Hacker's lounge: Whos Making Money

Matt Yglesias of the Center for
American Progress Action Fund
ponders the logical endpoint of Milton Friedman’s famous
declaration that “the social responsibility of business is to
increase its profit.”

This implies that a business executive has not only the right as
a citizen of a democratic country but amoral obligation to dedicate
his energy and that of the firm he manages toward erecting
regulatory barriers to competition and to begging for bailouts and
subsidies. The Friedman view is that an entrepreneur who’s obsessed
with creating great products is not just in some loose sense a
sucker compared to the one who’s more focused on creating a
politically entrenched monopoly, but that he’s also guilty of some
kind of ethical failing.

Yglesias suggests that, in the end, Friedman’s notion that
profit is the goal is effectively a “social responsibility to
rent-seek.” I'm not so sure, for a couple of reasons.

The first—one espoused by any number of free-market business
owners—is that most folks who subscribe to a basically Friedmanite
view of the world also believe that the short- and medium-term
profits earned through rent-seeking tend to come at the expense of
a firm’s long-term profits and sustainability. Perhaps a firm
initially makes some money by lobbying for taxes and regulations
that push smaller firms out of the market. But in the long run,
those profits are the products of market distortions, and thus not
healthy for the firm, which becomes increasingly reliant on
favoritism and intervention rather than price signals over time.
That sort of rent-seeking behavior also encourages a competitive
regulatory environment, in which other firms and interested parties
(bureaucrats, special interest groups, politicians, etc.) will soon
seek to use similar tactics against your firm. Eventually those
parties will be successful. The underlying idea behind this view is
that it’s bad business to work toward making rent-seeking a greater
part of the regulatory environment.

The second thing to note is that Yglesias is at least partially
right in that many businesses
do end up accepting and embracing the notion that
rent-seeking is simply part of their business. But if you think
this is a problem, then the most effective response is to look for
ways to make rent-seeking behavior more difficult. And since one of
the basic premises when it comes to rent-seeking is that rules and
regulations will almost always be gamed in favor of one party or
another, and that more rules leads to more gaming, you don’t
accomplish this through regulation. Instead, you make rent-seeking
harder by making government smaller, and simpler, and less
powerful, and therefore 1) harder to manipulate and 2) less
enticing, thanks to the limits on its influence, to those looking
to exploit its rules. The less advantageous it is to game the
government, the fewer businesses will attempt to do it.

In 2005, Reason
hosted a debate over the meaning of corporate social
responsibility between Milton Friedman, Whole Foods' John Mackey,
and Cypress Semiconductor's T.J. Rodgers.

The new Congress voted overwhelmingly Thursday, 410 to 13, to cut its own budget. Critics call the move largely symbolic when comparing the savings estimated to be $35 million dollars to the $3.5 trillion dollar federal budget.

Campbell, a four term Republican, told CNN how he plans to cut his own $1.5 million office budget by $75,000. He has eliminated one position on his staff of 14. The office has a new, cheaper long distance phone carrier, they have canceled some publications, they plan more constituent outreach via email to save on postage and the new Republican congressional work schedule means fewer trips back to his California district.

The congressman, who is a former small businessman himself, says it makes sense for Congress to start with its own budget. "Businesses small and large are having to do more with less, and it's time we in government do more with less."

"Private businesses have been doing this because they're out money," he said. "Guess what, the federal government is out of money. We've been out of money for years. We just print it and borrow it. But we're not going to be able to print it and borrow it without end."

The congressman and his chief of staff have been going over the office budget with a fine tooth comb.

"We have gotten accustomed to getting an increase in our annual budget every year," said Campbell. But he said he has always run a "frugal" office giving back a portion of his budget every year but never as high as 5 percent. "It's not fun, but you're forced to do with less," he said.

Campbell told CNN he thinks the cuts to congressional office budgets should be even deeper than 5 percent but he's not sure his colleagues would go along with that. He confides the 5 percent cuts have spurred some "whining." "But I think the vast majority of people understand that they can do this, and more importantly, that we need to do this."

Hacker's lounge

Monday, February 21, 2011

Whos Making Money

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