Last week, I watched Michael Moore’s latest movie, Capitalism: A Love Story, with two of my students. I took notes and we stopped at various points to discuss it. Some highlights:
10:40: He has a segment about a firm in Florida called Condo Vultures, that goes in and buys properties that have fallen in value and then flips them for a higher price. Moore seems to think this is wrong and, interestingly, so does the guy with Condo Vultures, who talks about how ruthless and bloodthirsty he is. And why is the guy bad? Because he offers to buy houses. This isn’t Kelo where the government just steps in and steals people’s property. This is a voluntary transaction. So the seller gains, the buyer gains, and the ultimate buyer gains. What this one segment shows is that Moore doesn’t understand the basics about how wealth is created. Of course, neither does the guy with Condo Vultures.
By contrast, a friend of mine who understands the economics of what he’s doing buys cheap houses in Detroit, fixes them up minimally, and then resells them at a substantially higher price. How does he get a much higher price? By taking the risk of being the lender. He calculates that if the borrower pays on the mortgage for 16 months, he will break even. Everyone gains. Bonus: To the extent the new owners maintain the property, they create a positive externality for the neighborhood.
64:40: Economist Ken Rogoff stumbles in explaining derivatives. Pretty funny. Still, I’ve been in that situation. Did Rogoff recover and do it better? We don’t know.
65:20: “They made the equations purposely confusing.” Oh, that’s why derivatives are so hard to understand: not because the math is inherently difficult but because the people who do it make the math harder than it need be.
70:00: A company from outside the state of Michigan hires workers in Flint, Michigan to send out foreclosure notices. The tone of this segment suggests that this is bad. Why? Moore doesn’t want workers in Flint, Michigan to have jobs? Or Moore doesn’t want workers in Flint, Michigan to have jobs sending out foreclosure notices? I’m guessing you chose the second option. Then consider the 123:00 point right at the end where he tells us that the company no longer employs those workers in Michigan. So we should be happy for them, right? Well, no.
72:00: People who lost their house in a foreclosure are paid $1,000 by the foreclosing owner to get rid of their trash. They voluntarily accept. The tone: this is bad. So it would have been better to pay others? You get kicked out of your house. Which would you prefer: to leave your stuff there and let someone else sort through it or to get paid $1,000 to sort through it yourself?
75:00: To his credit, Moore shows Senators Conrad and Dodd getting special deals on their mortgages from Countrywide.
83:20: Great line, “Tim Geithner has been a failure at every job he’s had.”
88:20: Shows Representative Paul Ryan, R-Wisc., saying “Heaven help us” if we don’t pass TARP. Mr. Ryan’s low point. At the time, I wrote one of his staffers, whom I had dealt with a year earlier, pleading with him to persuade Ryan not to vote for the bailout. You can see how successful I was.
106:30: Miami police back off when people in a neighborhood threaten an employee of a lender who comes to foreclose. Moore seems to like this. Message: you shouldn’t have to pay your debts.
107:30: Republic Windows & Doors in Illinois closes down, owing its workers back wages. The workers take over the plant and end up getting President-elect Obama’s support for their violation of the owners’ property rights. Moore seems to like this. Message: you should have to pay your debts.
READER COMMENTS
Andrew_M_Garland
May 3 2010 at 4:05pm
Moore: “They made the equations purposely confusing.”
This is a widespread attitude among Lefties, who are unusually convinced that “we” can do anything we really, really want to do. It is all pretty simple. If we don’t have some benefit available in life, it must be because the technical types are hiding the advances in order to make themselves more valuable and powerful.
This is particularly true of energy costs, availability, and carbon output. Lefties say that the evil energy companies could make it all so much cheaper if they weren’t intent on taking profits from us all.
–> Magic Power
Could They Do The Magic If They Wanted To?
The nerds are not hiding the magic that could provide unlimited power in a future utopia. Producing power requires a huge infrastructure and lots of effort. No magic there. It can only be done through long term intelligence and the incentives of a free market, not a central government agency and a bureaucracy of lawyers.
NZ
May 3 2010 at 4:18pm
Not directly a response to your post, but I want to ask the general question: should Moore’s film be held to some kind of epistemological or academic standard simply because it is a documentary? I argue that documentaries are a style, not a genre, of filmmaking, and thus should not be expected to strive for factuality or even coherency–at least not outright. The documentary filmmaker’s job is the same as the narrative filmmaker’s: to entertain. With only very mild reluctance, I extend this argument to journalism, as well.
A tangential issue is advertising: currently, there is much regulation in place intended to maintain honesty in commercials. Like all regulations, these are not evenly or consistently enforced. I question whether they should exist at all.
Buyer beware is also viewer beware.
Nick
May 3 2010 at 5:08pm
Dr Henderson,
I think you certainly let Moore off easily.
I became a fan of Moore during his days on TV. I agreed with his general stance that its wrong corporate criminals are treated better than street crime despite the fact that the theft is usually orders of magnitude larger in the former. I also agree with the general premises his movies raise (gun violence is a problem, the government re-acted incompetently regarding 9/11, our health care system is broken) but i do not agree with his conclusions/prescription on those issues. That aside I enjoy his films because they are entertaining and controversial.
That said I thought Capitalism was terrible. It was unfocused and what arguments he tried to make were poorly supported. He never seems to clearly state a point, just implying somehow wall street and big business conspired to steal everyones house. He shows people getting thrown out of their homes with no context, did they take a second mortgage? did someone lose their job? its just absurd. My guess is likely you would feel less sympathy for these people if context had been provided.
He believes cooperative business to be a panacea to solve all our woes. Which is certainly possible, but he never explains what is preventing people from forming co-ops or employee owned companies…because there isn’t anything! If these solutions were truly a superior way to organize a firm, why don’t we see more of them ? Alas he doesn’t care to explore that question.
The only interesting part I thought was his interview with the catholic priests.
Also though Moore is known for playing it fast and loose with the facts, the introduction in which he cited the real wage/productivity gap as “people being made to work harder with no pay increase” really irritated me, since its so widely debunked and ridiculous. He really must think people are stupid if they worked for 30yrs without a rise in compensation, period, let alone keeping in line with wages. Of course we know this isn’t remotely true!
guthrie
May 3 2010 at 5:24pm
@NZ
Moore’s films, however, are sold as journalistic (read ‘truthful’) endeavors and he defends them as such in public. Suggestions that his films are at all ‘style’ as opposed to ‘substance’ or ‘facts’ are typically met with ad-homonym attacks from Mr. Moore.
While I agree that his work is meant for entertainment and not enlightenment, don’t try to argue that point with him. He will insist on his work’s ‘integrity’ every time (often in a rather vulgar manner).
As such, I’d say it’s fair to take his work at his word and deconstruct them accordingly.
Silas Barta
May 3 2010 at 6:27pm
“They made the equations purposely confusing.” Oh, that’s why derivatives are so hard to understand: not because the math is inherently difficult but because the people who do it make the math harder than it need be.
Why the sarcasm? Making things unnecessarily complicated and confusing is *epidemic* in academia and the finance industry. They seem to introduce new terms for the basic concepts simply to have an additional barrier to entry.
Take bonds, for example. Why the need to talk about “coupon [rate]”? Why not just say, “face yield”, or something similarly self-explanatory? Why “yield-to-maturity” instead of “effective yield” or “yield on purchase”? Etc.
Ricardo Cruz
May 3 2010 at 6:28pm
Prof Henderson, could you comment if and why Wal-mart would buy death insurance in the name of every individual employees?
I haven’t watched the movie myself, but some friends told me Moore made this point. According to them, Wal-mart was making money off people dying by buying insurance in their name. At some point, it seems Moore even played the “ca-tching” sound to the news of a young clerk dying.
This doesn’t seem to make much sense to me. I mean, insurance makes sense at an individual level. Wal-mart already has a good idea how many employees will quit or die every year, so they know how much they must put aside for the purpose of training or whatever. No need to pay an insurance company to do it for them. This makes as much sense as a big car rental company buying insurance for every individual cars.
Anyway, some googling suggests this practice might have been true. If so, can you come up with a better explanation than Moore’s one (which I’m not sure what it even is exactly, other than it being weird)? Myself, I am betting on it being some sort of scheme to avoid paying taxes.
PS: great post as always!
Ricardo Cruz
May 3 2010 at 6:47pm
Nick writes “Which is certainly possible, but he never explains what is preventing people from forming co-ops or employee owned companies…because there isn’t anything!”
heh. Well, it seems lawyers typically either work for themselves or join firms you could call cooperatives where everyone is (eventually) made a partner.
Bryan Caplan makes the point (in his anarchist faq I think, or on his article in the Spanish civil war) that very few people are willing to put a lot of their own credit/savings at risk. It makes more sense for workers to diversify their investments through all firms.
Even entrepreneurs, which are the least risk adverse people among us, many times try to find investors to diversify the risk. Even wealthy entrepreneurs only put down a very small amount of their own money when, say, opening a hotel, or expanding the company.
Personally, I already try to diversify my social life outside my workplace, and I already dislike the idea of having health care tied to my job. Moore’s solution, of being more and more locked to the current company I work for seems fascistic.
Mr. Econotarian
May 3 2010 at 6:55pm
Indeed, it is tax law-driven:
http://moneycentral.msn.com/content/insurance/p64954.asp
“Broad-based or janitors policies that insure rank-and-file workers. Here the purpose is basically profit. The life insurance proceeds are tax-free. The policies have an investment component that allows companies to earn tax-deferred returns while the employee is still alive. And, of course, companies can take out tax-free loans on the policies.”
jc
May 3 2010 at 7:39pm
@Silas Barta
Yes, while sometimes the precision of jargon is called for, other reasons to confuse the issue are surely common too (as you mentioned, we in academia have our very own thieves cant that serves as a quite useful entry barrier, and signals that we’re smarter than you who do not understand our cant).
Interestingly enough, I also used to be in the finance industry. One source of confusing jargon is actually the public. When regulators don’t force the use of specific words, compliance departments sometimes do, as a means of avoiding future lawsuits similar to those won by members of the public in the past. (English words can have multiple meanings, e.g., Bill Clinton’s multiple definitions of “is”. Lots of wiggle room for lawyers wanting to proved clients were misled. Jargon, though not readily understood, is more precise.) Sometimes one felt like it was against the law to speak in English.
But it gets crazier. Not only were employees compelled to use words nobody outside the field understood, rather than explain things to clients in simple English, even the simplest speech was sometimes controlled, e.g., I remember getting a memo once specifying the 7 phrases we were allowed to use w/o prior approval if we ever wanted to wish a member of the general public Happy Birthday (“Happy Birthday, Tom!”…”I hope you have a great birthday, Tom!”, etc.).
Oh, and yes, regarding the life insurance posts, tax considerations play a major role. For all the schtick certain products get from the mainstream financial services press (e.g., “whole life is for suckers”), if structured properly, they can be one of the best asset shelters around. And the wealthier and more important one is, the more likely they are to have these kinds of policies, both privately and via corporations.
Lori
May 3 2010 at 8:01pm
10:40: He has a segment about a firm in Florida called Condo Vultures…So the seller gains, the buyer gains, and the ultimate buyer gains.…
The seller sells at a loss. Of course pencil-and-paper economists will evaluate the transaction relative to other available courses of action, compared to which it may well be a gain. Nevertheless, selling at a loss is disempowering, if not unfair. It would seem mathematically intuitive that for every example of someone buying low there is someone selling low; likewise for every example of selling high. Sometimes life really is a zero-sum proposition.
…
70:00: A company from outside the state of Michigan hires workers in Flint, Michigan to send out foreclosure notices. The tone of this segment suggests that this is bad. Why? Moore doesn’t want workers in Flint, Michigan to have jobs? Or Moore doesn’t want workers in Flint, Michigan to have jobs sending out foreclosure notices? I’m guessing you chose the second option. Then consider the 123:00 point right at the end where he tells us that the company no longer employs those workers in Michigan. So we should be happy for them, right? Well, no.
I won’t go so far as to say this is unethical. Flint is Moore’s home town; of course he wants its residents to have jobs, ideally jobs they can take pride in. Nobody likes being the bearer of bad news, well, nobody who doesn’t subscribe to ‘life is tough get used to it’ or other ‘kick ’em when they’re down’ philosophy.
72:00: People who lost their house in a foreclosure are paid $1,000 by the foreclosing owner to get rid of their trash. They voluntarily accept. The tone: this is bad. So it would have been better to pay others? You get kicked out of your house. Which would you prefer: to leave your stuff there and let someone else sort through it or to get paid $1,000 to sort through it yourself?
Probably the latter. That being said, low income folkx like myself tend to be stereotyped as ‘trashy’ and our supposed lifeways an affront to that nebulously-defined quality called ‘curb appeal.’ There’s also the implication that the foreclosure victim has to be bribed to do what would normally be expected. So, in that situation I don’t think I’d feel used but I might feel insulted.
88:20: Shows Representative Paul Ryan, R-Wisc., saying “Heaven help us” if we don’t pass TARP. Mr. Ryan’s low point. At the time, I wrote one of his staffers, whom I had dealt with a year earlier, pleading with him to persuade Ryan not to vote for the bailout. You can see how successful I was.
TARP was opposed by the more strident elements of both the American right and the American left, though obviously for different reasons. I (a leftist) was opposed to it. My thinking was, the risk of a larger financial sector meltdown may be justified by the possibility that inaction doesn’t lead to a meltdown. If the latter scenario did result, it would forever be a historical example of, once upon a time the legislature didn’t give big business what it wanted and it wasn’t the end of the world. Then maybe future legislators would have the chutzpah to stand up to future astroturf campaigns to the effect that policy that isn’t made to the business community’s specifications is automatically a ‘job killer.’
107:30: Republic Windows & Doors in Illinois closes down, owing its workers back wages. The workers take over the plant and end up getting President-elect Obama’s support for their violation of the owners’ property rights. Moore seems to like this. Message: you should have to pay your debts.
Back wages are property, too. Not only should you have to pay your debts, but back wages are supposed to be first claimants in line in bankruptcy proceedings.
Josh Weil
May 3 2010 at 8:17pm
@Lori
“Of course pencil-and-paper economists will evaluate the transaction relative to other available courses of action, compared to which it may well be a gain. Nevertheless, selling at a loss is disempowering, if not unfair.”
How is selling at a loss unfair? The freedom to make a profit necessitates the freedom to make a loss. There is no way around that.
SydB
May 3 2010 at 8:55pm
Moore is a propagandist. He’s like Fox News. He’s selective. Lies by omission in a lot of cases. Innuendo. (And if you don’t believe that, look at how many times Fox Business news falsely correlated market movements to politics.)
Mark Bahner
May 3 2010 at 9:49pm
“The seller sells at a loss. Of course pencil-and-paper economists will evaluate the transaction relative to other available courses of action, compared to which it may well be a gain.”
Yes, economists are evil for analyzing the real world instead of one of the fake worlds where people who are wealthy (like Michael Moore!) just give away their money.
P.S. Did Michael Moore volunteer to cover the difference between what Condo Vultures offered and what Michael Moore considers “fair”? (Rhetorical question!)
Nick
May 3 2010 at 10:38pm
Lori:
The seller sells at a loss. Of course pencil-and-paper economists will evaluate the transaction relative to other available courses of action, compared to which it may well be a gain. Nevertheless, selling at a loss is disempowering, if not unfair.
In the majority of these situations the buyer put no money down and in many cases rolled the closing costs into the loan, in those cases there can necessarily be no loss, because nothing was risked except the credit score of the borrower. All the equity was simply imaginary.
Doc Merlin
May 3 2010 at 10:50pm
When the left tries to attack capitalism, it generally attacks a mercantilist straw man. This seems no different than that.
Nick
May 3 2010 at 11:29pm
@Doc Merlin
To be fair, he isn’t actually attacking capitalism, and makes it clear at the outset, and in numerous interviews. The movie is basically a half hearted attack on corporatism.
Josh Weil
May 4 2010 at 1:48am
@Nick
If he’s not attacking capitalism he should really change the title of the movie.
Tracy W
May 4 2010 at 3:35am
NZ – you say I argue that documentaries are a style, not a genre, of filmmaking, and thus should not be expected to strive for factuality or even coherency–at least not outright.
Can you please tell us what these arguments are? At the moment you’ve just asserted the result, and I’m curious as to your reasoning behind it. I quite like arguing, and I don’t see any problems with me expecting documentaries to be factual (in the “this is the way the world should be” sense of expecting, obviously I don’t expect documentaries to be factual in the “most likely outcome” sense of the word expect.)
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