Daily Archives: March 6, 2020

Gresham’s Dynamic As Applied To Billionaires

I wrote an email response to a friend who described to me what his ideal billionaire would do for his/her workers and society as a whole.

Something I learned in my first economics course, and I have seen it played
out over the years.

From Encyclopedia Britannica:

Gresham’s law, observation in economics that “bad money drives out
good.” More exactly, if coins containing metal of different value
have the same value as legal tender, the coins composed of the
cheaper metal will be used for payment, while those made of more
expensive metal will be hoarded or exported and thus tend to
disappear from circulation. Sir Thomas Gresham, financial agent
of Queen Elizabeth I, was not the first to recognize this monetary
principle, but his elucidation of it in 1558 prompted the economist
H.D. Macleod to suggest the term Gresham’s law in the 19th century.

Nowadays, when economists apply this to more than coins, they call
it a Gresham’s Dynamic. What I saw in the dot com bubble, was a
Gresham’s Dynamic of mutual fund managers. The one’s who could
keep their wits about them, and not succumb to the mania, were driven
out of the business by the mutual fund managers that were racking up
great performance numbers by going wild for dot com. I didn’t get
hurt at all by the bursting of the bubble, because I was adamant about
not jumping on the band wagon. As I used to say to my colleagues
who were boasting about how much money they were making ”

The goal
is not to have the highest peak theoretical wealth ever, but how much
of that wealth you still have after the bubble bursts.

I wasn’t the one to have a higher tax bill from stock options that I never got
to cash in before they became worthless.

So, in your dreams about ideal capitalists, there is a Gresham’s
dynamic going on. The ones who want to do right by their employees
and society get taken out by corporate raiders. The rules have
been rigged to reward the raiders, and leave the good capitalists
with no protection. The good capitalists either get driven out of
business, or they have to take on some of the predatory practices
just to survive. This is why we must have some entity (the
government for example) to set the rules to prevent the Gresham’s
Dynamic. So, while I love your idealism, I am aware of how things
work when everybody is set free to do whatever they want.

Elizabeth Warren, This Is A Test

Elizabeth Warren has told us that she is a capitalist to her bones. Here is her biggest test. Will she act like a true capitalist and sell her endorsement for President to the highest bidder? She has also told us that she believes in markets. Will she use her market power in this situation to extract the highest price she can?

This would be a perfect demonstration, sort of a textbook example, of what it means to be a capitalist with near monopoly power. There couldn’t be a better example of what the 99% are up against in this class war.

The pièce de résistance to her little scheme would be to announce her decisions on the Sunday morning talk shows on March 15.

I woke up early this morning with the driving desire to write this piece before someone like Jimmy Dore does a comedy routine with these ideas. I tried this idea out on a sample audience. Perhaps this reference to the ides of March is a bit too cerebral.

Writing this post reminds me of my Bridge playing days, when the winner of the auction would play a trump card, and as the second player, I would decide to play my ace, and think what could possibly go wrong. Well, here goes the ace. Maybe that is too cerebral, also.