Archive for June, 2009

A Depressing Analysis of the “Too Big To Fail” Phenomenon

June 25, 2009

Typing ‘too big to fail’ into Wikipedia gets this:

The Too Big to Fail policy is the idea that in economic regulation the largest and most interconnected businesses are “too big to [let] fail.”

The justification of Too Big To Fail (Henceforth abbreviated as TBTF) is essentially that a company can get so big that if it gets run incompetently, it will take down the entire economy, including all of us, and that this is really bad. My definition does not involve this justification. In fact, I think that justification is just an excuse, a distraction away from the real TBTF problem.

We didn’t get the bank bailout, after all, because politicians were concerned for the welfare of the people. We got the bank bailout because the banks asked for one. Politicians made little to no choice in the matter, except to get talked into it by lobbying organizations representing banks (and offering sweet reelection cash).

Which leads us to my definition of TBTF: An organization or group of organizations becomes Too Big To Fail when it gains the leverage to be able to purchase its’ continued existence from a third party even when it’s being run so badly that it should collapse.

The large banks, who essentially bribed the government into saving their asses, qualify for this definition. GM, in combination with their union, the UAW, accomplished the same, making them TBTF. In fact, all my TBTF businesses are also the government’s TBTF businesses.

But there is a difference – my analysis is predictive, because it comes with a theory.

Namely, that once a business is able to purchase TBTF power, that business can only collapse once the third party it’s purchasing TBTF power from collapses.

That is to say, I am predicting that the banks bailed out, and GM, will only be able to collapse once the government is bankrupt and no longer able to save them*.

So we’re looking at a number of supercorporations run by greedy, incompetent people, who can essentially keep getting rewarded for screwing up over and over, each time putting the government in that much more danger until finally the government collapses under corporate dead weight.

I told you in the title it’d be depressing!

Now, you may be wondering, “Well, so, are we all just doomed? What do we do about this?” Well, we might indeed all be just doomed. But the solution would be to cut down the power of any company big enough to effectively lobby the government by itself (like those banks), and to demolish any organizations coordinated enough to do the same (like, for instance, the RIAA).

Can that happen? Probably not. We’re living in a nation so utterly in the thrall of corporatism that the thought of actually controlling the entities that essentially run all our lives has become absurd.

So, yeah. Depressing.

*-It may be possible that this prediction could be wrong and yet the fundamental theory still correct, due to pricing modifications of TBTF power once invoked. In this event, verification of the theory would require much more in-depth examination of political corruption and campaign finance bribery. I hope this is the case, because this scenario offers a way for TBTF corporations to collapse possibly before the government goes with it.


An Idea for a Study on Disgust in Regards to Cognition

June 13, 2009

Establish two groups, a control group and an experimental group.

Show both groups a series of pictures, both disgusting and not disgusting, and ask the individuals how disgusting they found each picture, to get a baseline (100 pictures, 50 more disgusting and 50 less/not disgusting sounds like a good set – experimenters would be expected to eyeball the pictures for pre-baseline categorization, and reevaluate them after the baseline based on the mean disgust level).

Then, ask the persons in the control group to answer detailed questions about the pictures which were found less or not disgusting (providing them copies of the pictures for analysis), and meanwhile ask the persons in the experimental group to answer similar questions about the pictures that were found more disgusting.

Let’s say, 10 pictures with 3 questions regarding each, the pictures being selected randomly per individual.

Afterwards, show both groups a second set of pictures and ask the individuals how disgusting they found each picture.

I suspect the experimental group will show a decrease in degree of disgust relative to the control group versus the baseline measurements, despite the set of pictures being different.

More in-depth examination along this line would involve more engaging analysis of items found disgusting, and successively more distinct pictures in the second set, particularly in terms of content (i.e. if there are spiders in the first set, the second set should not have spiders).

The objective of this is to see if repeated use of articulation capability in regards to disgust reactions can instill a general shift in individual disgust response from purely emotional, to a more reasoned, articulated response.

All Economies Are Doomed!

June 12, 2009

So,  it occurred to me today that I am a market failure fatalist.

The systemic and all-consuming flaws inherent to the structure of the free market itself seem impossible to me to overcome, short total economic failure* (that probably includes all the rich people dying violently to clear up the nepotism).

A quick look at some of the problems I see, above and beyond known inherent free market flaws:

  • Self-interested actors function without ethical boundaries whenever possible – constant consumer visibility and vigilance is required to enforce a semblance of correct behavior upon industry decision-makers.
    • It is thus in the interest of said industry decision-makers to stifle consumer visibility, be it through intentional or unintentional process obfuscation, deliberate spread of misinformation, generating conflicts of interest for ideally unbiased individuals (such as scientists), or just outright lying – all to keep consumers from being aware of corporate practices and policies. Essentially, access to information about the market is an extremely valuable thing, but its’ widespread proliferation is essential for proper market function, and that proliferation is a common good which the market can not be expected to provide (further complicating things, the estimated value of that good may well exceed the value of the goods the information actually concerns).
    • It’s also in the interest of market actors to stifle consumer vigilance. Public relations maneuvers to engender ‘trust’ in corporate interests without doubt have the function of reducing scrutiny of corporate practices and policies. Furthermore, it is in the interest of market actors to leave individuals without the very skills required to correctly understand and make decisions based off of market information. Essentially, it is in the interest of the market to avoid empowering consumers, economically and intellectually, to the greatest extent possible.
  • Markets expand and new industries are created through the commercialization of goods and services – a free market can be expected to make a marketplace of anything, provided only that there is money to be had as a result. And no potential industry in the world offers a greater incentive for commercialization than the industry of legislation.
    • Not only does the free market require extensive government intervention in order to function, but the more effective that intervention becomes, the greater the incentive to any given firm becomes to manipulate the laws to remove barriers which restrict profitability. Essentially, as the law takes steps to try to prevent illegal/unethical greed, unethically greedy individuals have more and more reason to manipulate the law such that not only can they not be stopped, but so that the law can be worked to their outright advantage.
  • Economies of scale promote the focusing of greater amounts of relative wealth into successively fewer hands. This ultimately leads to a “too big to fail” problem in which one individual or a small group of individuals gain enough clout to potentially destroy markets, turning them from economic assets to potentially catastrophic liabilities. Mind, also, that this problem is not new to humanity: “Too big to fail” is a problem that has plagued government, and continues to do so to this day (frankly, that makes this problem the most solvable, as we have centuries of experience trying to fix it).
  • The ability to benefit from assets in the short-term, then divest of potentially unstable assets, combined with the concept of limited liability for asset holders, provides an incentive to work to obtain short-term profit regardless of long-term ramifications. What would normally be a high-risk/high-return gamble of assets on exclusive short-term gains becomes a low-risk/high-return gamble when limited liability is introduced into the corporate environment, even without taking into account the ability to ‘cut and run’ from a company you no longer believe you can wring further high profits from. This leads to a scenario in which our economy is collectively encouraged to ‘bet the farm’ (or firm, as the case may be) repeatedly until, inevitably, the bet fails and the economy catastrophically collapses**.

These problems are in addition to the known, and very widely-impacting common good problem, in which nobody is incentivized to develop common goods and/or everyone is incentivized to deplete them. Among other problems, this:

  • Provides incentive towards the destruction of the environment and other unsustainable business strategies.
  • Provides incentive against development of workers, community, and other infrastructure.
  • Provides incentive towards overexploitation of the consumer for profit, a resource which the depression we are sliding into has shown is not an infinitely exploitable resource.

Also, there are all the very human market problems, such as discrimination, nepotism, monopolies, the list goes on.

All in all, well. Markets fail, and we can’t stop them. They are self-consuming machines which render 99% of humanity as engines of enrichment for the phenomenally wealthy and powerful 1%, and even then dysfunctional such that people can figure this fact out every so often and go on a ‘revolutionary’ killing spree of that 1% out of spite.

*-I hope to one day learn or develop a way to overcome these problems, but solutions to them quite evidently do not exist at present.

**-Envision the following theoretical game (Which I hereby dub “Indon’s Casino”):

Each player begins the game with 1 point and may bid any number of points each round. After each player has bid, each player must roll a die with 100 sides – if that die comes up as anything but a 1, the bid is doubled. However, if it comes up as a 1, each player who did not get a 1 must reroll for that bid once for each person who got a 1.

A Story Regarding Ownership

June 5, 2009

Okay, story time!

A house owner comes along hard times and goes to talk to someone who is renting out a room in his house.

The owner says to the renter, “Sorry, I’m kicking you out.”

The renter is necessarily shocked. “What? Why!”

The owner says, “Well, money’s tight, you’re eating my food and taking up space I could use to have a home office, and the rent you’re paying me just isn’t worth it.”

The renter says, “Well, if you’ll give me a few months, maybe I can get a promotion or something and be able to pay you more rent?”

The owner replies, “That really wouldn’t align with my best interests, and the way things are, I’d much rather prefer you out as soon as possible.”

The renter grows desperate, “But without a place to live, I’ll almost certainly lose my job and starve to death! Don’t you care that you’d have my life on your hands?”

The owner says, “I don’t really see how your life is any of my concern – this is my house and I’ll do what I want with it, as is my right.”

So the owner kicks the renter out, and the renter, without a place to live (and before long also without any job prospects), eventually dies of exposure.

The moral of this depressing story? There is none – it’s a parable, I must confess to having planned a bait-and-switch.

What I want you to do now is consider your sympathies between the owner and the renter, and I want you to think of what your position on abortion is.

If you felt for the owner, are you pro-choice, and support a woman’s ownership of her womb and her resulting right to do whatever she wants with it, even if it kills someone?

If you felt for the renter, are you pro-life, and feel that the welfare of those in need outweighs the rights of those with privilege?

It seems strange to me that the american political movement nominally in favor of the rights of ownership is the same one in favor of government control of the means of production (pun extremely intended), while the american political movement that would prefer welfare for the disadvantaged is the same one that advocates that gestation needs to be privatized (and if there’s a good pun there, I intend it too).

So, yeah, just a thought I had. Plus, a story. Everyone loves stories, right?