April 3, 2021

Friedman, Hemingway, and Happy Easter!

No popular idea ever has a single origin. But the idea that the sole purpose of a corporation is to make money for its shareholders got going in a big way when Milton Friedman authored an Op-Ed in the New York Times on September 13, 1970. Friedman was a Nobel Prize winning economist from the Chicago school of economics, and has been celebrated as “the most influential economist of the second half of the 20th century, and possibly all of it.” In that ferocious Times piece, Friedman argued that any business executive who pursued any goal other than making money for the corporation’s shareholders was an “unwitting puppet of the intellectual forces that have been undermining the basis of free society these past decades.” You could choose either equality or freedom, but not both, he argued.

Friedman has a lot to answer for. His idea may be the most injurious one to have seized America’s imagination in a long while. The story of a corporation with responsibilities to its employees and the community in which it operates became fiction. The real owners are the shareholders, he said. If an ordinary person said that he bore no responsibility to his family or his neighbors or the town in which he lived, he would be (rightly) described as a sociopath. Friedman’s idea had the effect of turning companies into sociopathic, toxic money making bodies with no souls. His ideas deeply influenced Ronald Reagan and Margaret Thatcher, who, arguably, were more responsible for the destruction of the middle class and urban communities in their countries than any other leader in the modern era.

Last week, Joe Biden sounded the beginning of a new era. On top of the already gargantuan three trillion dollars in stimulus spending over the last year plus four trillion dollars that will be spent by the Fed on buying back government debt, Biden announced his plan to spend another two trillion dollars on infrastructure. Nancy Pelosi has promised to get it through Congress by the Fourth of July. In many ways, America stands at the crossroads of history now, with tough choices ahead. Are we really going to have to choose between freedom and equality, like Friedman said? Nah, I don’t think so. In fact, our choice is increasingly between a socialist democracy and autocracy. Any approach that doesn’t address the festering inequality in American society today will surely and directly lead the country back into the arms of Trump and Trump clones. Biden’s plan is smart. It is grand. It is exciting. It will create jobs, inject much needed pride back into America, and save us from falling prey to demagogues. It is exactly what the doctor ordered to cure the malaise that has gripped America over the last two decades. Biden may well go down in history as one of the great Presidents. Who’d have thunk this, even a short six months ago?

Nearly twenty percent of US dollars ever created in the history of America were created in 2020! Which brings me to this question: Is it really possible to spend our way into equality, freedom and prosperity? This question will be posed in many different ways and forms by our Republican friends on Capitol Hill in the months to come. It is the defining economic question of our times. The answer is lengthy and complex. The short answer, or at least my opinion, is: As long as the US dollar maintains its status as the global currency of choice, America should be in a position to fund itself for a very long time.

But, as powerful as the US government is, there is only so long they can keep the spending going before interest rates rise and make it too burdensome to pull it off. At some point, inflation may spike, leading to political headaches for the government. However, the rise of technology is a powerful deflationary force and will likely keep inflation in check for a long time. For example, a taxi ride to the airport costs way less today than it did 20 years back, thanks to Uber and Lyft. It will cost even less 20 years from now. Some day, it may even be free.

Yes, we are passing the bills onto future generations. But, look on the bright side. With interest rates this low, the bill isn’t as big as it could have been. In any case, the alternative - not doing the fiscal stimulus to keep society afloat during crises, restart the economy by investing in infrastructure and clean energy, and address inequality by generating jobs, helping underprivileged communities, etc - would likely sock future generations with far worse consequences.

We are on our way to Universal Basic Income. No, the people are not going to stop working when it becomes mainstream. Most of us want to be valued and we will find ways to be useful. And no, not all of us will become entrepreneurs. Most of us are risk averse and that won’t change overnight. But, it will free up time for us, and free time is a key driver of innovation. We may see society wide benefits from a few more geniuses having more free time, even if more of us use it to play video games.

In a letter from January 1926, Ernest Hemingway reflected on his conversion to Catholicism. Although he was clear that he was “not what is called a good Catholic,” and loathed being labeled a “Catholic writer,” he could not “imagine taking any other religion seriously.” Hemingway had a famously dichotomous relationship with Catholicism. He was flippant about the church and piety, yet attended Mass, made pilgrimages and venerated saints. A few months after that letter, Hemingway wrote a little known story (in the form of a play) called “Today is Friday.” It is his most explicitly Catholic work, and in many ways the story of his own faith. The characteristically punchy and pithy narrative is about three soldiers drinking in a bar, drinking after Christ’s crucifixion. One soldier wonders why Christ didn’t save himself. And another replies, “He didn’t want to. That’s not his play.” As with Hemingway’s characters, they are dark, troubled and ambivalent. The first soldier, now heavily drunk, muses that the cross isn’t bad when they (including Jesus) are lifted upright. “When the weight starts to pull on ‘em, that’s when it gets ‘em.” The soldier is talking about physical pain. But Hemingway might as well be talking about despair and depression. Of all the Biblical stories he could have written about, this one seems apt. Hemingway was a writer of suffering, despair and the feelings we hold deep in our hearts away from the gaze of the world.

Happy Easter! Stay safe and have a great week ahead.