@PikettyLeMonde pension fund socialism has finished taking over #capitalism #Piketty

Peter Drucker first pointed out in the 70s that the retirement savings of ordinary workers will end up opening the majority of public listed companies. That day has come much to the disappointment of the Leftover Left ranging from Thomas Piketty to Max Rashbrooke.image 

Source: CONVERSABLE ECONOMIST: US Corporate Stock: The Transition in Who Owns It.

Any call for higher taxes on investment incomes and capital and even tax havens is an attack on the retirement savings of ordinary workers.

Management hierarchies explained

The Effective Decision – Peter Drucker

1. Classifying the problem. Is it generic? Is it exceptional and unique? Or is it the first manifestation of a new genus for which a rule has yet to be developed?

2. Defining the problem. What are we dealing with?

3. Specifying the answer to the problem. What are the “boundary conditions”?

4. Deciding what is “right,” rather than what is acceptable, in order to meet the boundary conditions.. What will fully satisfy the specifications before attention is given to the compromises, adaptations, and concessions needed to make the decision acceptable?

5. Building into the decision the action to carry it out. What does the action commitment have to be? Who has to know about it?

6. Testing the validity and effectiveness of the decision against the actual course of events. How is the decision being carried out? Are the assumptions on which it is based appropriate or obsolete?

via The Effective Decision.

Piketty and Pension Fund Socialism

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Any attack on capitalism these days is a direct attack of the retirement savings of ordinary workers. We live in the age of  what Peter Drucker called pension fund socialism in 1976. As Drucker added in 1991:

The rise of pension funds as dominant owners and lenders represents one of the most startling power shifts in economic history.

The first modern pension fund was established in 1950 by General Motors.

Four decades later, pension funds control total assets of $2.5 trillion, divided about equally between common stocks and fixed-income securities. Demographics guarantee that these assets will grow aggressively for at least another ten years.

The majority of equity capital is owned by pension funds and other collective investment vehicles corralling the savings of ordinary people. Much of the rest of physical capital is owned by workers through home ownership.

In the age of human capital, 70-90% of all capital in the economy is human capital. The notion of unskilled workers labouring away with the capital supplied by the bosses is 19th century throwback.

The rentier rich has been long replaced by the working rich. They make their fortunes in their own life times – sometimes as business entrepreneurs, sometimes through rent-seeking.

It is also the age of specific human capital, with a proliferation of technologies and products. The rising specialisation of firms and their production inputs has forced firms to try harder to find those inputs that suit their needs best. Management has the task of finding the right inputs. The role and reward to managers has therefore risen.

When the rise in returns on investments in human capital is beneficial and desirable, and policies designed to deal with inequality must take account of its cause. Growth in education levels has been a significant source of rising wages, productivity, and living standards over the past century.

The initial impact of higher returns to human capital is wider inequality in earnings, but that impact becomes more muted and may be reversed over time as young people invest more in their human capital.

The rentier class has been replaced by the working rich. The evidence on the top 1% is most consistent with theories of superstars, skill biased technological change, greater scale and their interaction of these factors.

Individuals who are really good at making money can now apply their skills to larger amounts of capital and reach far larger audiences  and markets for their products and services. That favours CEOs, athletes, celebrities, corporate lawyers, successful entrepreneurs and other working rich Who have a skill  or talent that can be supplied at little cost on a much larger scale. Some have a special dark place in their hearts for people who earned their money through honest hard work.

Making strengths productive

A man should never be appointed into a managerial position if his vision focuses on people's weaknesses rather than on their strengths.  - Peter Drucker

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The vast right wing conspiracy is done so on the cheap when you follow the money

Much is made of how the Cato Institute and the American Enterprise Institute are funded by the Koch Brothers to act as their propagandists. Greenpeace and Right Wing was good enough to follow the money:

  • American Enterprise Institute: $350,000 in total between 2004 and 2011 as compared to an annual income of $25 million.
  • Cato Institute $ 5.35 million over 14 years. Their last  annual donation in excess of $250,000 was in 2001. Its annual income is $12 million.

Chickenfeed – on an annual basis, this financial largess would barely pay for a cheap research assistant in a small office out of the Cato’s 90 staff members and 60-adjunct scholars. An average congressman raises more than this in political donations each year. Romney and Obama each spent $1 billion on their presidential campaigns.

Karl Popper argued that who made an argument is of little value. What matters is critical discussion of what they said. Knowledge grows through critical discussion.

Peter Drucker made similar points about people with great strengths also come with great flaws. (Biography sales would be 1/10th of its size if the great were not flawed).

Drucker championed a business rule of never making a decision until there is disagreement; only then do you know the boundary of what you plan to do. Unless one has considered alternatives, one has a closed mind.  This above all, explains why effective decision-makers deliberately disregard the second major command of the textbooks on decision-making and create dissension and disagreement, rather than consensus.

Decisions of the kind the executive has to make are not made well by acclamation. They are made well only if based on the clash of conflicting views, the dialogue between different points of view, the choice between different judgments. The first rule in decision-making is that one does not make a decision unless there is disagreement

The peculiar evil of silencing the expression of an opinion is, that it is robbing the human race; posterity as well as the existing generation; those who dissent from the opinion, still more than those who hold it. If the opinion is right, they are deprived of the opportunity of exchanging error for truth: if wrong, they lose, what is almost as great a benefit, the clearer perception and livelier impression of truth, produced by its collision with error.  - John Stuart Mill

Peter Drucker hated meetings too

Meetings are by definition a concession to a deficient organization.

For one either meets or one works. One can not do both at the same time…

There will always be more than enough meetings…Every meeting generates a host of little follow-up meetings—some formal, some informal, but both stretching out for hours.

Meetings, therefore, need to be purposefully directed.

An undirected meeting is not just a nuisance; it is a danger.

But above all, meetings have to be the exception rather than the rule.

An organization where everybody meets all the time is an organization in which no one gets anything done.

Wherever a time log shows the fatty degeneration of meetings—whenever, for instance people in an organization find themselves in meetings a quarter of their time or more—there is time-wasting malorganization.

Drucker also said:

The senior financial executive of a large organization knew perfectly well that the meetings in his office wasted a lot of time.

This man asked all of his direct subordinates to every meeting, whatever the topic.

As a result, the meetings were far too large.

And because every participant felt that he had to show interest, everybody asked at least one question—most of them irrelevant. As a result, the meetings stretched on endlessly.

But the senior executive had not known, until he asked, that his subordinates too considered the meetings a waste of their time.

Aware of the great importance everyone in the organization placed on status and on being "in the know", he feared that the uninvited men would feel slighted and left out.

Now, however, he satisfies the status needs of his subordinates in a different manner.

He sends out a printed form which reads:

"I have asked [Messrs Smith, Jones and Robinson] to meet with me [Wednesday at 3] in [the fourth floor conference room] to discuss [next year’s capital appropriations budget].

Please come if you think that you need the information or want to take part in the discussion.

But you will in any event receive right away a full summary of the discussion and of any decisions reached, together with a request for your comments".

Where formerly a dozen people came and stayed all afternoon, three men and a secretary to take the notes now get the matter over within an hour or so. And no one feels left out.

You’re an ideologue; no, you’re the ideologue!

I find that people who call out other people and opposing analysis as ideological are themselves ideologues. They cannot see political differences as other than ideological cat fights.

This is rather than an honest difference of opinion over the effectiveness of different options to achieve a common end as Milton Friedman explained:

I venture the judgment, however, that currently in the Western world, and especially in the United States, differences about economic policy among disinterested citizens derive predominantly from different predictions about the economic consequences of taking action – differences that in principle can be eliminated by the progress of positive economics – rather than from fundamental differences in basic values, differences about which men can ultimately only fight.

Hayek attributed to his opponents nothing more than intellectual error. Hayek (1948) believed that:

we must recognize that it may be genuine error which leads the well-meaning and intelligent people who occupy those key positions in our society to spread views which to us appear a threat to our civilization. Nothing could be more important than to try to understand the sources of this error in order that we should be able to counter it.

Hayek (1968) continues:

The worst mistake a fighter for our ideals can make is to ascribe to our opponents dishonest or immoral aims. I know it is sometimes difficult not to be irritated into a feeling that most of them are a bunch of irresponsible demagogues who ought to know better…

we ought to realize that their conceptions derive from serious thinkers whose ultimate ideals are not so very different from our own and with whom we differ not so much on ultimate values, but on the effective means of achieving them.

William Baumol and Alan Blinder described the role of economics in policy debates as follows:

While economic science can contribute the best theoretical and factual knowledge there is on a particular issue, the final decision on policy questions often rests either on information that is not currently available or on tastes and ethical opinions about which people differ (the things we call ‘value judgments’), or on both.

Lester Thurow said that differences in the valuation of outcomes is at the basis of most disagreements:

Liberal and conservative economists most frequently disagree on who ought to be hurt and who ought to be helped. Their technical disagreements on who will be hurt and who will be helped are much less frequent.

Karl Popper argued that who made an argument is of little value. He said that the growth of knowledge depended not on the ethics of the individual scientists but on the critical spirit to scientific community as a whole. The critical scrutiny of others polices the truth:

The genuine rationalist does not think that he or anyone else is in possession of the truth; nor does he think that mere criticism as such helps us achieve new ideas.

But he does think that, in the sphere of ideas, only critical discussion can help us sort the wheat from the chaff.

He is well aware that acceptance or rejection of an idea is never a purely rational matter; but he thinks that only critical discussion can give us the maturity to see an idea from more and more sides and to make a correct judgement of it.

Peter Drucker championed a business rule of never making a decision until there is disagreement; only then do you know what you are planning to do:

Unless one has considered alternatives, one has a closed mind.

This above all, explains why effective decision-makers deliberately disregard the second major command of the textbooks on decision-making and create dissension and disagreement, rather than consensus.

Decisions of the kind the executive has to make are not made well by acclamation.

They are made well only if based on the clash of conflicting views, the dialogue between different points of view, the choice between different judgments.

The first rule in decision-making is that one does not make a decision unless there is disagreement

Alfred P. Sloan said at a meeting of one of his top management committees:

“Gentlemen, I take it we are all in complete agreement on the decision here.”  Everyone around the table nodded assent.

“Then,”continued Sloan, “I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about”.

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