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On John Stewart, Private Equity, and US Manufacturing

February 21, 2012

Hey Guys,

Jon Stewart interviews
a Yale prof. about private equity.  I can’t recall if this was the
link in the last discussion…oh well.

From → Uncategorized

  1. I liked that video a lot, Roberto. Thanks for sending it.

    With the notion of free markets versus prudent government intervention in mind, I thought this article would be a nice complement to the John Stewart video

  2. I didn’t see the extended version of the john steward interview, and although I respect John alot, I think he failed to grasp the legality of the corporate entity. Many liberals often decry the longstanding law that declares that a corporation is a person because it sounds as if corporations can be treated like people. But the other side of it is that corporate entities exist outside of the officers that control them. So it is a two-edged sword. Corporate officers that violate their (sole) duty to maximize profits for the corporation are subject to a lawsuit by the corporation itself. What John Stewart argued by asking whether a majority of the board is selected by the sleazy company essentially misses the point because it is not only the board officers that can sue. Shareholders (like you and me) can sue as well if we can bring a colorable claim of corporate malfeasance. This traditional rationale for treating the corporate entity is, thus, to incentivize optimal conduct on the part of the corporate entity. In reality, corporate boards are probably subject to their share of inside deals, indifferent shareholders, and self-serving officers. But that might be more the fault of a failure in shareholder vigilance than the law itself.

    The NYTimes article was interesting, and I almost entirely agree, but as someone who is navigating the local political world, making the USA a country that “makes stuff” carries alot of political weight (even to the white collar professionals in NYC). This may be a poor understanding of what drives the economy, but I think, in a way, there is an appeal to manufacturing because Marx was right: if at some point we are too disconnected from the product of our labor (i.e our physical stuff), it just doesn’t sit right in our gut. I guess sometimes, efficiency is just not efficient for the human soul.


  3. Wang, I think John Stewart’s argument wasn’t necessarily about whether corporations were acting legally, but whether the legal structure for a corporation as it exists actually benefits society at large. (At least that’s what I recall, I don’t remember the video too clearly). I think John Stewart sees that broadly, there are real benefits to the system. I think his frustration, like many of us, myself included, comes from the fact that little can be done when there’s an obvious problem. In this case, when risks that reach beyond those party to a transaction, might severely hurt society at large. Problematically, the system is set up to maintain the status quo as opposed to making effective changes when and where needed. Worse still, anyone who seeks to inhibit some transactions is seen as a socialist who won’t allow the natural tendencies of the market to choose the winners (the most efficient, smartest, etc.) against the losers. For many reasons, government is often incapable of making smart changes, usually because the risk takers are backing the campaigns of the law makers, effectively narrowing the principal agent relationship between society and its politicians, to rich people and politicians.

    Regarding your comments about “making stuff”, I’ll have to respectfully disagree. The fact that something is good politics is a bad reason to push forward an agenda or an idea. It distorts the economy further and places a cost on society. What would be ideal is to think of longer term solutions for the gap that the drop in manufacturing has placed on employment by decreasing labor constraints. Solutions include increasing educational opportunities so workers can constantly acquire new skills, and focusing more efforts on housing and mortgages under water so that there’s greater mobility between labor markets. Also, note that America is still the number one manufacturing country in the world (see here). Any notion that we don’t make stuff any more is off-base.

    I also disagree with your comment about Marx. It’s not at all obvious that humans are somehow worse off now because we’re removed from the product of our labor. Or that we are even divorced from our productive efforts. I don’t think physically making things invigorates the human soul. It’s more complicated than that. I think serving others in some capacity or being a part of a team that produces helpful information can be just a rewarding as building something. I think psychologically if you understand your role in your employment as being an integral component to your place of work, than you’ll be satisfied with what you do. Further, human beings have spent millenia serving other people in the work, teaching, organizing homes, business, societies, etc. These kinds of activities are as much a part of human history as making stuff so it’s not clear to me that we should lament the relative shrinking of one activity as others grow more popular. Especially when we’re more productive doing the other things.


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