Category: Economics
CEOs and Marginal Product
I think Tyler is being unnecessarily opaque in his two posts (here and here) on CEO pay and marginal product.
Contra Tyler, it is, of course, perfectly reasonable to compare a CEO with his or her likely replacement. Board of Directors do this all the time. If the Board finds that revenues would be the same with a new CEO the theory doesn’t say that the current CEO should get a zero wage (as Tyler oddly suggests). It says that the current CEO should not be paid more than the wage necessary to hire the replacement. If the current CEO is paid more, he may be out a job. If the current CEO is paid less, he may move.
Tyler argues that CEOs are paid far too little (less than 1% of their marginal product). I say that as a result of the process described above CEOs are paid more or less their marginal product on average. Indeed, according to one astute writer, Gabaix and Landier find that replacing “replacing the No. 250 chief executive with the No. 1 will increase the value of the company by only 0.014 percent.” More or less means that principal agent problems, risk aversion and uncertainty also matter but they matter within a range determined by the usual process. I also believe that the case for some CEOs being overpaid because they choose friendly board members is far stronger than Tyler’s case that CEOs on average are radically underpaid.
Addendum: Tyler’s points about tax incidence are well taken and need not rely on an underpayment argument.
What is the marginal product of a CEO?
If you read carefully my post from yesterday, you may have noticed what a tricky question this is. “CEO” of course is a discrete position, and while there are companies with “zero” or “two” CEOs, those comparisons are not the correct ones to define marginal product; in any case they would give you two very different numbers.
Nor is it correct to compare “this CEO” to “his likely replacement.” That difference could be zero, but it does not mean the CEO adds zero value or will or should receive zero pay. Keep in mind that we are already juggling a few margins here, including “getting this CEO to work harder or better” and “this CEO vs. another.”
Alternatively, imagine there are ten firms in the economy, of differing size and import, all bidding for managers in a pool of fifty people. A credible CEO offer has to satisfy a participation constraint, namely getting the candidate to take the job over CEO at a lesser firm or working in a lesser job. But if a CEO can add 50 percent of value to a firm, that CEO will not in general be paid fifty percent of the firm’s value and need not be paid anything close to that. The shareholders know he will take the job for less and there are other candidates who might add forty-seven percent of value. The firm can make a credible offer of “two percent of value added” and it might be accepted.
Unlike hiring widget-makers for “less than their marginal product,” there is no subsequent disruption of equilibrium which must follow from this apparent disjunction of CEO pay and marginal product. For instance there is no firm-level incentive to further expand output or hire extra CEOs. There is one discrete slot, a wide range of potential compensation values, and the final sum is set by a bargain, determined by the context of principal-agent theory.
CEOS who can add so much value will try to start and grow their own firms, holding lots of equity from the very beginning, as Mark Zuckerberg has done. Those CEOs will indeed be paid something like their traditional marginal product, but they are a distinct minority and wealth and risk constraints limit their number.
In general, it is confusing to suggest that CEOs will be paid their marginal product. The traditional notion of marginal product does not apply to a CEO in the simple “widgets per worker” way. There are ways you can define “marginal product” to make the claim “CEOs are paid their marginal product” more or less true, but that is not my preferred way forward. Instead we should get more used to thinking intuitively within the principal-agent model, even though it is harder to do.
From the comments (pleasing David Wright)
There seem to be an awful lot of arguments floating around the economic blogosphere lately that try to use “credibility” as a kind of magic trick to claim that some institution can get some desired result without having to do the yucky things it would have to do to, you know, actually get that result. I would love to see a post on this topic from our host.
That was from David Wright…and now he has his post.
Eurozone puzzles from Karl Smith
- German Bunds trade below the deposit facility rate at the ECB and well below the Overnight Rate. I tell my students that this can’t happen. But, it is happening.
- Auctions for Sovereign debt are not only over-subscribed but more over-subscribed as the yields rise. Implying that the appetite for debt increases as the yield does. This makes sense if you are planning to Repo the bond. What doesn’t make sense is why this doesn’t drive down the actual yield
- Generally speaking there is enormous divergence in at the short end of Sovereign Debt curve and its not clear what theory of the world supports this.
p.s. None of these are good news! Here is further comment, very useful.
Small samples mean statistically significant results should usually be ignored
Genomes Unzipped: In October of 1992, genetics researchers published a potentially groundbreaking finding in Nature: a genetic variant in the angiotensin-converting enzyme ACE appeared to modify an individual’s risk of having a heart attack. This finding was notable at the time for the size of the study, which involved a total of over 500 individuals from four cohorts, and the effect size of the identified variant–in a population initially identified as low-risk for heart attack, the variant had an odds ratio of over 3 (with a corresponding p-value less than 0.0001).
Readers familiar with the history of medical association studies will be unsurprised by what happened over the next few years: initial excitement (this same polymorphism was associated with diabetes! And longevity!) was followed by inconclusive replication studies and, ultimately, disappointment. In 2000, 8 years after the initial report, a large study involving over 5,000 cases and controls found absolutely no detectable effect of the ACE polymorphism on heart attack risk.
The ACE story is not unique to the ACE polymorphism or to medical genetics; the problem is common to most fields of empirical science. If the sample size is small then statistically significant results must have big effect sizes. Combine this with a publication bias toward statistically significant results, plenty of opportunities to subset the data in various ways and lots of researchers looking at lots of data and the result is diminishing effects with increasing confidence, as beautifully shown in the figure.
For more see my post explaining Why Most Published Research Findings are False and Andrew Gelman’s paper on the statistical challenges of estimating small effects.
Addendum: Chris Blattman does his part to reduce bias. Will journal editors follow suit?
Are CEOs paid their value added?
Remember Paul Krugman’s forays into “the wage reflects what the top earners are really worth” topic, and the surrounding debates? Why should this discussion be such a fact-free zone? Why so little discussion of tax incidence?
Let’s start with the literature.
Read this paper by Kevin Murphy (pdf), especially pp.33-38. Admittedly the paper is from 1999 and it won’t pick up the more recent problems with the financial sector. But most of the data are from plain, ol’ garden variety CEOs. In many of the estimations we see CEOs picking up less than one percent of the value they create for the firm, and all of the estimates of their value capture are impressively small, albeit rising over time. Never is the percentage of value capture anything close to one hundred percent. “One percent value capture” is an entirely plausible belief.
You might think this sounds whacky but it makes theoretical sense. For instance often CEO performance is motivated by equity and options, but few CEOs are wealthy enough to own more than a very small chunk of the company (risk-aversion may be a factor too), and that will mean their pay won’t reflect value created at the margin. It’s a standard result of agency theory, stemming from first principles.
Maybe you’re suspicious of this work but the way these estimates are done is quite straightforward, and results of this kind have not been overturned. You can formulate a “pay isn’t closely enough linked to performance” critique from these investigations, but not a “they’re paid as much as they contribute” conclusion or anything close to that. (And, if it matters, the “conservative” and also WSJ Op-Ed page view has embraced these results for almost two decades, at least since the original Jensen-Murphy JPE piece; Krugman identified the conservative position with the Clarkian perfect competition w = mp stance but that is incorrect.)
You might be thinking “Ha! Burn on Krugman!,” but not so fast. Like Wagner’s music, Krugman’s position here is “better than it sounds,” though not nearly as strong as Krugman would like it to be.
Let’s turn to taxation of the top 0.1 percent, and focus on these CEOs. If the tax rate on their income/K gains goes up, the firm will compensate by giving them more equity/options, to keep them working hard. In other words, the tax rate on the top earners can be hiked without much effect on CEO effort because there is an offset internal to the firm. At some margin the firm’s shareholders will be reluctant to chop off more equity/options to the CEO, but the marginal value created by maintaining the incentive seems to be very high, for reasons presented above, and so the net CEO incentives will be maintained, even in light of new and higher taxes on CEO earnings.
But here’s the problem, if that’s the right word. The incidence of that tax is going to fall on shareholders in general and thus on capital in general. These top CEOs could even get off scot-free, if the shareholders up the equity/options participation of the CEO to offset completely the effects of the new and higher tax rate. This is also relevant to the Piketty-Saez-Stantcheva analysis that everyone has been talking about; they don’t see these mechanisms with sufficient clarity.
Moral of the story: it’s harder to tax the top earners than you think.
The second moral is that tax incidence remains a neglected topic, even among top economists.
The third moral is that too many people, including both Krugman and his critics on this point, have been neglecting the literature.
By the way, other assumptions can be made and other results generated, but I am focusing on one of the core cases.
First independent look at the Millennium Village project
You will find it summarized here, excerpt:
Working on her own, without the collaboration or endorsement of the MVP, Kenyan economist Bernadette Wanjala of Tilburg University collected data on households in or near the site at Sauri, Kenya, where the project was launched in 2005. She interviewed 236 randomly-selected households that had been exposed to the MVP’s large package of agriculture projects, education programs, infrastructure improvements, and health/sanitation works. She also interviewed 175 randomly-selected households from an area of the same district (called Gem) that was not exposed to the intervention. She wanted to compare the two groups to see for herself whether or not the project had done what it promised: to lift the treated households out of poverty in a few years’ time and spark “self-sustaining economic growth”.
In their just-released paper, Wanjala and her colleague Roldan Muradian of Radboud University use the new survey data to measure the project’s impact on poverty. They carefully compare treated and untreated households that were otherwise similar in many ways—such as household composition, adults’ education, fertility, economic sector, and land holdings. Because this project is large and intensive, spending on the order of 100% of local income per capita, it is reasonable to hope that it might substantially raise recipients’ incomes, at least in the short term.
Wanjala and Muradian find that the project had no significant impact on recipients’ incomes.
How is this possible? While Wanjala and Muradian find that the project caused a 70% increase in agricultural productivity among the treated households, tending to increase household income, it also caused less diversification of household economic activity into profitable non-farm employment, tending to decrease household income. These countervailing effects are precisely what one might expect from a large and intensive subsidy to agricultural activity. On balance, households that received this large and intensive intervention have no more income today than households that did not receive the intervention.
I would gladly publish or link to a response from Sachs or others at MVP.
From the comments
The “Primary Budget Surplus” is an ivory-tower concept that is counterproductive in the real world. A sophisticated lender or rating agency is concerned about the borrower’s ability to cover ALL of his expenses, and especially his loan repayments. The fact that the borrower could be solvent if he didn’t pay back his loan is not reassuring. In fact, this “primary budget surplus” condition puts the borrower in a moral hazard situation, where he might be better committing an Argentina-style default.
Sentences to ponder
Bernard Connolly, a long and persistent critic of Europe, estimates that it would cost Germany, as the main surplus country in the euro area, about seven percent of its gross domestic product per year to transfer sufficient funds to bail out the deficit countries, including France.
That amount, he has argued, would far surpass the $400 billion World War I reparations bill forced upon Germany by the victorious western powers — the last payment of which Germany made just last year.
The article is here. I would not regard that as a very exact estimate, the point is that the correct estimate (which in any case still depends on choices to come) is not small. The consistently insightful Wolfgang Münchau (FT) tells us tonight that the Eurozone has ten days at most. Scott Sumner has a very good post on related matters. I still believe that “Germany isn’t just bluffing,” of course we’ll see soon enough. (This is not the NBA!) Best prediction is a “too little, too late lame partial eurobond” which won’t change anything. Welcome to the age of the perpetual financial crisis.
If I were “the eurozone” I would really, really, really want to have something ready before trading starts Monday morning. They don’t.
Is it easy to guarantee Italian debt?
No, no no, says I. Here is a recent post by Karl Smith, another by Brad DeLong. In those posts there is not enough emphasis on public choice problems and the longer term and the forward-looking nature of markets. The Italian economy does not have per capita growth over the last twelve years, and it is increasingly thinkable it won’t have growth any time soon, even apart from recent problems with aggregate demand. Population is aging and shrinking and institutions remain dysfunctional. In the comments, Morgan Warstler put it well:
There’s no free lunch – this is not about past debts (debt can be written off), it is about accepting the inevitable future…
There is the same problem over time for any ECB strategy; it’s not enough to break the back of the speculators once or twice. Karl writes:
…Italy doesn’t actually need anyone to transfer real resources to it. It simply needs someone to manage resource distribution among bondholders. The ECB can do this at virtually no direct cost.
I would have written:
Italy is in primary surplus now but the economy is a train wreck which will only worsen; markets see this. Italian politics still seems quite dysfunctional. Even managing resource distribution among bondholders is going to be problematic, as this redistributes wealth away from German and other AAA citizens and becomes institutionalized quickly, also cutting off chances for reform in Italy.
If Germany and a few other, smaller AAA countries were to guarantee or monetize the debts of Italy, Spain, and possibly France and Belgium, never mind Greece and Portugal, Germany would not be AAA itself. The German median voter has very little interest in guaranteeing the above-mentioned debts. If German yields are flipping upwards, it is, in my view, because investors now see the whole euro deal as unraveling and don’t want to deal with the complexities and flak. A big chunk of the German auction didn’t sell at all. You don’t have to think that Germany is ripe to default to see that markets are warning Germany not to take on the whole burden.
Furthermore, there is no “half hearted recovery” in the offing, not even with better AD policy. A lot of institutional arrangements were set up in an unstable fashion and now they are unwinding, as indeed they had to do, with economic carnage along the way. The periphery countries all thought they were wealthier than they in fact are, and behaved as such, but now is the painful unwinding, including the collapse of a lot of ultimately unworkable EU governance structures. Markets now see this, and the ECB cannot so easily reverse it.
Addendum: You don’t need complicated arguments why I am wrong in my europessimism when there is a simple argument. If countries are willing to dig into their wealth, they can pay off their debts. Basta. At the core it is a public choice problem, not an accounting argument. The optimistic forces can win the accounting argument, but so far the optimistic forces have called the crisis wrong every step of the way.
Kantoos adds comment.
Robert Frank responds on Black Friday
Here is the email I received from Bob:
I enjoyed your observations about my Black Friday op-ed in Thursday’s NYT. If you’d permit me to respond, I’d propose to post something like this:
Like Tyler, I think we needn’t worry much about consumers who elect to wait in line for hours in the hope of getting bargains. That’s indeed wasteful, as one of the commenters pointed out. But it’s fairly easy to drop out of that game, and some, as Tyler speculates, may actually enjoy the process.
But the arms race that’s led to longer store hours poses a more serious problem for employees, many of whom had little choice but to truncate their holiday time with family and friends.
I had a recent conversation about this issue with a friend in Ithaca who owns a wine store. Traditionally, New York State wine merchants were not allowed to do business on Sundays. But last year that restriction was repealed, and I asked my friend how the change had affected him.
His overall sales were about the same, he told me. The change had thus been a clear negative from his perspective, since it meant that he and his wife were no longer able to spend Sundays together with their children. The upside was that customers who lacked the foresight to shop in advance for their Sunday wine needs could now be accommodated. If we’re willing to discount the cost of an inconvenience suffered by those who could easily have avoided it, the costs in this case seem clearly to outweigh the benefits.
Even so, an econometrician might find it difficult to convince a skeptic that the former Sunday closing mandate was justified. Fortunately, a definitive answer to that question isn’t required for an assessment of my tax proposal, which isn’t nearly as costly as a flat prohibition.
Arms races arise because, as Charles Darwin saw clearly, important aspects of life are graded on the curve. It’s not how strong or fast you are that matters, but rather whether you’re faster or stronger than your direct rivals. And for merchants, it’s not how early you open that matters, but rather how your start time compares with rivals’. If the stakes are sufficiently high in such cases, arms races are inevitable.
If staying open longer hours is misleadingly attractive to individual merchants, the best solution is not to prohibit longer hours but rather to make them less attractive by taxing them. My 6-6-6 tax proposal doesn’t prohibit earlier store hours on Thanksgiving. It simply makes them less attractive to individual merchants.
Many on the Right are quick to denounce such taxes as “social engineering”–which they usually define as using the tax code “to control our behavior, steer our choices, and change the way we live our lives.” But that’s what virtually all laws do. Stop signs are social engineering, as are prohibitions against theft and homicide. Laws restrict behavior because individuals often choose to behave in ways that cause harm to others. For someone who cares about personal liberty, discouraging harmful behavior by taxing it should be far less objectionable than prohibiting it outright.
Yet many on the Right suddenly lose their ability to think clearly when confronted by proposals to tax harmful behavior. The first message I received in response to my Black Friday op-ed, for example, came from a chaired professor of philosophy who had this to say: “Another sad elitist call for government to butt in so as to promote your special interest. Maybe there are those who judge the black Friday ride just right for them. But do you care? You just know it should be shut down and so you will empower the government to do just that. Well, over my dead body.”
Oh, please. Perhaps this professor is among those who denounce all taxation as theft. But mature adults realize that we have to tax SOMETHING. Right now, we tax many useful activities. The payroll tax, for example, discourages hiring. The income tax discourages savings. Every dollar we can raise by taxing activities that cause harm to others is a dollar less we must raise by taxing beneficial activities.
In my recent book, The Darwin Economy, I defend the claim that taxes on activities that cause undue harm to others could generate more than enough revenue to balance the federal budget and restore our crumbling infrastructure. We should tax congestion, noise, and pollution. We should tax passenger vehicles by weight. We should replace the income tax with a more steeply progressive tax on consumption. But until we’ve done all that, no champion of liberty has any cogent reason to oppose replacing taxes on useful activities with taxes on harmful ones.
Doctors with Borders
It’s hard to know what is worse about a new paper in the British Medical Journal, the simplistic economics or the troubling ethics. The paper, The financial cost of doctors emigrating from sub-Saharan Africa, adds up the government-paid cost of educating a health worker in Africa and then multiplies that cost over ~33 years by an investment factor to find the “losses” to the educating country of educating a health worker who emigrates to Canada, the US, the UK, or Australia. The authors do this for nine sub-Saharan African countries with an HIV rate of 5% or greater or more than one million people with HIV/AIDS.
The numbers, by the way, are quite small since the cost of education in developing countries is low and because our laws make it difficult for workers to immigrate, thus the authors find just 567 doctors from Ethiopia currently practicing in the four western countries that they consider; n.b. 567 is the total number not an annual flow. (Note also that the authors gin up the costs by multiplying by an investment factor which adds virtually nothing to the analysis and confuses present and future value calculations.)
You can get an idea of the quality of this paper by asking why the authors chose to focus on countries with high HIV rates. The only reason for this is to suggest that doctors who emigrate and the countries that attract them are responsible for millions of deaths. See below.
Turning to the simplistic economics we have first the suggestion that there is a fixed number (flow) of health care workers so if the U.S. were to forbid Ugandan health care workers from emigrating to the United States this means more health care workers for Uganda. Not so; without the prospect of high wages earned abroad, investment in education (the major cost of which is born by the worker) will likely decline. The Philippines “exports” more nurses than any other country but also has far more nurses than one would expect for a country of its income class, on par with that of Spain, Hungary or Singapore. Here is Michael Clemens:
…there is no such thing as a fixed quantity of nurses to be “drained” from the Philippines or Africa, like petroleum from the ground. People — in this case mostly low-income women — react to global markets and change their career plans accordingly. Many Filipinas wouldn’t have become nurses if not for the migration opportunity, and thus are not ‘lost’ in any sense when they depart. Africans are starting to follow suit, opening career paths for professional women who would otherwise have few. This should not be discouraged through closed immigration policy, but rather taken advantage of — through the establishment of for-export nurse training programs as the Philippines has done en masse. Unlike petroleum, these women are human beings. They have rights and ambitions whose fruition in the United States is a beautiful thing.
Even on their own terms the authors calculations are faulty. Emigrating workers, for example, don’t leave immediately after they have finished their education (as the authors assume in their primary analysis), there are fixed costs to building an education infrastructure which can reduce the costs of education for non-emigrating workers and emigrating workers often send remittances back to the home country. Not all emigrating workers send remittances but wages for high-skill workers can be five or even ten times higher in say the U.S. than in a sub-Saharan African country so educating workers and sending them abroad could be a net benefit for the educating country just based on remittances. Indeed, many families make exactly this calculation. Finally, the authors don’t even try to measure externalities which is what they should be measuring.
What is most ethically troubling is that the authors implicitly treat people as if they were the property of the state. Thus, an emigrating physician is a loss even though the physician improves his life prospects and those of his children. Development is about making people better off not about making geographic units “better off.”
Lest you think that I exaggerate consider that the lead author of this paper is also the lead author of an editorial in the Lancet that advocates making it an international crime to hire African workers.
Although the active recruitment of health workers from developing countries may lack the heinous intent of other crimes covered under international law, the resulting dilapidation of health infrastructure contributes to a measurable and foreseeable public-health crisis….There is no doubt that this situation is a very important violation of the human rights of people in Africa.
…Active recruitment of health workers from African countries is a systematic and widespread problem… the practice should, therefore, be viewed as an international crime.
Yes, you read that correctly: recruiting African workers with prospects of higher wages and a better life is a “very important violation of the human rights of people in Africa.”
Addendum: See this excellent paper by Michael Clemens for more on these issues.
The economics of Black Friday
Robert H. Frank writes:
In recent years, large retail chains have been competing to be the first to open their doors on Black Friday. The race is driven by the theory that stores with the earliest start time capture the most buyers and make the most sales. For many years, stores opened at a reasonable hour. Then, some started opening at 5 a.m., prompting complaints from employees about having to go to sleep early on Thanksgiving and miss out on time with their families. But retailers ignored those complaints, because their earlier start time proved so successful in luring customers away from rival outlets.
This is portrayed as a zero-sum or negative-sum game, but I view the matter, at least in efficiency terms, more optimistically. The alternative to waiting in line and fighting the crush is to go shopping some other day, hardly a terrible fate. More analytically speaking, the average return in other endeavors limits how bad these rent-seeking games can get, otherwise just switch and stay home and read your blogs, as some of you perhaps are doing right now.
In fact it seems that early December has in general the cheapest prices of the year, not Black Friday.
Dare I suggest that some people like waiting in those lines with their thermos cups and stale bagels. You could try to argue they are “forced to do so,” to get the bargains, but in a reasonably competitive world each outlet will (roughly) try to maximize the consumer surplus from visiting the store, including the experience of waiting in line.
If your store does a crazy sale at 5 a.m., and mine does a crazy sale at 9 a.m., the somewhat saner people still can go to my store, if they prefer to, without losing any bargains. Maybe the truly early opening hour signals bargains, and customers would assume that a 9 a.m. opening means no bargains, but of course there are plenty of other ways to signal low prices, including through advertisements and the overall reputation of the store’s Black Friday over the years. I don’t see any line in front of Bon Chon Chicken, now at Fairfax Circle by the way on Old Lee Highway.
You might try a behavioral story that consumers are tricked by the prospect of low prices, yet shelves rapidly empty, but it’s hard to see that working year after year, or even in one year, if pissed off customers won’t buy anything else. More likely, the mix of low price and queue is a form of price discrimination, which as we know is generally welfare improving.
Although my efficiency prognosis is more optimistic than Frank’s, my underlying view of human nature — or perhaps economic growth — may be worse. Is that really what people want to be out there doing? I saw the Best Buy line last night and those people looked pretty normal. That’s scarier than postulating a bunch of negative-sum games.
Thanksgiving Lessons
Here from 2004 is my post on the lessons of thanksgiving.
It’s one of the ironies of American history that when the Pilgrims first arrived at Plymouth rock they promptly set about creating a communist society. Of course, they were soon starving to death.
Fortunately, “after much debate of things,” Governor William Bradford ended corn collectivism, decreeing that each family should keep the corn that it produced. In one of the most insightful statements of political economy ever penned, Bradford described the results of the new and old systems.
[Ending corn collectivism] had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content. The women now went willingly into the field, and took their little ones with them to set corn; which before would allege weakness and inability; whom to have compelled would have been thought great tyranny and oppression.
The experience that was had in this common course and condition, tried sundry years and that amongst godly and sober men, may well evince the vanity of that conceit of Plato’s and other ancients applauded by some of later times; that the taking away of property and bringing in community into a commonwealth would make them happy and flourishing; as if they were wiser than God. For this community (so far as it was) was found to breed much confusion and discontent and retard much employment that would have been to their benefit and comfort. For the young men, that were most able and fit for labour and service, did repine that they should spend their time and strength to work for other men’s wives and children without any recompense. The strong, or man of parts, had no more in division of victuals and clothes than he that was weak and not able to do a quarter the other could; this was thought injustice. The aged and graver men to be ranked and equalized in labours and victuals, clothes, etc., with the meaner and younger sort, thought it some indignity and disrespect unto them. And for men’s wives to be commanded to do service for other men, as dressing their meat, washing their clothes, etc., they deemed it a kind of slavery, neither could many husbands well brook it. Upon the point all being to have alike, and all to do alike, they thought themselves in the like condition, and one as good as another; and so, if it did not cut off those relations that God hath set amongst men, yet it did at least much diminish and take off the mutual respects that should be preserved amongst them. And would have been worse if they had been men of another condition. Let none object this is men’s corruption, and nothing to the course itself. I answer, seeing all men have this corruption in them, God in His wisdom saw another course fitter for them.
Among Bradford’s many insights it’s amazing that he saw so clearly how collectivism failed not only as an economic system but that even among godly men “it did at least much diminish and take off the mutual respects that should be preserved amongst them.” And it shocks me to my core when he writes that to make the collectivist system work would have required “great tyranny and oppression.” Can you imagine how much pain the twentieth century could have avoided if Bradford’s insights been more widely recognized?
Addendum: Scott Sumner comments.
How quickly do the bond market vigilantes appear?
Ahem:
Investors seem to have lost their taste for Germany’s once much sought-after government bonds. At an auction on Wednesday of the country’s 10-year bonds, one-third went unsold according to the German Finance Agency, which manages the nation’s debts. The federal government had initially intended to sell bond issues worth some €6 billion (around $8 billion), but managed to garner just €3.89 billion.
The Germans are being told they shouldn’t try to auction off so many bonds so quickly, further comment here. Yet don’t the PIIGS have to roll over $100 billion plus by the end of this calendar year?
And who a week ago — or even two days ago –was predicting this for a German bond auction?
I hear the market whispering in the ear of the Netherlands “get out of the eurozone, before it’s too late!” At this point all bets are off as to which country will be the first to bail on the arrangement. It could be virtually anyone but France.