Ayn Rand Never Ran a Business

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There have been several stories this week about what CEO Eddie Lampert is doing to Sears. As Paul Krugman says, its the story of how an “Ayn Rand-loving hedge fund guy is driving Sears into the ground.”

Lynn Stuart Parramore writes,

A bit of background: Lampert cut his teeth on Wall Street at the risk-arbitrage desk of Goldman Sachs under Robert Rubin, who later became U.S. Treasury Secretary and now serves as vice chairman at Citigroup. In 1988, Lampert founded ESL Investments and joined the billionaire’s club at age 41. He rose to fame in the early 2000s for seizing control of Kmart during bankruptcy and then using it to take over Sears. Along the way he was kidnapped and deposited on a motel toilet in handcuffs for nearly 40 hours, and lived to tell the tale. Lampert is known for his touchiness and odd habits, such as conducting meetings from a bare bones room to Sears executives forced to tune in by videoconference. He hates flying.

You might say that Lampert is the distillation of the fervent market worship and wrong-headed economic approaches that came to dominate the U.S. in the 1980s and have yet to run their fatal course. He adores Ayn Rand, and is reported to have given out copies of Atlas Shrugged during an ESL annual dinner. Lampert is also a fan of Friedrich von Hayek, the Austrian economist beloved by conservatives and libertarians. As a Robert Rubin protégé, he absorbed the lessons of a man whose discredited economic focus on budget deficits ended up starving the country’s infrastructure, education and alternative energy.

Looking at what Lampert has done to Sears, we can see what happens when the lessons of his mentors are actually applied in the real world. It isn’t pretty.

Long story short, instead of managing Sears in a way that allowed its many divisions to support and complement each other, he broke the company up into warring fiefdoms and told them they must compete with each other. Mine Kimes writes at Bloomberg Businessweek,

Since the takeover, Sears Holdings’ sales have dropped from $49.1 billion to $39.9 billion, and its stock has sunk 64 percent. Its cash recently fell to a 10-year low. Although it has plenty of assets to unload before bankruptcy looms, the odds of a turnaround grow longer every quarter. “The way it’s being managed, it doesn’t work,” says Mary Ross Gilbert, a managing director at investment bank Imperial Capital. “They’re going to continue to deteriorate.”

Joe Cahill at Crain’s puts it more starkly.

Mr. Lampert spent billions of dollars of the company’s once-prodigious cash flow in a vain effort to prop up the stock price through share buybacks. Between 2005 and 2011, Sears spent $6 billion on buybacks. Nevertheless, Sears stock has lost half its value over the last five years.

Part of the problem, according to Parramore, is that neither Lampert nor any of the top execs he brought with him had any experience with retail. And they didn’t think they needed any. Lampert seems to have believed he could make Sears and Kmart profitable again by applying Randian/objectivist principles. Cahill continues,

At least initially, Wall Street bought into the contradictory notions that he could use the company as a Berkshire Hathaway-style vehicle for other investments while restoring the two chains to their former glory. And if all else failed, we were assured, Mr. Lampert could simply harvest the vast value stored up in Sears’ real estate.

Mr. Lampert, for his part, insisted that his goal was to turn around the company’s retail operations. But he did little to discourage the Buffett analogy, misguided as it turned out to be.

Lampert is basically overseeing a slow-motion liquidation, Cahill says. And maybe that was his intention all along. But reading these articles, I get the impression that Cahill really believed he could run Sears better than it had been run in the past. Read the Bloomberg Businessweek article in particular on this point. Parramore concludes,

The lessons of Crazy Eddie seem so obvious that a bunch kids running a lemonade stand could understand them. You have to know something about the business you’re running, especially a big one. Success requires cooperation rather than constant competition. Greed is ultimately destructive.

The invisible hand of the market appears to have attempted to slap Lampert upside the head to teach him these things. But he remains committed to his nonsense, and the real losers are all the hard-working people who have lost their jobs, and the potential loss to the American economy of two revered brands.

It’s probably a good thing Ayn Rand never tried to run a business.

Somehow, this all makes me recall our old buddy and GOP presidential candidate Mittens, who believed he could run America like a vulture capitalist firm. We surely dodged a bullet when he lost.

New York Health Insurance Rates to Plummet

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This is good news for me, anyway —

State insurance regulators say they have approved rates for 2014 that are at least 50 percent lower on average than those currently available in New York. Beginning in October, individuals in New York City who now pay $1,000 a month or more for coverage will be able to shop for health insurance for as little as $308 monthly. With federal subsidies, the cost will be even lower.

Supporters of the new health care law, the Affordable Care Act, credited the drop in rates to the online purchasing exchanges the law created, which they say are spurring competition among insurers that are anticipating an influx of new customers. The law requires that an exchange be started in every state.

As of this writing, this story has not been made available on the Fox News website.

The Senior Senator From Massachusetts Kicks Ass

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http://www.youtube.com/watch?feature=player_embedded&v=ONEcoq9pjac#action=share

Charles Pierce:

My god, this is a kicking of the ass. Sooner or later, they’re going to realize that you really do have to bring the A-game on this stuff to the Senior Senator, or she is going to smile her Okie smile and the hook is going to come off the jab and, as the great Jimmy Breslin once put it, you will leave the ring in a blanket. She does mean business. Someone should start to believe that

Stupid Pundits Being Stupid

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Erik Loomis at Lawyers, Guns & Money had nominated this David Brooks column as the dumbest article you’ll read today, but then he found a Richard Cohen column that is even dumber. These columns are self-evidently stupid enough to not need further commentary from me explaining why they are stupid.

If the prize is not yet awarded, I’d also like to nominate this William Saletan column as the dumbest article you’ll read today. Really, Saletan should stick to concern trolling about abortion and stop revealing how oblivious he can be about other issues as well. See Steve M for explanatory snark.

But my real purpose here is to nominate a blog post by Ross Douthat, called “Why French Women Don’t Get Promoted,” as at least a runner-up for the dumbest article you’ll read today. He presents data showing that U.S. career women have a higher glass ceiling than women in other developed countries, which may be true. But he thinks the reason for this is that those other countries have governments that provide more support for families, including working mothers — what Douthat calls “family-friendly socialism” — than in the U.S., where working mothers are on their own to patch together whatever arrangements they can make to balance office and home. He writes that family-friendly socialism . . .

helps explain the persistence of “the glass ceilings, as well as stubbornly large wage gaps in more progressive countries,” because working women tend to be shunted more decisively onto a mommy track than they are in the United States.

… but at no point does he attempt to explain why that would be true. And the sources he cites, the ones available online, don’t really explain why that would be true, either. It’s a correlation-must-be-causation argument.

One of the sources cited explains that women get so much maternity leave in France it makes employers nervous about hiring them. But it’s not like women here don’t get pregnant and choose to cut back hours or leave their jobs altogether. And, anyway, the same source says later that French companies find ways to punish excessive maternity-leave taking.

Basically, though, Douthat blames France for providing women with all these incentives to stay home and have more children, and he says that’s why they are less successful in their careers. The thing is, though, that women who really want to be a success in business are not going to have four or five babies to get more maternity leave and receive a government stipend. I suspect the women who most take advantage of France’s family-friendly socialism to spend more time with their children are the ones who choose to do that, whereas here low-wage service jobs are mostly filled up by women who have to work to earn the money but who would rather be home with their kids.

I’ve got two words for Douthat: Affirmative Action. People forget that Affirmative Action was and is as much about ending gender discrimination as racial discrimination. And early on, probably the biggest beneficiaries of Affirmative Action were younger college-educated women, mostly white, who no longer were being sidetracked into secretarial jobs just because they were girls while young men with exactly the same qualifications started up the career ladder. Now, after 40 years, it has made a huge difference.

Have any of these other developed countries with lower glass ceilings attempted anything as rigorous as Affirmative Action to address gender discrimination? I doubt it. If the glass ceilings are lower in France, I suspect the real culprit is old-fashioned sexism.

Of Race and Riots

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The wingnuts were so certain African Americans would riot after the Zimmerman acquittal that, in the absence of actual riots, someone felt compelled to post a fake riot video that, naturally, went viral. However, the video was not of a post-verdict riot in Miami but of the 2011 Stanley Cup riot in Vancouver, Canada.

Instead of riots, there have been some protest rallies attended by racially mixed crowds. These have either been mostly peaceful but for a few individuals acting out, or they were entirely peaceful but over-policed. It’s hard to know which.

And, of course, it’s the widespread certitude among white racists that blacks are inherently prone to crime and violence that gave George Zimmerman “permission” to stalk Trayvon Martin.

But if we assume, as racists do, that behavioral traits are connected to race, it’s really white rioters we should fear. Historically, in the U.S. whites have been at least as prone as blacks to engage in riots, if not more so.

First, as mentioned in an earlier post, precisely 150 years ago rampaging whites fomented the biggest riot in American history, in New York City. A close rival to that record must be the East St. Louis riot of 1917, in which a white mob set fire to black neighborhoods and shot residents as they tried to escape the flames.

Of the many white race riots in U.S. history, there were some doozies during Reconstruction, such as the New Orleans and Memphis riots of 1866 (36 and 48 dead, respectively, nearly all African American). One interesting detail of the New Orleans riots is that orders (from Washington? I don’t remember) had sent Gen. Phil Sheridan and many occupying troops out of town (Sheridan was military commander of the district) in advance of the riot. There is speculation this was done to get Sheridan out of the way, as he tended to actually keep the peace. This suggests the New Orleans violence was not so much a riot as a premeditated attack.

After the heavyweight boxing defeat of (the white) Jim Jeffries by (the black) Jack Johnson in 1910, riots broke out among whites around the country in which several African Americans were killed, but I don’t know how many. From PBS:

Newspaper editorials warned Johnson and the black community not to be too proud. Congress eventually passed an act banning the interstate transport of fight films for fear that the images of Johnson beating his white opponents would provoke further unrest.

And of course, during the Jim Crow years lynch mobs were a common phenomenon, and not just in the South.

I could go on and on. You don’t find large-scale African American riots until relatively recent times, such as Watts, 1965, and the “Rodney King” riots of 1992. But again, if we assume a predisposition to riot is an immutable trait connected to race (which I don’t, to be clear), then whites must be at least as likely to riot as blacks.

Update: See also Electric Ooga-Boogaloo. Drudge et al. are reporting riots that are not happening.

Update: On CNN, Newt called the peaceful verdict protesters a “lynch mob.”

Afterthoughts

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A criminal defense lawyer in Wisconsin wrote to TPM:

I was astounded that the defense would put on a “self-defense” argument without the defendant testifying. In most civilized jurisdictions, the burden is on the defense to prove, at least more likely than not, that the law breaking was done for reasons of self-defense. I couldn’t figure out how they could do this without the defendant’s testimony.

I got curious and read the jury instructions Friday night and, I was wrong. In Florida, if self-defense is even suggested, it’s the states obligation to prove it’s absence beyond a reasonable doubt(!). That’s crazy. But ‘not guilty’ was certainly a reasonable result in this case. As I told in friend in Tampa today though, if you’re ever in a heated argument with anyone, and you’re pretty sure there aren’t any witnesses, it’s always best to kill the other person. They can’t testify, you don’t have to testify, no one else has any idea what happened; how can the state ever prove beyond a doubt is wasn’t self-defense? Holy crap! What kind of system is that?

Seriously. I do hope Martin’s family files a civil suit against Zimmerman. Also, I think Charles Pierce is pissed.

Try to Be of Reasonably Good Cheer

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On this day of bad news, I don’t suppose it helps to remind everyone that 150 years ago today, New York City was in the grips of the largest riot of American history. In four days of violence, white mobs killed at least 100 African Americans. I had always thought most of the rioters were Irish immigrants, but it turns out that wasn’t entirely true. They mostly just got blamed for it.

That said, Irish music doesn’t seem at all appropriate, but it always cheers me up. So let the dickheads and white supremacists celebrate; justice will have its day. Someday.