Socialism is such an inspiration. The AP's Eliane Engeler's description of North Korea on Yahoo! reminds me of the New York City subway system under Mayor Ed Koch.
>GENEVA – A U.N. human rights investigator accused North Korean authorities Monday of committing widespread torture in prisons that he called "death traps."
Life in the reclusive communist-ruled country is "dire and desperate," said Vitit Muntarbhorn, adding that people are denied enough food to survive.
Muntarbhorn told the 47-nation Human Rights Council that whole families are routinely sent away for the crimes of one member. Once imprisoned, they suffer greatly.
Monday, March 16, 2009
The Concept of Fiduciary Duty in Business Administration
Business schools have been in existence for more than a century, but they have failed to articulate a meaningful explication of the concept of fiduciary duty as it applies to managers. This omission is striking because the primary duty of management is to serve shareholders. The subject of economics, specifically information economics, has developed an attenuated image of fiduciary duty as alignment of two utility functions--that of manager or agent and that of principal or stockholder. However, the practical ramifications of such alignment are not explicit and remain a sphinx-like riddle.
Do managers owe a duty of disclosure to shareholders, and if so, what competencies are required to exercise such disclosure?
Do managers owe a duty to act in good faith toward shareholders? If so, what is the ethical make up required of managers?
Must managers be capable of explaining bad news in a balanced way? If so, what competencies are required?
Are managers expected to act on behalf of shareholders? If so, to what degree does an understanding of economics, incentives and accounting serve as a pre-requisite to competent managerial action?
How far are boards expected to go in assessing personnel standards and systems?
These questions are not asked in management courses. Nor are they answered. They are not asked in business schools at all, nor are they answered.
It is not surprising that American business has become a spectacle of bad ethics, incompetence, mismanagement and waste. Corporate boards have not been required to develop standards of competence. Little is expected of boards. Managers are compensated on the basis of stock market trends that do not reflect managerial skill.
Do managers owe a duty of disclosure to shareholders, and if so, what competencies are required to exercise such disclosure?
Do managers owe a duty to act in good faith toward shareholders? If so, what is the ethical make up required of managers?
Must managers be capable of explaining bad news in a balanced way? If so, what competencies are required?
Are managers expected to act on behalf of shareholders? If so, to what degree does an understanding of economics, incentives and accounting serve as a pre-requisite to competent managerial action?
How far are boards expected to go in assessing personnel standards and systems?
These questions are not asked in management courses. Nor are they answered. They are not asked in business schools at all, nor are they answered.
It is not surprising that American business has become a spectacle of bad ethics, incompetence, mismanagement and waste. Corporate boards have not been required to develop standards of competence. Little is expected of boards. Managers are compensated on the basis of stock market trends that do not reflect managerial skill.
Howard S. Katz's Poem for March 8
Howard S. Katz has preceded his current newsletter with this poem:
A sadder man you’ll never see
Than Don Quixote Bernanke.
The only thing that he does know
Is how to print a lot of dough.
He’s striding all about the town
Not knowing whether up is down.
He fights “Depression” it is said.
“Depression” is all in his head.
Dear Bernanke, may I be bold?
Suggest you view the price of gold.
The thing to know, before you sup,
The price of gold is going up.
And that’s a signal, if you’re wise,
That all the prices – gonna rise.
And then the country will be poor,
No goods to buy at local store.
You’re bailing out the ultra-rich
And leaving country in the ditch.
I’ve said to you, you are a cad.
Cause printing money’s very bad.
No, this is point you do not know.
One can’t get rich by printing dough.
So turn your policy around
And give us money that is sound.
A sadder man you’ll never see
Than Don Quixote Bernanke.
The only thing that he does know
Is how to print a lot of dough.
He’s striding all about the town
Not knowing whether up is down.
He fights “Depression” it is said.
“Depression” is all in his head.
Dear Bernanke, may I be bold?
Suggest you view the price of gold.
The thing to know, before you sup,
The price of gold is going up.
And that’s a signal, if you’re wise,
That all the prices – gonna rise.
And then the country will be poor,
No goods to buy at local store.
You’re bailing out the ultra-rich
And leaving country in the ditch.
I’ve said to you, you are a cad.
Cause printing money’s very bad.
No, this is point you do not know.
One can’t get rich by printing dough.
So turn your policy around
And give us money that is sound.
Thursday, March 12, 2009
Inflation as Loss Function
Banks create money and then lend it to borrowers. The quality of projects that banks select will cause inflation, stable prices or deflation. The best quality projects would cause productivity to exceed the amount of money created, and so monetary expansion to be deflationary. If projects that banks select just equal the average quality of economic productivity then there will be neither deflation nor inflation. If banks consistently choose projects that are inferior to the average project with respect to productivity then there will be inflation.
This suggests that inflation can be viewed as a quality loss function (see discussion in Taguchi). The target loss should be negative. Economically, diminishing marginal productivity suggests that as more money is created losses will be greater. However, if banks are competently run and have adequate quality processes with respect to project selection, they can offer loans to projects and sustain zero inflation.
The management of banks becomes a critical problem to economic welfare if the banks themselves lack quality management capacity to select loans. This has been the case. It is impossible for outsiders to design quality processes that will improve loan selection because this depends on identification of borrower and project characteristics that are only known to lenders.
There is no literature on selection of entrepreneurial risk by lenders. This is not a topic that academics have treated and it is not a topic that bankers have carefully considered.
As a result of the absence of quality processes in making loans, the financial system has failed to make loans effectively. The current financial process results from quality losses, i.e., the Taguchi loss function among banks is large and so results in bad loans. Consistent inflation since the establishment of the Fed suggests that banks have failed to develop competent quality processes in lending.
Anecdotal evidence suggests that banks have consistently made loans based on incompetent criteria: to large institutions who cannot make good use of the funds; to firms with close connections to the banks and to firms engage in activities that loans other banks are making. This mimetic pattern suggests a financial system that is, in Deming's terms, "out of control". A competently run banking system would permit economic expansion coupled with stable prices.
The banking system requires restructuring to facilitate adoption of competent, quality driven practices with respect to lending. Banks must become competitive. Banks which fail to produce loans that generate net gains to society (i.e., deflationary loans) should be refused access to Federal Reserve bank credit.
This suggests that inflation can be viewed as a quality loss function (see discussion in Taguchi). The target loss should be negative. Economically, diminishing marginal productivity suggests that as more money is created losses will be greater. However, if banks are competently run and have adequate quality processes with respect to project selection, they can offer loans to projects and sustain zero inflation.
The management of banks becomes a critical problem to economic welfare if the banks themselves lack quality management capacity to select loans. This has been the case. It is impossible for outsiders to design quality processes that will improve loan selection because this depends on identification of borrower and project characteristics that are only known to lenders.
There is no literature on selection of entrepreneurial risk by lenders. This is not a topic that academics have treated and it is not a topic that bankers have carefully considered.
As a result of the absence of quality processes in making loans, the financial system has failed to make loans effectively. The current financial process results from quality losses, i.e., the Taguchi loss function among banks is large and so results in bad loans. Consistent inflation since the establishment of the Fed suggests that banks have failed to develop competent quality processes in lending.
Anecdotal evidence suggests that banks have consistently made loans based on incompetent criteria: to large institutions who cannot make good use of the funds; to firms with close connections to the banks and to firms engage in activities that loans other banks are making. This mimetic pattern suggests a financial system that is, in Deming's terms, "out of control". A competently run banking system would permit economic expansion coupled with stable prices.
The banking system requires restructuring to facilitate adoption of competent, quality driven practices with respect to lending. Banks must become competitive. Banks which fail to produce loans that generate net gains to society (i.e., deflationary loans) should be refused access to Federal Reserve bank credit.
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