Kevin Williamson reviews *Big Business*

Here is part of the review:

Professor Cowen has a reputation as a contrarian, but that is not exactly right. He has a great talent for revealing truths that are right under our noses but oddly overlooked — or willfully obscured. His latest book, Big Business: A Love Letter to an American Anti-Hero, is an excellent, easily digestible exercise in exactly that. Why is it, he asks, that Big Business is not more widely admired and appreciated? Large-scale corporate enterprises provide a great many jobs; relative to smaller firms, they typically pay their workers more and treat them better, invest more in research and development, are more productive and more innovative, and conduct their business at least as ethically. He knocks down a series of myths about excessive executive compensation, “quarterly capitalism” obsessed with short-term profits, monopolistic temptations, and the purportedly outsize role of finance in our economy.

On the last of those, Professor Cowen offers one of his extraordinarily useful, obvious-if-you-think-about-it insights: The argument that finance has grown too large as a share of U.S. economic activity is based in part on the fact that in the 1960s finance accounted for about 4 percent of GDP whereas it recently has been above 8 percent. That’s the wrong comparison, he argues: Finance is engaged in the business of managing wealth, not in the business of managing current income flows exclusively; it makes more sense, then, to examine the share of assets that the financial sector controls, which, as is turns out, has not changed very much over the years, floating around 2 percent. While other social critics have written great volumes about “financialization” — where it comes from, what it means, whether it is desirable — Professor Cowen first stops to ask whether the thing that everybody knows is happening is in fact happening.

There is much more at the link.


Such genius. Thank you Prof. Cowen for your demonstration that indeed we live in the best of all possible worlds.

I think the finance statistic is wrong. Most studies I show indicate finance as a percent of GDP, which means it's adjusted for assets, given that assets and GDP (national income) are linearly proportional.

...but Williamson's whole point, which is correct, is that they are not linearly proportional. Assets have grown much faster than income. That is one reason why the S&P 500 pays only a 1.8% dividend.

'Professor Cowen has a reputation as a contrarian'

Along with having a reputation for being a libertarian.

Libertarianism attracts the most masculine of females and the most feminine of males. Libertarianism = economic cuckoldry. Vote for Trump or Bernie not who these cuckolds want you to vote for (wimps like Bush?!?).

A libertarian that is really a neocon interestingly enough.

I don't see the chapter on AIG, CITI, GM etc getting government welfare checks to survive and how they treat their failing execs with bonuses.

Where's the section on crony capitalism? Anything about the overpriced (relative to every OECD nation and your Mercatus Center) US healthcare along with perverse mark up incentives that private healthcare causes? I guess big business is not a flawless saint?

“Why is it, he asks, that Big Business is not more widely admired and appreciated?”

Does the book address the question of whether this assertion is true?

I would say Big Business actually *is* widely admired and appreciated. It’s just that it is assumed as a shared background assumption, not requiring additional laudations, fortifications or even reminding of. So it seems like there is only criticism.

I the book argues the assertion is true, it might be interesting. But othewise, isn’t it just a repetition of the known state of affairs?

(((Big Business)))

Let that freak flag fly, hun!

They will not replace us.

What Cowen seems to be saying about the financial sector is that there is no collusion. Here is an interesting statistic: in the past 40 years, wages in the financial sector have grown by 100% even as the sector's share of total private employment has been flat (it rose sharply in the 1980s then fell back to the share in 1978). By comparison, wages in the overall private sector, including the financial sector, have risen only about 20%. Not surprisingly, the financial sector is attracting an increasing number of the most talented, highly educate workers and elite college graduates; indeed, the financial sector is increasingly relying on computer engineers and quants for making investment decisions. Other sectors, including manufacturing, are losing out to the financial sector for the best talent, which may help explain the absence of innovation in those other sectors.

Agreed, rayward. Also finance has a stable % on the base of a huge increase in financial assets begs the question: why isn't that % _declining_ significantly, given it may enjoy the ultimate economies of scale? Comp/rent seeking.

I recall the spike in employment in "banking" in the 1980s. Of course, "banking" back then meant something very different from "banking" today. The rise in inequality, in particular wealth inequality, has change the nature of "banking". "Managing current income flows" is not what "banking" is all about today: it's about preservation and growth of capital. Not surprisingly, as wealth inequality rose so did reliance on rising asset prices for prosperity. Smart people go into "banking" for the same reason Willie Sutton robbed banks: because that's where the money is. One might ask whether the rise in banking contributed to the rise in inequality, or is it the opposite, did the rise in inequality contribute to the rise in banking; and did the rise in inequality and banking contribute to the rise in reliance on rising asset prices for prosperity. These are not easy questions to answer, and Cowen makes little or no effort in tying to answer them. He prefers to dumb down the meaning of "financial sector" in his quest to find praise for "big business"; and in doing so, he found a fellow traveler in Mr. Williamson.

Prior to 2008, banks included national- and state-chartered financial intermediaries/institutions (banks, savings and loan assoc., credit unions) empowered to take in consumer deposits and were federally-insured by the NCUA, FDIC or the FSLIC before it went bust after the S&L crisis.

After 2008, every insurance company, every investment bank, every stock broker, every mortgage banker/broker, every money market mutual fund, every stock mutual fund, plus GM, . . . became a bank. And, if it was too big (systemically significant), it could not be allowed to fail UNLESS its name was Lehman Brothers.

KDW would be very intersting but I'm not really sure if he interviews well. I imagine Tyler thinks he is standard/boilerplate right of center views. Even if that is true, it is still interesting times in American politics.

also, did you see that George Will has a new book coming out in June?

He would also be a great cnoversation.

Fascinating book. I devoured it while on vacation earlier this week.

Just a few things that leave me wondering:

(1) Professor Cowen makes the case that returns to talent in general are high and rising -- since good athletes and good lawyers are also earning lots of money, CEOs doing the same aren't (necessarily) ripping off anyone.

Elsewhere, Professor Cowen explains what some call wage stagnation by saying productivity gains have stalled.

Does Professor Cowen believe that our current economy has made more talented people much more productive than less talented people to a greater extent than in the past?

(2) Professor Cowen said that government regulation has caused many of the economic problems with health care/insurance, especially by reducing competition. To what extent does he believe free markets can work with health care/insurance?

Disclosure: I'm a former student of Professor Cowen's, from the early 1990s -- including graduate IO.

since good athletes and good lawyers are also earning lots of money, CEOs doing the same aren't (necessarily) ripping off anyone.

Unfortunately for this argument, there do not exist the same metrics for judging CEO performance as for athletes or lawyers. And for some CEO's that's a good thing.

I agree with much of the thesis of Big Business, but there's always the danger of over-arguing your point. The "myth" of quarter-driven capitalism is one topic that struck me. Working inside a big, public company, I see plenty of work going on purely to make quarterly numbers that would otherwise just be make-work. Software capitalization, hiring freezes, slow rolling projects, revenue recognition schemes, and so on. These eat up plenty of time and attention and serve no real function other than making or trying to make quarterly numbers. Like the recent GE example shows, often the more regularly a company makes its numbers, the more shenanigans are going on in the background. Forecasting is inherently uncertain, but our equity investment ecosystem likes to pretend that it's not. It's not the worst thing in the world, but there is a whole world of processes and software systems at large companies devoted to turning various dials on quarterly numbers.

Big companies also do tend to often be Dilbert-style bureaucracies where most people are to some degree making it up as they go along. Not exactly the best for employee engagement and happiness.

Overall, big business is another one of those worst except for everything else we've tried phenomena. It's a good thing, but let's not carried away praising it.

What is this?

Actual facts?

Why is it, he asks, that Big Business is not more widely admired and appreciated?

Well, Boeing just killed about 350 people in the pursuit of cost savings.

The financial sector plunged us into a giant recession not too long ago.

I'm sure other can add to the list.

More broadly, according to standard libertarian doctrine business has no obligation to do anything but maximize profits. Why should I admire these organizations? Their activities are (usually) legal, but any good they do is, by this doctrine, incidental to their purposes.

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