Sunday, September 17, 2006

Documentaries on Economy

The debate over social security, the collapse of Enron, the rising cost of living, the mounting feelings of insecurity and the shift in American life style have encouraged a new series of documentaries about economy. Among them, one can mention: Wal-Mart: The High Cost of Low Price, The Corporation and Enron: The Smartest Guy in The Room.

Most of these movies are produced by people whom one consider leftist or liberal minded. And they approached their subjects with such motivations. Both “The Corporation” and “Enron..” are attacking the profit seeking behavior of executives and corporations. Such a motive is very natural from an economist’s point of view. To imagine that a corporation wants to maximize people welfare is neither realistic nor pragmatic.

“Wal-Mart…” also approaches its agenda emotionally. It portrays destroyed communities and destructed businesses as well as hungry workers. It covers the incentives that Wal-Mart receives to open a new business, however it does not address the causes of such events. The movie does not pay attention to correlation between Wal-Mart and other businesses or the political motives of local governments to grant such incentives.

Make no mistake I do not deny the negative externalities of Wal-Mart activities or the tragic consequences of Enron collapse. They do exist and they should be prevented if we desire a healthy social order. However to address such issues emotions must motivate thorough investigation to identify the causes and legal black holes.

It is interesting to notice that all these movies ignore to address the information distribution, and how vast resources of corporations allow them to skew information distribution in the market in their own favor. All movies are silent about legal mechanism that allowed Enron executives to deceive shareholders and employees to the last minute.

There will be more questions and the increase in individuals’ dependence on their own resources for every aspect of their lives: from health insurance to retirement pension will motivate individuals to ask questions. There will be more tragic events if the causes and the mechanism of past ones go unnoticed and remain unanalyzed.

There is no doubt the lifestyle is changing, small businesses are closing, more than ever big corporations are ready to dominate all aspects of economic life and put an end to free markets where firms could not determine the outcomes. To save the day, one must think and analyze the motives, the events, the market mechanism using economics theories. This has been neglected for too long.

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