General Motors CEO Ed Whitacre made a big deal this week about GM’s repayment of the $6.7 billion in loans that the company got last year from the U.S. and Canadian governments. (GM press release here.) However, as this article points out, GM still has the $52 billion it got that was classified as equity rather than as debt. That money won’t be repaid unless and until GM does an Initial Public Offering which is large and successful enough to sell the government-owned positions at a price high enough to net $52 billion for the 73% of the stock owned by these two governments. For comparison, the total market capitalization of the Ford Motor Company is $48 billion.
Economics & Finance
Cool Startup Story
A Philadelphia-area man, working as a cabinet maker, expanded his business to include the refurbishing/remodeling of elevators. (One company, strangely enough, wanted the interior of its elevators matched to its reception desks!) In doing these jobs, he found the standard practice of removing the entire elevator cab to do the work to be overly complex and time-consuming, and in 1996, came up with his own system of interlocking panels, making the task simpler and faster. With $65,000 in borrowed funds, he patented the system and incorporated a company. It now employs 30 people and booked revenues of $6.1MM last year. More here.
Paying Higher Taxes Can Be Very Profitable (rerun)
(I originally posted this on Jan 2….given that today is April 14, it seems like an appropriate time to run it again)
Chevy Chase, MD, is an affluent suburb of Washington DC. Median household income is over $200K, and a significant percentage of households have incomes that are much, much higher. Stores located in Chevy Chase include Tiffany & Co, Ralph Lauren, Christian Dior, Versace, Jimmy Choo, Nieman Marcus, Saks Fifth Avenue, and Saks-Jandel.
PowerLine observes that during the election season, yards in Chevy Chase were thick with Obama signs–and wonders how these people are now feeling about the prospect of sharp tax increases for people in their income brackets.
The PowerLine guys are very astute, but I think they’re missing a key point on this one. There are substantial groups of people who stand to benefit financially from the policies of the Obama/Pelosi/Reid triumvirate, and these benefits can greatly outweigh the costs of any additional taxes that these policies require them to pay. Many of the residents of Chevy Chase–a very high percentage of whom get their income directly or indirectly from government activities–fall into this category.
Mini-Book Review — Midler — Poorly Made in China
Midler, Paul, Poorly Made in China: An Insider’s Account of the Tactics Behind China’s Production Game
Paul Midler began his academic career in Chinese history and literature and then went to Wharton for an MBA and further graduate work in East Asian business. Fluent in Chinese, over the past ten years he spent his time in southern China working as a consultant to American importers and was witness to the economic boom that’s amazed the world.
This book, however, is about all the other things he witnessed … the methodical transfer of technology and profit to Chinese manufacturers and the methodical transfer of risk, liability, and innovation/marketing/design costs to American companies. “Poorly Made” is a master class in how ill-equipped American companies are to operate in “low circle of trust” cultures … even when those American companies are managed by savvy mercantile clans and even organized crime!
Volitional causation versus systemic analysis
Neither in his theory of economics nor in his theory of history did Marx make end results simply the carrying out of individual volition, even the volition of elites. As his collaborator Friedrich Engels put it, “what each individual wills is obstructed by everyone else, and what emerges is something that no one willed.” Economics is about the pattern that emerges. Historian Charles A. Beard could seek to explain the Constitution of the United States by the economic interests of those who wrote it but that volitional approach was not the approach used by Marx and Engels, despite how often Beard’s theory of history has been confused with the Marxian theory of history. Marx dismissed a similar theory in his own day as “facile anecdote-mongering and the attribution of all great events to petty and mean causes.”
The question here is not whether most intellectuals agree with systemic analysis, either in economics or elsewhere. Many have never even considered, much less confronted, that kind of analysis. Those who reason in terms of volitional causation see chaos from conflicting individual decisions as the alternative to central control of economic processes. John Dewey said, “comprehensive plans” are required “if the problem of social organization is to be met.” Otherwise, there will be “a continuation of a regime of accident, waste and distress.” To Dewey, “dependence upon intelligence” is an alternative to “drift and casual improvisation” – that is, chaos – and those who are “hostile to intentional social planning” are in favor of “atomistic individualism.”