What I Didn’t Get To Say On Bill Maher Last Night

We could have talked more (or even the whole show) about the ideas of Mohammad Yunus.  His book, Creating A World Without Poverty, argues we should look beyond standard for-profit business and consider expanding the emphasis on “social business.”  This – among other things – preserves investors’ capital but doesn’t aim to make it grow, while serving pressing social needs with a business-like delivery model. 

Versions of these ideas came up repeatedly in a course I just finished running at MIT, with Anjali Sastry and other colleagues, in which more than 50 students put their business skills to work helping health care projects in Africa become more effective.  Muhammad is definitely right that more and more business people want to get involved in this kind of social space, and many social entrepreneurs welcome input/advice/any kind of serious contribution.

Ordinarily, we might dismiss a zero real rate of return as uninteresting to anyone who has other uses for their money – but Muhammad is quite eloquent on how such an investment is complementary to seeing more in your life and in finding ways to really help others.

In addition, presumably this part of your portfolio would be pretty stable and largely uncorrelated with other investments.  Perhaps, in the light of recent events, we should all consider having part of our longer-term savings in a “preservation of capital” category of assets.  This is not the usual ambition that the finance industry encourages, but it may become part of sensible diversification – particularly if it enables you to help others in measurable, productive ways (and Muhammad is big on measurement and assessment of success, while recognizing it is hard in this sphere).  Perhaps it even provides us with a “parachute” of perspectives, network connections, and resources that are available if our regular careers go off-track?

Actually, I didn’t get to say many other things also – in this kind of format, you have to answer the questions (pretty much) as asked and go with the flow of the conversation.   Feel free to tell me what points I missed; even better if you have a succinct phrasing I can use for any future interviews. 

And thanks for all the useful input that you provided in the run up to Friday evening.

——————————

The Overtime segment of the show – recording immediately after the TV broadcast – is on the web (currently here, but that’s not a permalink; update: permalink).  For the show itself you need HBO, which will have it on-demand until July 5th.

By Simon Johnson

44 responses to “What I Didn’t Get To Say On Bill Maher Last Night

  1. Um, if you get a 0% rate of return, aren’t you actually losing capital with inflation?

    I don’t think you need to completely forgo profit to do good, you just need to choose your investments carefully, and not necessarily chase after only the best returns out there.

  2. Oh 0% real rate, sorry.

  3. Not only are we dealing with the collapse of a financial system, we are also dealing with the collapse of a worldview. Markets are not self-correcting. We need to articulate a new worldview –beyond mere bureaucratic regulation– to help guide, moderate, and balance world markets.

  4. Yunus’s is a feel- good plan that will never work. First problem, human population growth will overcome any leverage added by reducing profit.

    Second, machine and livestock population growth will amplify the first problem.

    Energy constrains on are removing leverage very rapidly. In many segments there is no profit left to reduce. Exponential demand is working its magic, Yunus’s program is already obsolete.

  5. Derrick Davis

    You did a great job Simon. Even through Maher’s jokes…..
    I am a current MBA student and future Economics PhD. I’m glad you represented economists well.

  6. I imagine most people do not have a problem with the idea of social entrepreneurship, or even allocating their personal wealth to such causes. I can see living in a better society as a return on an investment. It is just that these concerns are generally regarded as the province of government. A large portion of our earnings already go to address social concerns like poverty.

    So I guess the question is, if these kinds of organizations can address these issues in a more cost-effective and efficient manner, why not reduce the size of government and let them have these responsibilities?

  7. Prof. Johnson —

    Maher definitely lobbed you a soft ball with “If the U.S.’s dossier came across the IMF’s desk a year ago with the country’s name blacked out, what would they have said?”

    Your answer was, roughly, “fix the banking system first”. To which a naïve listener might reply, “Isn’t that exactly what they did?” To someone who does not follow this stuff closely, it might not be clear what you mean by “fix” and/or “restructure” the banking system.

    Other than that, I think you did great. Loved the “banana republic” comment.

    Yunus definitely stole the show, though.

  8. singlepayercanada

    Thanks Nemo, I was worried I would not be able to view a replay. In Canada I can’t watch the Colbert Report or much of PBS online because, it seems, the folks who own the Cable-TV providers also own the Internet providers. So they can make more money by making us buy two services. Grrrrrr….

  9. Si,

    Muhammad, who’s not exactly perfect (the man tried to help that admitted White-Collar Rapist Mikey Milken buy his pardon on The Charlie Rose Show last year), does have an interesting point here:

    Success without Greed.

    Money for life and prosperity for all.

    No hourly bowing at The House of Green, with offshore banking in the Caymans, of course. Not exactly an idea that they pitch at Harvard Biz or practice at The Houses of Rubin and Paulson, Goldie, Blackstone, or Hank Kravis’s latest wife. (We shant even discuss Uncle Miltie, formerly of Chicago and Chile and now, presumably, in a much warmer climate.)

    Poo pooing Master Greed.

    Damn, that’s pissed you off.

  10. Yes, you did a great job. Bill always seems so “full of himself.” Seems to always be interrupting! Even when HE asks the questions, he never seems to let ANYONE finish. So compared to most folks you got to say a bunch.

    Did I miss any discussion on recent unemployment? I was quite surprised to see that the latest state reports showed FALLING rates in 21 states and that another 11 states had NO RISE. Seems like a peak has formed?!

    http://mast-economy.blogspot.com/2009/05/21-states-see-unemployment-fall-in.html

    Seems like Bill would have picked up on that?

  11. “In addition, presumably this part of your portfolio would be pretty stable and largely uncorrelated with other investments. Perhaps, in the light of recent events, we should all consider having part of our longer-term savings in a “preservation of capital” category of assets.”

    Si,

    Forgot to mention two things:

    1. Not prosperity for all. Prosperity for those who want to work. May surprise you. I know you never learned this in your Silver Spoon World. Overwhelming majority of people really want to work. They take pride in work. They just have no use with a bunch of 27-year-old schmucks treating investment banking like the craps game in the alley behind the barbershop. Sorry, salon. You wouldn’t know a barbershop, Si, if you ran into a lamppost with Mum’s Mercedes.

    People like to work. They just don’t want to get, well, a version of Economic Enhanced Interrogation Techniques when a handful of Derrick Davis’s Beer Bash Buddies decide they want to game the system with a mix of credit default swaps and collateralized loan obligations to make a quick billion, which they then launder and/or hide in some post office box on a beach in the Caribbean.

    Derrick, do pay attention. There will be a quiz at the end of this post and another 10 years down the line for you. Don’t much it up. That’ll force me to find you and, well, cuff you from one end of your deregulation bell curve to the other. And I will find you, son.

    2. The quote I listed above. Didn’t you ever read Benjamin Graham, Si? Never came across “The Intelligent Investor”? The ultimate definition of the tortoise and the hare and the clear sign, or is that sine for you Economics boys and girls?, that is the folly known as Efficient Market Theory. You quote above is pure Ben Graham, yet you wrote it as if you’d just stumbled upon the hole in the backyard where your father’s butler had, per Dad’s instructions, buried the location of his cache of 1934 municipal bonds from Silicon Valley. One sees you looking around warily, caught between a jubilation so divine that you’re about to wet your pants and a suspicion that IRS and SEC satellite cameras must be trained on this location 24/7.

    That quote above is basic Ben Graham. Find out who he was. Read his book. Realize Grahmam understood the game decades before you hired your first runner to transport money to an offshore tax dodge.

  12. Coffee Boy

    here here!

  13. http://video.google.com/videoplay?docid=1986204406774837194

    If you are interested in a 1hr interview with Yunus, I saw him 4 or 5 years ago on Charlie Rose—before he won the Nobel Prize. It is still available online.

  14. tippygolden

    The notion of, public service, is important. Conventionally, it means working in the public sector. So the idea of — social entrepreneurs — seeks to bring the best of these two worlds together. I really like this idea.

  15. I’m glad you pointed out this question. I wonder where he got it.

    The challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary. http://xrl.us/TheQuietCoupp4 (Link to http://www.theatlantic.com)

  16. Simon, it was fun seeing you on the Bill show.

    I hadn’t known that you are a naturalized US citizen Congratulations and WELCOME ABOARD!

  17. Мне кажется очень хорошо

  18. You should also consider the socio-economic benefits to the rest of your portfolio, including that part called life. If you don’t think that there is a real-world benefit to you from alleviating poverty, then you must be immune from the violence and environmental destruction that poverty begets.

    As a practical matter, however, I am quite sure that your long-term investments have no such immunity.

  19. Simon: I’d like to see you on a panel with Hernando de Soto, the Peruvian Economist that wrote the Mystery of Capital. His most recent book is even more relevant today than when he published it in 2000, as I’m sure you know. Importantly, the point he makes about the inherent value in property as a pathway to credit and the lack of an integrated system for property management (including insurance, titling, transparent transfers, surveying, etc…) in the “developing world” is why free market capitalism has failed in so many countries. Also on this “dream” panel I’d ask Amara Sen to talk about “Development As Freedom.” Sen’s almost meditative exploration into the inner meaning of “development” nicely juxtaposes some of Yunus’ arguments about social entrepreneurship. And, we probably should bring Jonathon Porritt (Capitalism As If The World Matters) in too, to give a systems point of view. And, of course, Joseph Stiglitz could bring in the Fair Trade concept. I’ll be happy to moderate. ;-)

  20. With our current -0.7% rate of inflation, zero interest is quite all right. At the moment Kiva.org is not all that much riskier than trusting the hand-to-mouth FDIC, and you get the added karma of sending capital to countries that your government is jerking around, like Lebanon or Kenya. Better to give it to the deserving poor – if you keep it at home, it will just be expropriated to maintain failed bankers in the style to which they are accustomed.

  21. And hear, hear!

  22. What is the difference between a “social business” with no profit motive and a traditional non-profit organization?

  23. Nemo, what if the lower and middle class need “fixed” to “fix” the banking system?

  24. Simon,
    Not being an economist, one is only versed in major economic tracts from purely a socio-political aspect. That said, and in reference to Prof. Yunus, whilst we are currently dealing with a major global financial dislocation and living in a world where the vast majority of wealth is owned by 1% of the population, its amazing how most commentators miss the true elephant in the room. Namely, exponential population growth.
    Whilst I’m no Malthusian, unfortunately, some of his dire warnings are now actual fact.
    The current socio-economic forces at work all depend on positive growth rates to measure a countries success, instead of focusing on how to better utilise the resources at hand – much of this attributable to capitalism’s reliance on fiat currencies, whereby growth is essential if interest is to be paid off central bank loans by state governments.
    Whilst such a system may have had many benefits in the preceeding three centuries, this certainly is not the case today – global warming being but one manifestation of this flawed system.
    Hence, it would be appropriate if some commentators could address this obvious growing problem, particularly if all nations are not one day to resemble Haiti.
    Indeed, having lived and worked in Asia for 13 years, one is horrified at population growth rates in India, Indonesia and the Philippines, who’s infrastructures today could not cope with the requirements of their own populations based on levels of 25 years ago, never mind the levels one finds today.
    Hence, whilst its wonderful that we have finally awoken to the fact about the unsuitability of the Anglo-American form of modern day capitalism, cronyism and utter greed by a very small minority. One despairs of what the future will actually hold for my young daughter, particularly if more than two thirds of the entire global population embrace consumerist ideals, the very consumerism being proclaimed as the panacea to what ails the global economy currently.

  25. World population growth will nearly be over in 50 years. Actually, population growth has worked hand in hand with capitalism, and it’s difficult to see how capitalism – i.e. private enterprises competing for profit and market share – survives a zero population growth world without imploding. Think we have excess capacity now ?

    The population growth story is very quickly, within our lifetime, going to be old news.

  26. Simon, in the interests of full disclosure, could you let us know who coordinates your media appearances?

  27. it’s not a 0% ROI..you can ask for goverment or big companies to sponsor it..social matters are already in their agenda, it’ll help levitate their good name either…from the sponsorship donation, you can ask them for your share, i mean a share of dividen..In the end, we can help others in need and also making a financial income that can be use for expanding the business and make a living…the important thing is the heart, u just take what u deserve..not being greedy..

  28. Aaron Broad

    You can watch Colbert Full Episode as thecomedynetwork.ca, or at least you could last time i checked

  29. Until we elect citizen legislators who are willing to let go of power, instead of professional politicians who seek to retain power at all costs, then alternatives to improving society cannot be allowed to replace government.

    I agree with William Black, our financial problem is a moral problem. It’s a moral problem in business, where greed overcomes normal responsibilities to the company and to customers. It’s a moral problem in Congress, where grasping for control/power and influence of campaign contributers exceeds what is in the best interests of the country.

  30. @Steve from Virginia

    If I understand you correctly, you think that it is too late, whether we make profits or not.

  31. I hope “one despairs” was hyperbole, as one cannot afford to, least of all when responsible for the young. There often seems to be a huge gulf between one’s efforts to understand, or advocate for solutions to large-scale problems, and one’s efforts to organize one’s own life; small bridges certainly contribute something to sanity, and maybe even a little to the solutions.

    Yunus’s work is valuable, but there is nothing wrong with individuals starting with the much simpler and often more accessible options of putting their savings into credit unions, community development banks, and old-fashioned mutual savings banks. Security, better long-term returns than many mutual funds, and the knowledge that your money is being used for honestly brokered mortgages and loans to small businesses that probably are good for the community are the obvious benefits. And if innovation is more likely to come from small businesses, development of long-term solutions may get more support here too. You can integrate this basic investment plan with other community-oriented and buy-local activities if that’s your bent, or just use it because it makes sense on its own, as helping enrich a mega-bank does not.

  32. I liked what you said on Bill Maher, and thank you for supporting Mohammad Yunus’ ideas. Why doesn’t anyone ever bring up the idea that it’s corporations themselves that are the problem? As a sole proprietorship, we have occasionally had to live on $25K-40K per year, just so we can keep our business and employees going. To make our business competitive and viable, we can’t take out every bit of profit; instead, we need to put money back into the company, whether it’s equipment or r&d, to ensure its future profitability. Clearly the financial sector hasn’t done that at all. How could a bank be as undercapitalized as many of ours appear to be, and yet its shareholders and upper management continue to pull money out of it as if it’s rolling in profit? If it was a sole proprietorship, they would have already had to declare bankruptcy and sell off their personal homes and other personal assets to meet their responsibilities. Do corporations have any responsibility at all for their problems? I’m not trying to just gripe, I just really don’t understand how running a business the way many corporations seem to can even be legal.

  33. Even under our current economic system we can have profit without growth. Maybe more emphasis on stable companies that pay dividends rather than equity price appreciation would be a good thing and get part way there.

  34. Marlen: “How could a bank be as undercapitalized as many of ours appear to be, and yet its shareholders and upper management continue to pull money out of it as if it’s rolling in profit? If it was a sole proprietorship, they would have already had to declare bankruptcy and sell off their personal homes and other personal assets to meet their responsibilities.”

    Incorporation is, among other things, a way to limit personal liability.

    Marlen: “Do corporations have any responsibility at all for their problems? I’m not trying to just gripe, I just really don’t understand how running a business the way many corporations seem to can even be legal.”

    It was not always legal in the past, and it may not always be in the future. Limiting liability is a way of passing on risk and cost to others. When it happens on a large scale, society may decide to stop promoting it.

  35. It (incorporation) has already happened on a large scale. What I meant to say was that if the costs are pereceived to be too great and too pervasive, society may decide to stop promoting it.

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  37. Katharine,
    unfortunately, my use of the term ‘despair’ is certainly not hyperbole, quite the reverse I’m afraid. I think a wider audience getting to learn a little more about Prof. Yunus is positive, one could look closely at the impact of micro-finance in Asia and the good work of Mr. Jacques Atilli on this subject matter.
    The central matter still remains though, and this was the reason for my post, that currently discussions are based on the ‘here and now’, rather than looking 10-to-20 years down the road, and, we seem wedded to our current short term attitude to capitalism, rather than questioning some of the main tenets of capitalism, which have clearly failed at this juncture in time – note, I do not fall in to the Ron Paul school of thought here.
    My worries are most real and can be clearly seen/ or are expressed here in Asia.
    One clear example are the somewhat large claims by proponents of capitalism on how the Chinese have managed to raise millions out of poverty – the true cost of this claim never really being examined, be it to the United States or general population in China itself – the economist Jimming Ha has quite a bit to say on this, as does Dr. Jim Walker and Mr. Harvey Feldman.
    Whilst proponents of unfettered free markets and globalisation make many claims, they always seem to neglect both the environmental and individual costs associated with all the ‘good work’. One example would be this, US jobs have been exported to low cost manufacturing bases in emerging economies of the Far East – this fits squarely with both Marxist and capitalist theories of capital chasing a maximum return from investment, Asia being a low cost destination.
    Nothing is ever said about the fact that many of the workers are female, that said workers are forced to live in migrant accommodation provided by the employer and are only likely to see their families maybe two weeks per year – this being the social cost of equation, lets not forget a lack of civil rights, trades union activity and utter degradation of the environment – a trip to many cities in China, India, Manila and Indonesia is testament to this.
    My input on population growth, which certainly is not a non-starter, is also important. I’ve personally witnessed the Philippines population expand from 80 million, to an anticipated 100 million in less than 20 years, the majority of these individuals now having multiple off spring themselves, this again is repeated across much of the Indian sub-continent and Muslim regions of Asia – even China, a totalitarian state has major problems imposing its one child policy.
    Now, if my concerns were taken out of context, one may consider me very much to the right, or an outright racist – yet, one is versed in most enlightenment philosophy with a political allegiance very much to the left, probably a Nader supporter if living in the US.
    Now, these are major concerns, not withstanding the actual economics and realities of today.
    Hence, Prof. Johnson does us a service by highlighting certain oligarchic tendencies in society, although, as stated in previous posts, a look at the works of C. Wright Mills and Robert Michell’s and Jaroslav Jialas is worthy.
    now, all along, I’m clear I’m no economist, rather, one is on the political/historical educated path – I have a masters in Political Science with an emphasis on federalism, so, we do encounter economic tracts in our research, but, its is wrong of me to make an assumption I’m an expert.
    Thus, and for all those who have read this post, one is looking for a dialogue about moving beyond current economic thought, and Yunus does seem a good starting point to get the ball moving.

  38. some guy in a cube

    “This – among other things – preserves investors’ capital but doesn’t aim to make it grow, while serving pressing social needs with a business-like delivery model.”

    I find this compelling and along the lines of my recent thinking. I will have to read up on it. Thanks for the tip.

    Zero-growth is all that one gets today in T-Bills. A zero-percent return sounds horrible, almost irresponsible. However, T-Bills have been an outstanding performer over the last 20 months, given the massive drop in equities and housing during that time. So indeed there is a place for such “investments” in a robust portfolio, that is, if one can withstand the hoots and hollers of investment advisers in desperate need of fees in order to eat.

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  40. Bill Maher generally hosts a good show, and with 3 (often intelligent and genial, but also opinionated) guests every week, he has to be a bit aggressive in his moderating to keep control. But was anyone else disappointed that with Yunis and Johnson on the panel, he spends 10 minutes on economics and then hijacks the conversation to a myriad of topics, the majority of which focused on (once again) religion? Not to say that Johnson and Yunis don’t have an opinion on religion, but the conversation steered more toward Meacham, who though talented, was a bit out of place in a panel that should have focused primarily on the current economic problems. I felt Maher really missed an opportunity to fully utilize his guests for a better discussion.

  41. Jane Wareham

    Simon – I caught the Bill Maher show and agree with the previous commentators – what a shame the show was not an hour longer. Your comments were insightful – enough to write and ask whether you would consider speaking at a financial seminar we are hosting here in the Cayman Islands in January. I invite you to look at the website for last year’s event at http://www.caymanfundsconference.ky and contact me if you have an interest. The Cayman Islands are directly affected by US fiscal, monetary and economic policies and we seek to improve the analysis and debate.

  42. Since this is not a focused topic, I thought that it would be OK to add an off topic comment. :)

    Not long ago I talked about how the U. S. is an innumerate culture, and how numerate people could take advantage of that. I ran across an example on Mark Thoma’s blog. He quotes Dambisa Moyo’s article in the Huffington Post:

    Dambisa Moyo: “For example in the 1970’s less than 10% of Africa’s population lived in dire poverty — today over 70% of sub-Saharan Africa lives on less than US$2 a day.”

    That statement is like a lot of things that you see in newspapers. The problem is, what does “dire poverty” mean? Moyo compares it with living on less than $2 per day. In the U. S., of course, that would be dire poverty, so the innumerate reader will assume that Moyo means the same thing by both phrases. Besides, by the rules of discourse, she is not supposed to be comparing apples and oranges. But is she? (She also slips in a comparison between “Africa’s population” and “Sub-Saharan Africa”. She even tells us that it’s apples and oranges.)

    Mark Thoma says, “According to [World Bank] figures, headcount poverty under $2 a day was 74% of the population in sub-Saharan Africa in 1981 and 73% in 2005. Other prominent estimates that go back to 1950 or 1970 also contradict Moyo’s statement, by showing high and persistent poverty.”

    Maybe Moyo did not use the $2 figure for the 1970s because that data was not collected before 1981. But her thesis is that foreign aid has been bad for Africa. If so, she should have mentioned the 1981 data.

    My point about innumeracy is that to someone who is numerate, these comparisons make no sense. In fact, they raise a red flag and make us suspect that someone is trying to pull the wool over our eyes. But to the innumerate, the numbers, 10%, $2, lend credibility without being critically processed. If anything, they diminish the critical faculty, because the eyes of the innumerate glaze over. Instead, the innumerate rely upon authority and professionalism. Authorities and professionals are not supposed to con us.