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Lecture Notes: Sept. 4 |
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Econ. 103, Fall 2002, Prof. Nancy Folbre |
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In 1963, the Beatles recorded a song that neatly summarizes the way many people think about economics: Money (That’s What I Want) The best things in life are free Your loving gives me a thrill, Money don’t get everything, it’s true. Berry Gordy Jr., Janie Bradford Does any one know the name of a song they recorded later that offered a completely different point of view? "Money Can’t Buy You Love." Stay tuned for next week. (By the way, musical suggestions are welcome but need to be accompanied by an actual tape or CD).
This, an excerpt from a famous speech in Oliver Stone’s 1987 film Wall Street. Michael Douglas won an Academy Award for best actor in this "energetic, high-minded big business treatise"* for playing the role of Gordon Gekko, the chilly, twisted, but nonetheless charismatic wheeler-dealer who corrupts the young idealistic Bud Fox, played by Charlie Sheen. Bud is a stockbroker struggling to make a living making "cold calls." But he believes he can make the big time, and gets a chance when his dad (played by his real life father, Martin Sheen) reveals some information about a the airline he works for as mechanic and union shop steward–information that, once revealed to the public, is likely to make the price of the airline’s stock soar. He parlays this "inside" information to hot shot Gordon Gekko, and is then persuaded to become a specialist in helping Gekko engage in the kind of "insider trading" that guarantees huge returns. I won’t tell you the rest of the story, because the suspense might get you through a fairly detailed lesson in how insider trading works... Oliver Stone, who co-wrote the script, dedicated the film to his father, a stockbroker.* At the time, it was considered a heavy-handed, moralistic treatment. In retrospect, it was prophetic, anticipating the corporate scandals that have rocked the U.S. since Enron began going down in flames last fall as shareholders discovered that they had basically "cooked their books." I am hugely grateful to Enron, Worldcom, Dynegy, Merrill Lynch, and Smith Barney Salomon, among others, for making it much more fun to read the business pages–and to teach Econ. 103 than ever before. One of the things I’ll do in this course is provide you with the wherewithal to understand how firms try to maximize profits, how and why corrupt CEOS have been able to make a killing while ordinary shareholders have lost money, and, MOST IMPORTANTLY, how the structure of corporate governance, market competition, and political corruption have created strong incentives to cheat and lie. You may wonder what the "micro" in "microeconomics" means. It means looking at the individuals and firms involved in making economic decisions. Looking at them, literally, under a microscope, and trying to understand why they do what they do. What their motivations are. And what their motivations should be. This might prove useful to you if you, personally, desire to get rich fast. But it will also prove useful to you if don’t, if you think too much desire to get rich fast could make other people poor... In this course, I’ll argue that the task of a good economist is to design institutional structures that bring out the best in the people. I’ll show you why it is so hard to do. And I’ll try to persuade you that understanding this problem is so important that it’s worth all the aggravation of reading a textbook, doing problem sets, coming to class, and studying for exams... By the way, I will tell you this about the film: Gekko goes down in the end, and Oliver Stone’s message is that Greed is Not Good. By the end of this course, I hope you’ll be able to defend your own opinion on this question–and to back it up with a solid understanding of microeconomic theory.
* from Videohound’s Golden Movie Retriever, 1998.
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