The new Fed nominee is Ben Bernanke, an excellent choice and a first-rate economist. 

What must a good Fed chair do? 

1. He should have a mastery of data and an understanding of the macroeconomy.  He must not be a dogmatist.  Bernanke gets an A or A+ here.

2. He should have the ability to lobby the President and Congress for support.  It is not clear who is listening but Bernanke gets in relative terms at least a B+ here.

3. He should have the personality to hang tough.  This requires the "test of time" but we have no reason to be pessimistic.

4. He should recognize that the Fed can only succeed if fiscal policy is responsible.  Give him an A.

5. He should be credible abroad and on Wall Street.  Bernanke is not fully senior in this regard, at least not within the policy community, but he could achieve this stature within a year’s time.  B.

6. He should have that Greenspan magic touch.  Grade?????

Next I will post on Bernanke’s contributions to economics.  Comments are open…

Word is that a successor to Alan Greenspan — or at least the Bush nominee — will be announced later today.  Check back for a report.  Comments on this post are open in case you beat me to the news; I do have a lunch coming up, plus many of you are excellent analysts anyway…

Milton Friedman has long suggested that the social responsibility of business is to maximize profits.  Recently he tried to clarify this view:

I shall try to explain why my statement that “the social responsibility of business [is] to increase its profits”…

Note first that I refer to social responsibility, not financial, or accounting, or legal. It is social precisely to allow for the constituencies to which Mackey refers. Maximizing profits is an end from the private point of view; it is a means from the social point of view. A system based on private property and free markets is a sophisticated means of enabling people to cooperate in their economic activities without compulsion; it enables separated knowledge to assure that each resource is used for its most valued use, and is combined with other resources in the most efficient way.

Of course, this is abstract and idealized. The world is not ideal. There are all sorts of deviations from the perfect market–many, if not most, I suspect, due to government interventions. But with all its defects, the current largely free-market, private-property world seems to me vastly preferable to a world in which a large fraction of resources is used and distributed by 501c(3)s and their corporate counterparts.

Friedman has qualified his social responsibility claim for force and fraud, but what about negative externalities more generally (just ponder Tamiflu licensing if you want the appropriate headache)?  Is Friedman’s claim:

1. Profit maximization is the best rule available, even though it fails society in particular instances (in that case, isn’t there some slightly more convoluted rule that can cover at least some of these situations and modify the outcomes?  If only "very simple" rules are allowed, why?)

2. Businesses have no responsibility to behave in an act utilitarian fashion.  Rules are rules, and we should follow them, come what may.

3. Following the doctrine of fiduciary responsibility — in this case to shareholders — is the greatest social good in these situations.  It outweighs potential act utilitarian considerations pointing in other directions.

4. Force and fraud aside, profit maximization always coincides with the social good, at least in the absence of bad government interventions.

5. It is a public choice argument.  The claim is a noble lie, for otherwise business will be regulated by government in a counterproductive manner.

6. So much anti-corporate nonsense has been written, so we need to shock people with an extreme claim in the opposite direction.

In response to Friedman, John Mackey, the CEO of Whole Foods, argues: “I believe the entrepreneurs, not the current investors in a company’s stock, have the right and responsibility to define the purpose of the company.” 

My take: No simple rule can sum up what is right to do, for a business or otherwise.  So I have to read Friedman as falling back on #5 and #6, with his partial belief in #4 convincing him he needn’t worry about the complications so much.

Forget about avian flu, I hate waiting in line to board a plane.  But what is the answer?

United Airlines says it believes it has hit on a better solution. It recently announced a logistics ploy it calls Wilma – shorthand for window-middle-aisle – that it claims will cut boarding times by four to five minutes, an eternity in the industry’s on-time takeoff sweepstakes. The idea is to fill the window seats in economy class first, then the middle seats, then the aisle seats, thereby eliminating the free-for-all chaos that clogs the cabin when passengers are sent in by row numbers.

Southwest, of course, eliminates the whole idea of assigned seats.  Or how about some economics?  Charge people for each carry-on, since the bag makes it harder to board (and get off) quickly.  Or have an electronic record of when people manage to reach their seats and buckle their seatbelt.  The sooner you buckle, relative to your position in the plane of course, the greater your chance of a prize or rebate.  Small ideas for a much better world, as they say.

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We all know Thomas Schelling’s classic analysis of focal points.  One of his original examples stipulated that two individuals are to meet somewhere in New York City, but they do not know the time or place.  Where would they appear?  Schelling suggested that a twelve noon meeting at Grand Central Station (actually called Grand Central Terminal), beneath the central clock, would be focal.

Focal points change, and of course trains have become a less important form of transportation.  I have been to Manhattan many times, but have not been in GCS in a good twenty years.  And when I take the train, I usually end up getting off at Penn Station.  Stick with noon as the time, which place would you find focal today?  I see a few options:

1. The clock at Grand Central Station remains focal.  Where else to go?  Note the clock stands above the designated information point as well.

2. The clock remains focal, but only because Schelling himself has kept it that way with his analysis.

3. Ground Zero.

4. The Empire State Building.

5. The US Air Shuttle Terminal at La Guardia.

6. A central point at Times Square.

7. The Metropolitan Museum of Art or perhaps at Picasso’s Les Demoiselles D’Avignon painting at MOMA. 

I will opt for number two, but for my mom I would wait on the stairs of the Met.  What do you think?  Comments, of course, are open.

Addendum: Brock Sides picks a focal point for Memphis and for the world; on the latter I say in front of The White House.