Criminalizing Excess Profit Margins

Before we spend too much time in the bank-bailout hearings arguing about CEO salary caps and the types of hedge funds to be banned, let's think about root causes, shall we? How about banning any sustained profit margins above some arbitrary cap like 12 percent? Socialism, you say? No more so than nationalizing an insurance giant like AIG. And something tells me even Adam Smith might understand the point. Bear with me.

Before the S&L shell games and leveraged buyouts of the mid-1980s, investors were happy with regular profit margins for goods and services in the 5 to 8 percent range, with occasional surges into double digits when a buying craze hit anything from tulips to Teenage Mutant Ninja Turtles. The important thing was, the surges were related to specific goods and services over which the public at large went temporarily mad.

The common thread in short-sells, derivatives, collateralized debt obligations, hedge funds, vendor-financed Internet infrastructure, commodities speculation, et. al., is that investors seek and expect continuous profits in the 12 to 20 percent range. These kind of expectations killed the media industry. And in the case of financial instruments, they are seeking profits from bets waged on future market behavior, not on tangible goods and services. Excess profits are being conjured out of thin air. Sounds like a RICO violation to me!

Wait a minute, you say, how can excess greed be criminalized? Doesn't that destroy capitalism? Hell, no. Regulating externalities like labor rights and environmental factors not only has a long history, it has been critical to controlling capitalism to prevent it from being self-destructive. China's recent experience with losing control over additives in its food supply shows that early efforts like the Pure Food and Drug Act of 1906 were key to taming the capitalist beast.

When I was out walking the dog at 5 a.m. this morning, I was dreaming up advertising campaigns. Haul some Jenny Craig slim-down pictures out and say, "Wall Street: Slim down your profit footprint!" -- thereby linking the notion of excess profits to the carbon-footprint ideas of the environmental movement. And, of course, use the Monopoly symbols of the angry cop to insist: "Profit margins over 12 percent? Go directly to jail!"

Reading Adam Smith: Pondering the Slow Descent Into Ignorance and Fear

I'm finally getting around to reading the unabridged Wealth of Nations by Adam Smith. It's understandable why P.J. O'Rourke felt it necessary to write a Cliff's Notes version of the book, since the first 200 pages or so read like a dated economics textbook. (Still, it's hardly as dry as so many complain. You want dry, I'll give you Sartre or Kant or Bertrand Russell. Smith is moist by comparison.)

Once Smith gets into discussing a history of feudalism following the collapse of the Roman Empire, however, the writing becomes very engaging, giving the reader a good insight into the historical elements that led to the slow formation of Italian city-states and the Hanseatic League. I was really interested to see what Smith thought of the immediate post-empire period in Western Europe, since a couple critical books have been published lately, updating and revising what Edward Gibbon had to say about the Decline and Fall of the Roman Empire. The common message of Guy de la Bedoyare's Roman Britain and Peter Heather's Fall of the Roman Empire is that there was much more of a concerted effort by Goths, Alans, Franks, and Saxons to eliminate remnants of Roman culture, particularly in Britain and Gaul. Cities were depopulated by design, and the literate society leaders were rounded up and eliminated in 439-440 in Britain, and in an undetermined pre-Clovis era in Gaul.

It led me to fantasize on what it must have been like to live as a literate Roman citizen in Western Europe during the end of empire, hiding from barbarian death squads and watching the slow descent of the population into ignorance and fear. Were the de-urbanization drives as sudden as a Khmer Rouge purge, or was it a much slower process? What kind of legends did families develop about the emptied Roman cities? Did the spread of Christianity and the rise of free cities work in tandem to diminish the power of feudalism, or was it much more random than that? These questions aren't merely an effort to fill historical blanks in the Dark Ages. I have this funny feeling that literacy and organized culture will experience a new "slow descent" in the 21st century, maybe within my lifetime. Hope I'm wrong.