Thursday, June 2, 2011
Talent Management Software
My article "Talent Management Software: How It Is Revolutionizing Human Resource Management" appears in the current issue of the AICPA Corporate Finance Insider.
Tuesday, May 31, 2011
The Altruistic Fallacy
I recently gave a talk at Brooklyn College's Faculty Day, a delightful annual event at Brooklyn College where about 100 of the faculty come together to share ideas. I put together a symposium entitled "Why Business Schools Can't Teach Ethics" and my paper was entitled "Ethics and the Enlightenment in Business Education." The other participants were two philosophers, Professors Michael Menser and Christine Vitrano, and my business department colleague Professor Carol M. Connell. I thought all of the presentations were very good, but a breach between the business faculty and our philosophical colleagues was evident. The philosophers tended to view ethics in terms of altruism, while I do not. Professor Connell focused on pedagogical issues. I do believe that business schools can't teach business ethics; I coined the symposium's title. But I came away thinking that philosophy departments cannot do so either.
In particular, the interpretation of ethics as altruism is misguided. Aristotle gave the first rigorous alternative to Plato's confusion between collectivism and morality--he suggested that human happiness is the best moral ground. It is true that Aristotle did not like retail trade or commercialism as we know it today, but he did not at all object to affluence, which he saw as necessary to the best life, that of philosophical contemplation. His belief in affluence as a necessary condition to the contemplative life is consistent with a belief in profit-making as we know it. Aristotle did believe in the morality of household management, oiconomos, from which the word economics is derived. However, to make the distinction between retail trade and household management intelligible in today's mindset it needs to be reversed.
Aristotle's objection to retail trade rested on the absence of a mean with respect to profit. More profit is always better, hence there is no way that a retailer can strike an intermediate between profit making and alternative aims. This is analogous to today's discussion about corporate social responsibility. However, he did see the aristocratic life of the Athenian landowner and slave master as capable of a mean. The closest analogy in our experience is the life of the Southern slave owner, who did not need to maximize profit because he was assured of a graceful life so long as he managed his plantation well. Someone like Thomas Jefferson, who engaged in philosophical contemplation as well as political activity while benefiting from his slaves' labor may be closest to the Aristotelian ideal. But as we now know, and as Jefferson himself thought, Jefferson's life depended on the profound immorality of slavery.
It is evident that in today's world, household management is less moral than retail trade, for we know that Aristotle's support for slavery was wrong. (In fact, some Sophists had argued against the institution of slavery, and Aristotle rejected their arguments.) Moreover, it is possible today to balance an affluent life with philosophical contemplation because of the separation of ownership and control, that is, because of modern capitalism. In a purely socialist or altruistic society such balance would not be possible.
Grounding morality in a belief in the worth of every individual, and rejection of Aristotle's belief that it is in the character of slaves to be slaves, we can update Aristotle and so recognize the value of his ethics. Without doing so we must reject all of Aristotle; his work is only intelligible if we replace his rejection of retail trade with a recognition that achievement is possible in the economic context. For it is only through profit-making that balance is possible. This recognition is inconsistent with the claim that altruism is moral.
Aristotle could not have conceived of instruments like stocks, bonds and pension funds that permit income without one-sided fixation, and, better than an Athenian oikos, permit philosophical contemplation. Aristotle could not have visualized the enormous effect of economic and technological advance on human welfare that has only existed under profit-seeking capitalism. The pursuit of profit has tripled life expectancy, reduced hunger for billions and made widespread education possible. In a socialist state like India infant mortality remains much higher than in capitalist countries. In the former Soviet Union male life expectancy is still in the 50s.
Aristotle could only visualize retail trade as it was limited to the ancient context. Even then, as Rostovtzeff describes in his Social and Economic History of the Roman Empire, the Hellenistic world had made tremendous advances with respect to agriculture and manufacturing that Aristotle may not have recognized because of his aristocratic orientation and his contempt for craft and technology.
In other words, human fulfillment and morality are synonymous with profit. A rigid equation of altruism to ethics ignores Henry Sidgwick's observation that we know ourselves better than others and so are better equipped to maximize our own happiness than that of others. A system that strains the possibilities of human rationality, i.e., a system based on altruism, is bound to lead to profound immorality. Altruism's responsibility for the most egregious immorality in history evidences my claim. Adolf Hitler did not pursue profit. He pursued socialist ideals as he conceived them. The altruism of Marxism is responsible for 100 million murders, the bloodiest, most immoral outcome in human history. Altruism has been responsible for uglier immorality and depredation than any outcome of capitalism. In contrast, capitalism has improved the quality of life beyond recognition to the residents of the pre-capitalist or socialist world.
The claim that there is an inconsistency between morality and profit fails to consider the distinction between profit and theft. As Benjamin Franklin claimed in the eighteenth century and as Stanley and Danko empirically confirm in their Millionaire Next Door, written in the 1990s and very much in line with Franklin's claims, the wealthy tend to be more moral than others. They tend to defer gratification, save, and productively invest. They tend to care for their families and donate to charity when they die (not before). The deferment of gratification is very much in line not only with Franklin's but with Aristotle's vision of human happiness and morality.
Business students ought not be taught that altruism is preferable to profit seeking. Rather, they ought to be taught that profit seeking needs to be rational and balanced with other goods--that it ought not to contradict the moral foundations of a free society. To claim that the quest for economic achievement is immoral is to sink backward into the immorality of Medieval tribalism and socialism.
In particular, the interpretation of ethics as altruism is misguided. Aristotle gave the first rigorous alternative to Plato's confusion between collectivism and morality--he suggested that human happiness is the best moral ground. It is true that Aristotle did not like retail trade or commercialism as we know it today, but he did not at all object to affluence, which he saw as necessary to the best life, that of philosophical contemplation. His belief in affluence as a necessary condition to the contemplative life is consistent with a belief in profit-making as we know it. Aristotle did believe in the morality of household management, oiconomos, from which the word economics is derived. However, to make the distinction between retail trade and household management intelligible in today's mindset it needs to be reversed.
Aristotle's objection to retail trade rested on the absence of a mean with respect to profit. More profit is always better, hence there is no way that a retailer can strike an intermediate between profit making and alternative aims. This is analogous to today's discussion about corporate social responsibility. However, he did see the aristocratic life of the Athenian landowner and slave master as capable of a mean. The closest analogy in our experience is the life of the Southern slave owner, who did not need to maximize profit because he was assured of a graceful life so long as he managed his plantation well. Someone like Thomas Jefferson, who engaged in philosophical contemplation as well as political activity while benefiting from his slaves' labor may be closest to the Aristotelian ideal. But as we now know, and as Jefferson himself thought, Jefferson's life depended on the profound immorality of slavery.
It is evident that in today's world, household management is less moral than retail trade, for we know that Aristotle's support for slavery was wrong. (In fact, some Sophists had argued against the institution of slavery, and Aristotle rejected their arguments.) Moreover, it is possible today to balance an affluent life with philosophical contemplation because of the separation of ownership and control, that is, because of modern capitalism. In a purely socialist or altruistic society such balance would not be possible.
Grounding morality in a belief in the worth of every individual, and rejection of Aristotle's belief that it is in the character of slaves to be slaves, we can update Aristotle and so recognize the value of his ethics. Without doing so we must reject all of Aristotle; his work is only intelligible if we replace his rejection of retail trade with a recognition that achievement is possible in the economic context. For it is only through profit-making that balance is possible. This recognition is inconsistent with the claim that altruism is moral.
Aristotle could not have conceived of instruments like stocks, bonds and pension funds that permit income without one-sided fixation, and, better than an Athenian oikos, permit philosophical contemplation. Aristotle could not have visualized the enormous effect of economic and technological advance on human welfare that has only existed under profit-seeking capitalism. The pursuit of profit has tripled life expectancy, reduced hunger for billions and made widespread education possible. In a socialist state like India infant mortality remains much higher than in capitalist countries. In the former Soviet Union male life expectancy is still in the 50s.
Aristotle could only visualize retail trade as it was limited to the ancient context. Even then, as Rostovtzeff describes in his Social and Economic History of the Roman Empire, the Hellenistic world had made tremendous advances with respect to agriculture and manufacturing that Aristotle may not have recognized because of his aristocratic orientation and his contempt for craft and technology.
In other words, human fulfillment and morality are synonymous with profit. A rigid equation of altruism to ethics ignores Henry Sidgwick's observation that we know ourselves better than others and so are better equipped to maximize our own happiness than that of others. A system that strains the possibilities of human rationality, i.e., a system based on altruism, is bound to lead to profound immorality. Altruism's responsibility for the most egregious immorality in history evidences my claim. Adolf Hitler did not pursue profit. He pursued socialist ideals as he conceived them. The altruism of Marxism is responsible for 100 million murders, the bloodiest, most immoral outcome in human history. Altruism has been responsible for uglier immorality and depredation than any outcome of capitalism. In contrast, capitalism has improved the quality of life beyond recognition to the residents of the pre-capitalist or socialist world.
The claim that there is an inconsistency between morality and profit fails to consider the distinction between profit and theft. As Benjamin Franklin claimed in the eighteenth century and as Stanley and Danko empirically confirm in their Millionaire Next Door, written in the 1990s and very much in line with Franklin's claims, the wealthy tend to be more moral than others. They tend to defer gratification, save, and productively invest. They tend to care for their families and donate to charity when they die (not before). The deferment of gratification is very much in line not only with Franklin's but with Aristotle's vision of human happiness and morality.
Business students ought not be taught that altruism is preferable to profit seeking. Rather, they ought to be taught that profit seeking needs to be rational and balanced with other goods--that it ought not to contradict the moral foundations of a free society. To claim that the quest for economic achievement is immoral is to sink backward into the immorality of Medieval tribalism and socialism.
Monday, May 30, 2011
How Government Causes Your Gasoline Prices to Be High
The subject of high gasoline prices is on everyone's mind (h/t Mike Marnell). The Department of Energy produces well known statistics (also here) that break down the national average cost of gasoline:
Taxes: 14%
Distribution and Marketing: 10%
Refining: 5%
Crude Oil: 71%.
Of the 86% other than taxes, the percentage due to profit varies. Sunoco is less profitable than Exxon, for instance. Exxon makes 8.2% post-tax profit on sales, so when you go to Exxon you pay 8.2% x 86% = 7.1% in profit to Exxon and 14% in government taxes. If you go to Sunoco you pay 1.2% x 86% or 1%. At Exxon, taxes are twice profit, at Sunoco they are 14 times profit. Note that these numbers are not risk-adjusted. In 2009 Sunoco lost money. To be fair, returns should be adjusted for legitimate risk of loss.
If you parcel out the federal and state average tax and look at New York State the picture is worse. The Tax Foundation reports that as of January 1, 2011 New York had the second highest tax on gasoline in the country: 47 cents per gallon. The federal tax is 18.4 cents per gallon. The total is 65.4 cents per gallon. The AAA's Daily Fueld Gauge Report indicates that on May 30, the average price per gallon in New York was $4.03. That means that taxes are closer to 16.23% rather than 14%. Thus, in New York the breakdown looks like:
Taxes: 16.23%
Distribution and Marketing: 9.7%
Refining: 4.9%
Crude Oil: 69.2%
Thus, in New York Exxon shareholders do worse than nationally but because of low profits, Sunoco's shareholders do about the same as nationally. Exxon makes 8.2% x 83.77% or 6.9% profit compared to government's 16.23% share. That is, Exxon's shareholders make 42.6% of what is taken in gasoline taxes (not counting sales and income taxes). Sunoco's shareholders make 1.2% x 83.77% or 1%. Sunoco shareholders get one sixteenth of what government takes.
If you parcel out the federal and state average tax and look at New York State the picture is worse. The Tax Foundation reports that as of January 1, 2011 New York had the second highest tax on gasoline in the country: 47 cents per gallon. The federal tax is 18.4 cents per gallon. The total is 65.4 cents per gallon. The AAA's Daily Fueld Gauge Report indicates that on May 30, the average price per gallon in New York was $4.03. That means that taxes are closer to 16.23% rather than 14%. Thus, in New York the breakdown looks like:
Taxes: 16.23%
Distribution and Marketing: 9.7%
Refining: 4.9%
Crude Oil: 69.2%
Thus, in New York Exxon shareholders do worse than nationally but because of low profits, Sunoco's shareholders do about the same as nationally. Exxon makes 8.2% x 83.77% or 6.9% profit compared to government's 16.23% share. That is, Exxon's shareholders make 42.6% of what is taken in gasoline taxes (not counting sales and income taxes). Sunoco's shareholders make 1.2% x 83.77% or 1%. Sunoco shareholders get one sixteenth of what government takes.
Even more importantly, the explanation for Exxon’s profits is not higher prices. If it were, Exxon would lose business to Sunoco because of the higher prices. But Exxon's prices are not appreciably higher than Sunoco's, and Exxon has been more profitable than Sunoco for a long time. Rather, Exxon’s higher profits are due to better efficiencies, economies of scale, better reserves and the like.
Recently my local congressman, Maurice Hinchey, proposed to tax oil companies' profits because of rising gasoline prices. But 14% of the price is due to Hinchey and his fellow congressmen, while only 8.2% in the case of Exxon or 1.2% in the case of Sunoco benefits shareholders. By taxing profits Hinchey would aim to penalize efficiency. This could make Exxon less eager to minimize price. If it is the low cost producer, then its raising price will enable Sunoco and other producers to raise their prices. Hence, Hinchey's economic illiteracy, his eagerness to raise taxes, could make gasoline more expensive across the board. By penalizing efficient producers Hinchey would make them less efficient, causing them to aim to raise prices.
This would be much like what Hinchey has done with respect to government. During his tenure in Congress, Ulster County's economy has been a disaster area. The reason is the economically illiterate policies that Hinchey advocates: his penchant for an environmental extremism that trumps economic welfare, and his pandering to wealthy trust fund babies and elite professionals in Woodstock and New Paltz, who are all too eager to grind the average working person's economic welfare under the heels of their Birkenstock sandals.
This would be much like what Hinchey has done with respect to government. During his tenure in Congress, Ulster County's economy has been a disaster area. The reason is the economically illiterate policies that Hinchey advocates: his penchant for an environmental extremism that trumps economic welfare, and his pandering to wealthy trust fund babies and elite professionals in Woodstock and New Paltz, who are all too eager to grind the average working person's economic welfare under the heels of their Birkenstock sandals.
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