Taleb on debt and risk and short termism

I wrote about Dr. Taleb and his hatred of debt, the author of Black Swan. He is in the news for two new video interviews. He would seem to be sympathetic with the ideas and proposals here. Replace debt with equity--although I give a share to the workers We want to be in a society where it protects against adverse events--again the share economy. And we are rewarding short-termism. Let's hold up people's pay and reward and incentives for a long time to see if they are truly acting in the long term best interest of whomever they are supposed to be working for, the students, the nation, the stakeholders or shareholders in the broad sense of the firm.

Two articles on China, Thoughtful Thursday

Constitutional Choice of Villages in China, Jianxun Wang

This was presented at the Public Choice Conference in 2005. It seems to be part of his Dissertation

Villages in e China were relatively independent of the Central Government and the author compares the village independence in China to that Tocqueville observed in American small towns.

In some cases, lineage resolved itself into a sort of 'direct democracy' When dealing with some important lineage affairs, all lineage members participated in decision-making process. Usually, the meetings were held in the ancestral hall, and lineage leaders led the discussion and junior members voiced their assent (citing Hsiao 1960, 332)

They also mentioned that councils did NOT have a head.

Yongjing Zhang Public Choice and China, An Introduction, Also part of the 2005 Public choice Conference

China may be overinvesting. Obviously, China has had a dramatic increase in its economy, export prowess, and standard of living, especially for those living in cities. He recognized the problem of waiting to reward people when we really know they did good work. In his case, he talks about those who managed towns and municipalities encouraged to get two much foreign direct investment, perhaps at economic cost. The managers are encouraged to show good economic growth in the short term. The government bureaucrats move on, the people move on (fiscal federalism) and then things collapse in the town.

We have at the same time the problem of CEO's of public companies. They are rewarded for showing a short term profit. And stock turnover is very high, managed mutual funds turn over their stock holdings within a year on average. And individuals (77% for males, 53% for females) and investment clus are in the middle at 66%. Thus, the person who invested in 1980 in stock X probably does not hold it in 2010.

He argues that just shifting to a market economy and taking advantage of abundant labor (its competitive advantage), was responsible and outweighed any problems due to inefficiency or corruption in government. But this may not be true any longer. Note that this article ws published in 2005 and China enjoyed economic growth although it has suffered due to the drop off in demand for its exports during the Great Recession.

Lastly, Dr. Zhang took the time to analyze what articles the Chinese who were publishing public choice cited in their articles. He found it very uneven with classical works in Public Choice, especially those not translated into Chinese not being cited. Of course, my first question was is this the same in other social science disciplines in China? Do other countries, where some have published in Public Choice, also show this unevenness?

To be in future Future Thoughtful Thursdays

1. Hsiao, Kung-Chuan 1960, Rural China: Imperial Control in the Nineteenth Century, Seattle University of Washington Press
2. Economic Reform and Constitutional Transition

Executive Bonuses and Compensation

NPR had a good discusion of executive compensation particularly those at investment banks such as Goldman Sachs, particularly from the point of view of stock holders.

Relatedly, the AARP Bulletin in its Jan Feb 2010 issue ( Volume 51 Number One Page Six)said:

In 2008, the top five hundred S&P companies put
44.5 billion into stok grants and options for their top execf
39.5 billion to pension funds
Financial service companies the ratio was $2.30 to top executive stock options to employee fund contrivutions.

Boards of Directors are not necessarily aligned wit the long-term share holder--some are paid by management. (One interviewee referred to this as an oligarchy that has hijacked the statement.) We have propsed two solutions here:

1. Sortition democracy where the stock holders can approve financial decisions directly. Every payout (including executive) is approved by a sortition jury of the share holders. Thus, if A is a pension holder or 401B holder in Company X, then there is a probability proportional to the number of share sthey indirectly own that they would be asked to sit on a sortition jury.
2. Executives should not be able to spend the money in their bonus until quite some time after the executive had joined the firm and become a senior executive. That way one can know the long-term results of the payment.

Prosecutors framing innocent men for murder; Wait to reward them.

I spoke before about rewarding important government officials and those running companies or investment banks many years after they work, e. g., when they retire. Here is a reason why. Prosecutors and framed a man for murder. Twenty-five years, they finally discover the records of this frame-up. The Iowa Supreme Court released him and exonerated him. Iowa does not permit people to sue prosecutors. So they sued under Federal Civil Rights provisions and this is a Supreme Court Case.

A sortition jury should review the pension amount for major public officials. Those who were wrongfully convicted would present their information. Those who were victimized by criminals could also present the case--that the persons were brought up on charges before hand. But the prosecutors might have declined to prosecute--or flubbed the trial.

They would look at groups of prosecutors and compare the good and the bad of each and distribute the income from the pension pool accordingly.