what i'd do with a million dollars

Back when I lived in Indiana, we young wage slaves used to pool our money a couple times a year to buy a bunch of state lottery tickets. This always led to the inevitable daydreaming: "What would you do with a million dollars?" First, of course, everyone would quit their jobs. Then they'd travel the world, buy a boat and live on it, live the life they've always dreamed, but was always just out of grasp.

I guess that's why I'm always stunned by embezzlers, senators and other bandits caught stealing money that doesn't belong to them.

EVERYONE spends their ill-gotten gains on granite countertops, a new deck, new cabinets.

Really? You've just made a very bold move and there's no turning back -- you've committed a crime and your life is on the line -- and the reason you did it is to redecorate your kitchen?

When I lived in Dayton in the late 80's, we used to all joke about "the house that NCR built." The story was, this couple both worked for NCR, and one of them (the man, if I recall correctly) began to embezzle money from the company. Over the years, the couple stopped getting along, so they built a wall down the center of their property, each building out their side to an elaborate mansion, but with separate entrances and exits. None of this was apparent from the street -- it looked like a normal home. The woman wouldn't divorce him, as she wanted the ill-gotten gains, and he had to keep supporting her or she'd turn him in. Eventually, they both went to prison, and that's when the world discovered the segregated house.

Wow. People really lose their imagination as they get older.

Explaining Milton Friedman on Corporate Social Responsibility

Brad DeLong had a recent post on how he thinks Milton Friedman's take on Corporate Social Responsibility is bunk.

He says, among other things, that "If customers don't want to pay higher prices and so buy from corporations that pursue social responsibility, they are (as long as product markets are competitive) free to do so at their option." The unfortunate reality of CSR is that for the most part, if given the choice, most people want CSR, but only if there is no cost to themselves.

In Supercapitalism, Robert Reich points out, even for such a simple and clearly beneficial issue as dolphin-safe tuna, customers vote only with their pocketbooks. J. W. Connolly, former president of Heinz U.S.A., which was the parent company of StarKist, explains that “consumers wanted a dolphin-safe product,” but “if there was a dolphin-safe can of tuna next to a regular can, people chose the cheaper product. Even if the difference was a penny.”

Where Brad missed the issue was not due to consumer choice, but rather a misunderstanding of Friedman's core argument. Friedman posed that an employee has direct responsibility to his employers, to make as much money as possible while conforming to the basic rules of society. If a company spends money on reducing pollution, for example, below the level required by law, it’s not his money he’s spending. He’s spending the shareholder’s money. The employee is no longer acting as an agent of the stockholders or customers, if he spends the money in a different way than they would have spent it.

One of the commenters noted that Friedman's argument meant that if a company is dumping waste into the stream, polluting it and killing the fish, it has a moral obligation to keep doing so. He's right, within certain parameters. If there was no chance that the company would be fined, would receive bad PR, or otherwise have negative financial consequences, then yes, they should continue dumping in the river, according to Friedman. There are still some countries where this is the case, but that number shrinks every year.

If a company was not created on the basis of maximizing return to investors, but had instead a different commitment, such as Smith and Hawken or REI, where investors know at the outset that social and environmental concerns will be built into company operations, then that company has a different contract with its shareholders, and there's no chance of social efforts causing a breach of contract with the investing community.

But times are changing. Investors are expecting less in the way of "bad behavior" by corporations, and most no longer want to see negative articles about sweatshop labor, bribery and extortion in the companies they love. As the requirements of the shareholders change, then the company must change to stay in line with investor expectations. Some companies, such as GE with their "Ecomagination" initiative, have used CSR as a way of staying ahead of changing shareholder requirements, but they end up having to sell their efforts to shareholders by describing long term capital returns on CSR.

you almost feel sorry for Henry Paulson....

In one speech yesterday, Hank Paulson talks about how Americans have come to expect the Federal Reserve to step in to avert a crisis, but then complains that the Fed does not have the clear statutory authority to do this. To resolve this gap, he's requesting that we give Federal Reserve the authority to access necessary information from complex financial institutions - whether it is a commercial bank, an investment bank, a hedge fund, or another type of financial institution - and the tools to intervene to mitigate systemic risk in advance of a crisis. Why is this only coming to light now? Why was he not demanding such reform months ago, if it's really the right way forward?

Okay, so Henry thinks we need to be able to bail out financial institutions, and the Fed needs more transparency in order to do that right. Now that financial risk is hitting panic level, he wants the Fed to be able to access data in financial institutions, so the Fed can step in to avert a crisis. But in the next breath, he says that financial institutions must be allowed to fail. Is it any wonder the market's having trouble reading his signals?

However, when financial institutions are protected from the negative impacts of risk, that will only encourage further risky behavior. Charles Schumer, chair of the Senate banking committee, said: "Fannie Mae and Freddie Mac are too important to go under. If they need additional support, Congress will act quickly."

The Bush administration needs to show some leadership in this issue, as there is a need for swift action, and that requires everyone at least pointing in the same direction....