, she could not consider a question about limited (i.e. Constitutional) government to be a serious one. None of her sympathizers and allies do. So we know where this is all headed. Private corporations, or free individuals -- bad; unlimited state corporations, i.e. governments -- good. The worst thing about corporations, of course, as I have considered from the beginning, is the willingness of management to seek favors and protection from the State in exchange for loss of freedom and cooption into the State's purposes. This itself is evident, despite hostile political rhetoric against them, in the support of insurance and drug companies for the 2009 health care "reform," i.e. government take-over, of medicine by Pelosi's Democrats.

  10. Yes, Corporations are Persons. A recent campaign of the Left (how do these things get started and organized?) is that "Corporations are not persons." Actually, they are. Legally, a corporation is a "corporate person." The silliness of this campaign becomes more serious and dangerous with a legal and political strategy to push the principle that, since corporations are not persons, they have no rights. Brainless politicians, as on the Los Angeles and the New York city councils, have signed on to this idea. It would be an anarchist's dream, of course, if governments, as corporate persons, were stripped of all their rights, which would leave them without power, without property, and without things like "sovereign immunity." A lot of this would be good. But since the Left tends to love government in inverse proportion to the degree that they hate private corporations, they clearly are not thinking that governments will be stripped of their rights. Even self-professed "anarchists" like Noam Chomsky are perfectly happy to promote the powers of government to use against private corporations. No, private corporations alone are the target, as we would expect. The chaos that would result from stripping corporations of their rights is hard to imagine. Actually, the chaos is easy to imagine, except in the impoverished mind of the leftist. It is the degree of chaos that is hard to imagine. The Nature Conservancy, which goes around buying up property in order to save it from development and preserve its natural state, could no longer own property. It is only persons, with rights, who own property (until the Left abolishes property -- except for governments, of course). No company of any kind could possess assets, file lawsuits or legal papers, or survive beyond the lifetime of its actual individual owners. I suspect that, since governments will be immune from this "is not a person" business, its advocates would prefer that the property of something like the Nature Conservancy would be passed on to the government. And since political and ecological activist organizations often derive some or much of their funding from government anyway (illegitimately, given their political purposes), it is natural enough, in the mind of the leftist, that they should survive the disestablishment of corporations by simply becoming part of government. So the whole business is really just the same statists continuing to promote their totalitarian agenda. It is unlikely that they will get very far with it; but to the extent that it sounds like a good idea to the clueless, it creates an atmosphere in which other parts of the leftist agenda can be successfully promoted.

Editorial Note

Several of these principles have been enunciated by the great economist Walter Williams. Also, I believe that corporate profits going to "widows and orphans" is a recollection of Ben Stein about one of his economics professors.

I cannot say that giving credit to Williams and Stein for these ideas constitutes agreement with all they say. Walter has an embarrassing habit of defending the Confederacy, while Ben has lately jumped on the anti-Darwinian bandwagon that has become popular with a good many foolish conservatives. Ben also promotes high taxes and disparages "supply siders," which means that while, as he says he "loved" Richard Nixon, he must not feel nearly so warm about Ronald Reagan. That is an odd position for a conservative put himself in, compounding his anti-Darwinian folly. All this simply goes to show that generally sensible people can have blind spots, or be confused in certain areas -- like Arnold Schwarzenegger becoming a Global Warming enthusiast, which helped (among many other things) ruin the value of his tenure as Governor of California (which calls into question whether he was in fact a "generally sensible" person).

As it happens, the statement that corporate profits go to "widows and orphans" apparently goes back to the 1879 Congressional testimony of the President of Western Union, who said this of his own shareholders.

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Essential Truths of Corporate Business, Note 1

When the Clinton Administration was promoting an increase in the minimum wage, and Hillary Clinton met with a group of small business owners, one of them, who owned a pizza restaurant, complained that the increased cost might put him out of business. Clinton responded that the Administration "can't be held responsible for every undercapitalized business." It would be an interesting study in what politicians know of economics to figure out what she meant by this.

"Undercapitalized" simply means that not enough money has been invested in a business to get it up and keep it going through the period before it can turn a profit. In those terms, Clinton's answer was beside the point. With increased costs, greater capitalization would simply delay the time when the business could turn a profit, perhaps permanently, while a business already profiting at the margin could be pushed into the red and possible bankruptcy. So the problem of the business there is not undercapitalizing, it is costs imposed by government mandate.

Another way to look at this, however, is if greater capitalization increases productivity, which means that equal or greater production can be effected even with fewer workers (the dynamic that makes Say's Law possible). The "undercapitalized" business thus would be one that cannot reduce its workforce and make the productivity of the workers match the increase in wages. This interpretation of Clinton's statement would thus translate it into, "You need to invest more in your business so that you can fire people and reduce your workforce." It is unlikely to a certainty, however, that Clinton would make such a blunt statement in public. The headlines at the New York Times would scream, "Clinton Tells Business to Cut Jobs!" This is not a policy that any Administration would want to be seen promoting.

It is thus hard to say if Clinton actually understood the meaning of her own answer.

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Essential Truths of Corporate Business, Note 2

At the end of Pretty Woman, Richard Gere decides to give up his predatory ways and to invest his money in the shipyard that he had previously intended to buy and demolish. Since Gere doesn't know anything about shipbuilding, and since the shipyard was already unprofitable and worth less than if it were demolished (which is why he could have profited from his original intentions), Gere is liable to lose all his money and then see the shipyard bought and demolished by someone else. I therefore suggest the sequel to Pretty Woman:  Out on the street, Julia Roberts goes back into prostitution, and Gere becomes her pimp. He makes enough money so that by 2009 he can buy General Electric, which is down to like $1 a share, and then he breaks up the company and sells off the parts for a profit. Roberts and Gere then return to Beverly Hills, buy a fabulous mansion, and plan to take over Citicorp, Time Warner, and other poorly managed and undervalued companies. They take over Turner Network Television and change the name to "Hooker TV." They are savaged by the media; but Julia Roberts tells the press that "Democrat" can be found in the dictionary between "dense" and "demagogue."

By 2014, thanks to its "green" energy crony-capital schemes and its connections to the Obama Administration, General Motors did not fall so far. So Gere would have needed to set his sights on some other underperforming corporation.

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