The Hindu Business Line : Engineered market failures?

There is something more corrupt than handing out cash at the polls, says Martin Fridson: the insidious practice of rewarding the backers by making the playing field less level, at the taxpayers’ expense.

“The shrewdest benefit seekers work both sides of the street. That way, they ensure that they will get to feed at the trough no matter which party triumphs.” Powerful businesspeople lobby for their own subsidies, pleading their case in the name of objectives more politically correct than profit maximisation, rues Fridson, in ‘Unwarranted Intrusions’ ( www.wiley.com ).

He reiterates the simple economic rule that economic activity should be left to the markets, except where the market fails. (‘Failure’ is when goods and services do not wind up being allocated efficiently.) Unimpeded markets tend to satisfy consumers’ wants and allocate scarce goods equitably, the author reasons.

“When elected officials concoct some new subsidy or regulation, they feel obliged to defend it on the grounds that leaving people to the mercy of the marketplace has resulted in an economic injustice.”

Deviously, therefore, politicians devise their programme first and then “find a supposed market failure to justify it.” That way, market failures, be they real or imagined, or self-fulfilling, are what politicians generally thrive on.

“The more failures that occur, the more subsidies the legislators can justify. More subsidies mean more opportunities to buy votes. Consequently, politicians are predisposed to see market failures all over the place.”

Alarmingly close to reality!

People don’t buy stock

Rewind to mid-1987. “Wall Street was in the midst of a raging bull market, and freshly minted millionaires were being spit out a dime a dozen,” narrates Jordan Belfort in ‘The Wolf of Wall Street’ ( www.landmarkonthenet.com ).

“Money was cheap, and a guy named Michael Milken had invented something called ‘junk bonds,’ which had changed the way corporate America went about its business. It was a time of unbridled greed, a time of wanton excess. It was the era of the yuppie.”

The ‘Wolf’ memoir begins with the 24-year-old author at LF Rothschild, as ‘lower than pond scum’ to work as ‘connector’. Which means “you’ll be dialling the phone 500 hundred times a day, trying to get past secretaries,” his tormentor Scott explains. “You’re just trying to get business owners on the phone.”

Wall Street’s no place for kids, he instructs Jordan. “It’s a place for killers. A place for mercenaries.” There’s a bright side, though. “If by some miracle you don’t get fired for laziness, stupidness, insolence, or tardiness, then you might actually become a stockbroker one day.”

Mark Hanna, a Master of the Universe, on the broking floor, imparts his gyan to the rookie: “High pressure’s a must in this business. People don’t buy stock; it gets sold to them.”

Hours later, over the first lunch, Jordan would listen to Mark’s philosophies: “The money’s great and everything, but you’re not creating anything, you’re not building anything. So after a while it gets kinda monotonous.” And confessions: “The truth is we’re nothing more than sleazoid salesmen. None of us has any idea what stocks are going up! We’re all just throwing darts at a board and, you know, churning and burning.”

A cautionary tale.

Value every minute

What does 5,69,400 mean to you? Clueless? Or, 6,57,000? Price tag of ‘two different models of the same mid segment car,’ wonders Santanam, in ‘My Honeymoon with a Pinch of Salt’ by Virender Kapoor ( www.ubspd.com ).

“The problem today is that each one of us looks at every figure as representing money,” interrupts an old man, in the story. He goes on to inform Santanam that the numbers represent the hours in the life of one who lives up to 65 and 75 years of age, respectively.

“We never realised that we waste so much of our precious time just bickering and fighting over trivial issues,” frets Santanam, surprised by the figures. “He had been spending so much time reading balance sheets that these simple calculations about the balance sheet of life never ever occurred to him,” observes Kapoor.

Quickly deducting time spent in sleep and so on, Yamini arrives at 1,50,000 as the hours of quality time at our disposal. Suppose we had only Rs 1,50,000 for our entire life. How would we spend the sum? “I will be damned if I waste even one dime out of it!” realises Yamini. “Therefore, value every minute of your life – and that makes a good business sense,” suggests the old man.
Instructive lessons through a fable.
Who is a suitable person?
“I don’t really understand how banks work,” says Moist, a character in ‘Making Money’ by Terry Pratchett ( www.crosswordbookstores.com). That sets off a brief education, as follows: ‘You’ve never put money in a bank?’ ‘Not in, no.’ ‘How do you think they work?’ ‘Well, you take rich people’s money and lend it to suitable people at interest, and give as little as possible of the interest back.’ ‘Yes, and what is a suitable person?’ ‘Someone who can prove they don’t need the money?’ ‘Oh, you cynic. But you have got the general idea.’
Elsewhere in the book, you’d find Moist, ‘more than moist’, on the roof of the Tanty, the city’s oldest jail. “He’d reached the point where he was so wet that he should be approaching dryness from the other end…”
Fun read.

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