ProfessorBainbridge.com

Heitz Cellars Cabernet Sauvignon (Napa Valley) 1996

An attractive medium-light ruby beginning to show some brick at the edge. Medium-bodied warm and rich dark fruits. A slight eucalyptus note more typical of Heitz's Martha Vineyard than the standard Napa Valley bottling. Very nice. Grade: B

Scheherazade's Got it Figured Out

Scheherazade has a very nice post on the evolution of her thinking about business, which makes some good points about small v. large business along the way. I was struck, however, by her comments about lessons learned from working in nonprofits versus venture capital firms:

I began to believe that individual entrepreneurs and their innovations shape social changes and create good things in the world far more effectively than institutions can....

In my third year of law school I began to see that the corporate structure, with the double taxation, is pretty darn expensive. And that going public is, too. I began to wonder how many pennies of every dollar earned from the sale of a public company's product go to the government through taxes and regulatory compliance. I began to wonder why on earth anyone with the option to do something different would take on those burdens.

Speaking as someone whose thinking underwent a very similar evolution, I feel obliged to warn her that wondering such things can lead to Republicanism (the horror!). [Ed.: Chuckle.]

Kerkorian v. DaimlerChrysler

The legal kerfuffle in Kerkorian's suit against DaimlerChrysler over former Chrysler exec Gary Valade's late disclosed notes has pretty much confirmed my impression that the deal never was a true merger of equals. Instead, it was a de facto acquisition of Chrysler by Daimler-Benz from the beginning. The WSJ reports, for example:

The prospect of a takeover by Germany's Daimler-Benz AG worried top executives at Chrysler Corp. almost from the start of the merger talks that led to the 1998 combination that created DaimlerChrysler AG, according to notes revealed Monday in Kirk Kerkorian's lawsuit against the German auto maker.

But so what? Even if Dailer and Chrysler did misrepresent the nature of the deal, Kerkorian still has to prove, among other things, that he was (a) misled and (b) suffered monetary damages caused by that misrepresentation. I'm skeptical he can do so. As for being misled, the deal was otherwise fully spelled out in the merger documents and proxy statement. Kerkorian, moreover, had a representative on Crysler's board. Even if management misrepresented the name of the deal, it's hard to believe that Kerkorian was really misled. As for valuation, I think he's got a tough job there too. Although the deal was billed as a merger of equals, an acquisition type in which neither side usually pays or receives a control premium, the Chrysler shareholders in fact got a 28% premium for their shares. Kerkorian must prove they would have gotten even more if the deal had been billed as a takeover by Daimler. Would they? It's hard to know without access to valuation data, but I havew my doubts. Granted, Chrysler was profitable when the deal was done. The market for control of a large automaker is a thin one - few potential bidders with sufficiently deep pockets - and thin markets lead to low premiums. The auto industry generally was plagued by overcapacity and the US manufacturers burdened by goldplated union contracts. As Automobile magazine observed, "it has been clear for some time that Daimler-Benz was the healthier and better run of the two companies, and that Chrysler, with runaway costs and bloated payroll, was likely headed for bankruptcy court or a fire sale without Daimler's deep pockets." This impression is confirmed by comments made by the plaintiff's lawyer in the course of settling a suit by other Chrysler shareholders raising most of the same issues as the Kerkorian suit (via 10b-5 Daily): "The biggest problem for us was that the Chrysler division post-merger performance was horrific." That settlement reportedly brought the plaintiff shareholders a mere 43 cents a share, minus attorneys' fees. So count me as a skeptic on the ultimate merits of Kerkorian's suit.

Michael Novak, Toward a Theology of the Corporation

Michael Novak is probably the foremost Christian thinker on the economy. His Toward a Theology of the Corporation is an under-appreciated classic that succinctly, yet powerfully, sets out a theologically sound analysis of the modern corporation and its role in society. In this slender but well-written volume, Novak joins issue with theologians like Paul Tillich who contend that "any serious Christian must be a socialist."

THEOLOGY has two principal themes. First, it is addressed to those who work for corporations. Many Christians have been taught to feel, at best, "faint disdain" for corporations and those who manage them. In contrast, Novak knows that many (most) business men and women are ethical people who yearn for moral guidance and advice. Consequently, THEOLOGY tackles a basic moral question: "Can a Christian Work for a Corporation." Novak's answer? "Yes!" (Those wishing more detailed discussion of practical business ethics ought also read Novak's Business as Calling.)

Second, Novak recognized that anyone who purported to think about practical business ethics needed to understand the predominant form of business organization-the public corporation. Much of THEOLOGY is thus devoted to an analysis of the corporation: Is the firm's structure as a bureaucratic hierarchy consistent with human dignity? What social responsibility, if any, does the corporation have? And so forth.

Thinking about those questions naturally lead Novak to broader issues, such as the consistency of capitalism with church teachings on wealth. In THEOLOGY, therefore, Novak began working out the line of argument that was later developed more fully in his magisterial The Spirit of Democratic Capitalism. Novak recognizes that church teaching has been hostile to capitalism, as with much else of modernity. Yet, Novak contends that arguments against capitalism serve mainly to give aid and comfort to the Leviathan state.

In the most controversial portions of THEOLOGY, Novak attributes Christian opposition to capitalism to two main sources: ignorance and antique world views. Church leaders and theologians tend to be poorly trained in economics and inexperienced with the world of economic reality. Many believers (again, this is especially true of theologians) "are likely to inherit either a pre-capitalist or a frankly socialist set of ideals about political economy." As a result, "Church leaders are more likely to err in this territory [i.e., economic justice] than in most others." (p. 59.)

To be clear, Novak does not believe that faith should be subordinated to capitalism. To the contrary, he recognizes that the divine plan was that we should enjoy the fruits of the earth and of our own industry. He simply contends that capitalism is the best way Fallen humans have yet devised to obey the Biblical command that we are to be stewards of God's world. Novak never loses sight of the basic proposition that it was equally the divine plan that God should be worshiped, obeyed, and feared. The fear of the Lord, he would argue, is the beginning of capitalist wisdom, just as it is of any other kind of wisdom. Not surprisingly, therefore, Novak's analysis has begun to impact the way the church thinks about capitalism. Pope John Paul II's most recent encyclicals on work and the economy, for example, such as Centesimus Annus, contain obvious marks of Novak's influence. In sum, THEOLOGY is very highly recommended for any Christian interested in corporations.

David Frum on Conrad Black

On NRO, David Frum offers up an interview with Conrad Black - ex-CEO of Hollinger International and still its majority shareholder and chairman of the board - prefaced by these remarks:

Black is right now at the center of a furious controversy over his business dealings. This is not the venue to discuss the rights and wrongs of that controversy, and I am not the person to do it. What I can say, as someone who has worked at various times for Conrad Black, is that he has been a delightful publisher: creative, encouraging, civilized, fun. I mentioned above that the Spectator published a review in many ways critical of Black’s book. As it happens, Black owns the Spectator. Can you think of any other proprietor who would permit such criticism? And whose staff would understand that he would permit it? That one fact says more about him than I could say in a thousand times the space.

I emphasized the line "Black owns the Spectator" because it reflects a fundamental error. Black does not own the Spectator. He owns a majority of the stock of a company that owns a company that owns the Spectator. Being a majority stockholder gives him a ton of control, making it difficult to dislodge him, as I have explained before. Being a majority shareholder does not entitle Black to run the Spectator as a personal soapbox. Being a majority shareholder does not entitle Black to use $8 million of Hollinger's money to buy up FDR papers so that Black can write a better biography of FDR, as has been alleged. Being a majority shareholder does not entitle him to take 19 million pounds in unauthorized payments from the corporation, as has also been alleged. Why? Because there are minority shareholders to whom he owes fiduciary duties! Black's apparent inability to understand the difference between being an owner and a majority shareholder is precisely what landed him in his present pickle. Being treated like an owner by his syncophants probably didn't help.

Gina Dalfonzo's Return of the King Review

Gina Dalfonzo puts her finger on something:

So I wasn’t surprised when, in The Return of the King, Jackson and company added a scene that completely deviated from the book. Here Frodo’s mind is so addled by the ring that he believes the lies of Gollum, his monstrous, corrupt guide, about Sam, his faithful servant and friend, and sends Sam home. Jackson has said that his intent was to punch up the “psychological drama” of the story, a phrase ominously reminiscent of a Lifetime Channel movie. And the scene is dramatic, all right. But it not only weakens the portrayal of one of the strongest, most trusting friendships in literature; it also diminishes Frodo’s character. It’s no wonder that many viewers are thinking of Sam — who follows Frodo at a distance and (as in the book) eventually saves his life — as the real hero of the piece....

Tolkien’s original Frodo, though he starts out a bit naïve, is a morally rich, exceptionally mature character. As he struggles against the ring’s control, he actually grows in wisdom and moral stature, reflecting what Tolkien called in a letter the theme of “the ennoblement (or sanctification) of the humble.” And though he is not always able to be as steadfast as Sam, the often overlooked truth is that Sam doesn’t have to fight the same battle Frodo does. Which is why I’ve always thought that honoring Sam over Frodo — honorable and faithful though Sam is — is a bit like honoring Simon of Cyrene over Christ.

It's a highly insightful argument. I recommend reading the whole thing.

Mark Noll's Scandal of the Evangelical Mind

Mark Noll is a chaired professor of "christian thought," at Wheaton College - one of the great Evangelical liberal arts colleges, as well as being one of the leading church historians of our time. Noll is also one of the leading public intellectuals within the Evangelical movement. (By public intellectual, I mean an academic whose is grounded in rigorous scholarship but who also writes - at a high level - for the general public. Stephen Carter of Yale is another good example of a Christian public intellectual.)

In the Scandal of the Evangelical Mind, Noll issues a wake-up call for a renewed commitment to the life of the mind on the part of Evangelicals. Noll begins by persuasively demonstrating the existence of an intellectual deficit among Evangelicals. In contrast to the Catholic-leaning journals like First Things or the New Oxford review, there is no real Evangelical journal of public thought. There are few scholarly journals focusing on Evangelical perspectives. Evangelical colleges emphasize teaching at the expense of scholarly research, despite decades of proof that the good teaching and good scholarship goes hand in hand.

Noll then traces the historical roots of this scandal, showing that there was a time when Evangelicals dominated top institutions of learning. What caused the decline? In what must surely be the most controversial portion of the book, Noll lays the blame on an anti-intellectual strain of populist fundamentalism. As someone who grew up with many working class fundamentalist relatives, I am more sympathetic towards that world view than Noll seems to be. Indeed, Noll candidly admits that his thesis rests in part on his theological disputes with fundamentalism. Yet, as an adult convert to Catholicism from Evangelicanism, I have no doubt that the life of the mind is more highly regarded in Catholicism than in fundamentalist protestantism. Unfortunately, the fundamentalists' rejection of modernity and secular humanism painted with too broad a brush.

Noll concludes with a slightly self-serving call to action. I say "slightly self-serving" because Noll's call to action includes the idea that Evangelical colleges ought to pay more attention to scholarship. As a top-notch scholar at a leading Evangelical college, Noll probably would benefit from such a shift in emphasis. Yet, as Adam Smith pointed out centuries ago, there is no more powerful engine for the public good than enlightened self-interest. Noll's call to action deserves to be heeded. All Christians, including all evangelicals, are called to serve God not only with our heats but also with our minds.

Films about business: The Forbes survey

My friend UIUC law professor Larry Ribstein has updated his website on business films in reaction to a recent survey by Forbes of The Ten Greatest Business Movies. Larry writes:

The top ten were: Citizen Kane, The Godfather: Part II, It's a WonderfulLife, The Godfather, Network, The Insider, Glengarry Glen Ross, Wall Street, Tin Men, Modern Times. I discuss these films in the latest version of my article.

This film list provides new fodder for my theory. My thesis, again, is that, while films usually portray business in a bad light, they do not really say that business is bad. After all, the films most of us see are produced by big businesses. More precisely, films are made by people working in these businesses. Filmmakers see themselves as artists, the latest in a long line from cave painters through Michelangelo. Yet, unlike many artists, filmmakers’ art is so costly that films cannot get made without lots of money. Filmmakers must get this money from capitalists, who, in turn, must sell tickets. Because film artists resent their shackles, they often show struggling workers, greedy capitalists, and heroic artists. “Good” businesses are those where the artistic types have the upper hand, and bad businesses are those where the artists have lost. In other words, films see firms from the cramped perspective of the assembly line or the cubicle. From way out in Hollywood, firms often seem like beehives or rabbit warrens, unfit for human habitation. We don’t see what businesses actually do – create social wealth and meaningful jobs, and provide means for all of our ends, from writing articles to. . . making movies. In fact, businesses couldn’t succeed in the long run if they ignored the needs of their workers and customers.

Go check out Larry's fascinating site and encourage him to blog more often.

The first person plural

We occasionally refer to ourselves in the first person plural, a fact which has not gone wholly unremarked in the blogosphere. We are considering adopting it full time. We think it has a certain, ahem, gravitas. If we do opt for full time usage, rest assured that we shall disregard the nattering nabobs of negativity.

Chomsky

I usually don't get involved in the Chomsky kerfuffles that periodically roil the blogosphere, but I do think more attention should be paid to this transcript. Personally, I am appalled.

Economics and Morality

Tyler Cowen blogged some interesting thoughts about the relationship of economics and morality this morning over at the Volokh Conspiracy:

I would defend economics as providing a good analysis of rules of the game. It can tell us which rules make it easier for people to be moral, and thus offer some good social advice. ... I find it much harder to defend educating individuals in economics as a tool of moral improvement.

As someone whose scholarship operates at the intersection of law, economic analysis, and Catholic social thought, this is a problem in which I have considerable interest. A couple of years ago I published an essay entitled Law and Economics: An Apologia in Christian Perspectives on Legal Thought, an anthology I would recommend wholeheartedly even if my essay were not in it. A very restrictive copyright agreement prevents me from making the essay available online, but I suspect excerpting the key passage would qualify as fair use.

Consider a restaurant located on one side of a busy street. Although crossing the street is dangerous, some people will nonetheless do so in order to eat at the restaurant. Basic economic theory, however, tells us some things about the likelihood that people will do so. The more dangerous the crossing becomes, the less likely people are to venture across. Conversely, the more attractive the restaurant becomes, the more risk people are willing to bear. And so forth. All of which seems quite obvious, but these predictions about human behavior, when extrapolated and generalized, become the foundation for price theory. Here’s the kicker: price theory tells us how people will choose, but “it does not tell us why people choose as they do. Why a man will take a risk of being killed in order to obtain a sandwich is hidden from [economists] even though we know that, if the risk is increased sufficiently, he will forego seeking that pleasure.” R.H. Coase, The Firm, The Market and The Law 5 (1988). In other words, economics has no good account of the character or origins of human preferences.

As a Christian practicing law and economics, however, my faith brings something to the table in grappling with the question of preference formation. Christianity is not a utopian faith, but rather is quite realistic about human beings. In particular, our central doctrine of the Fall of Man tells a coherent story about the nature and origins of human preferences in an unredeemed world. In my view, the assumptions about human behavior made by economists are largely congruent with the fallen state of man. If Economic Man is a fair description of Adam after the Fall, the rational choice model used in economics is not a bad model for predicting the behavior of fallen men. At the same time, however, because Christianity’s account of how man fell and the consequences of that Fall provide an answer to Coase’s question, our faith gives Christian practitioners of economic analysis a more fully realized account of human behavior.

To be sure, Christians are called to a higher standard of behavior than that of fallen man. If the purpose of economic analysis is to predict how people will respond to changes in legal rules, however, can we assume Christian behavior by the masses of a secular and God-less society? No realistic social order can assume heroic or even consistently virtuous behavior by its citizens. A realistic social order therefore must be designed around principles that fall short of Christian ideals. In particular, the rules must not be defined in ways that effectively require every citizen to be a practicing Christian. Christian visions of Justice therefore cannot determine the rules of economic order. Instead, legal rules and predictions about human behavior must assume the fallen state of Man, which is precisely what I have tried to suggest Economic Man permits us to do.

I wonder how you say "infanticide" in Portuguese

I'm a big fan of vintage port. I'm also a very big fan of Dorothy Gaiter and John Brecher's Tastings column in the WSJ's Weekend Journal, which is why I was so taken aback by a remark in their otherwise typically estimable column yesterday on vintage port. They recommend picking up a bottle of 1994 or 1997 vintage port as a gift for your favorite wine lover. Sound thinking, so far. You can easily find both the 1994 or 1997 vintage in any good wine store. And, speaking for myself, anybody who gave me a bottle of either would shoot to the top of my list. IMHO, however, they went of the rails with this remark:

They're going to want to cellar this bottle for a while, but don't let them. Tell them to drink it right away, over the holidays, as a special treat. To force them to do that, make that other stop: Drop into a supermarket or a cheese shop and pick up some Stilton. All sorts of wine and cheese combinations are considered classic, but, to us, there's not a better one than Port and Stilton.

They're absolutely right about Port and Stilton, but drinking a 94 or 97 vintage port now? It would be pure infanticide. Granted, most Port houses these days are making their wines so as to be more accessible when young. Even so, however, I wouldn't touch a vintage port that's under 10-15 (preferably 20) years of age. As I explained in my Port FAQ:

Vintage port desperately needs age in bottle. The amount of time needed in bottle differs from house to house. 10 years is probably the minimum needed for light hous s in a light year. 15 is more typical.

It takes that long for the brandy and wine to marry, for the tannins to mellow, and the flavors to develop.

Ninth Circuit: Guantanamo Prisoners May Get Counsel and Trials

Justice Jackson famously remarked that the Constitution is not a suicide pact. Apparently 9th Circuit Judge Stephen Reinhardt disagrees,^* as he has decided that US courts have jurisdiction to hear the claims by enemy combatants being held offshore at the Guantanamo navy base that they are entitled by the US Constitution to counsel and trials. My first reaction? If that's true, why didn't we try German and Japanese POWs during WWII?

Admittedly, I haven't had a chance to read the opinion yet, but it's worth remembering that Reinhardt "is one of the most overturned judges in history." If you want a detailed analysis of the legal problem, however, check out the DC Circuit's opinion on the very same issue, which held that US courts have no jurisdiction. See also Tung Yin's careful comments. For a thoughtful analysis of the problem from the other side of the issue, see CE Petit's take.

Via Howard Bashman we learn that the 9th Circuit panel stayed issuance of its mandate pending the Supreme Court's decision in Al Odah v. US, which presents the same legal issue.

Note, by the way, this is not the Jose Padilla case, in which the decision that Padilla is entitled to a civilian trial seems far more defensible.^**

Update: After reading the opinion, I've concluded that Eugene Volokh is exactly right:

When the U.S. took German and Japanese soldiers prisoner during World War II, it imprisoned them without a fixed term (it did release them after the end of hostilities, but no-one knew how long this would be). It imprisoned them regardless of their formal citizenship. It did not give them access to civilian courts, or allow challenges in any civilian judicial forum (the judicial forum that Reinhardt seems to be calling for). Imagine what it would have been like if the government had to defend hundreds of thousands of habeas cases brought by enemy soldiers. Giving such rights to enemy soldiers would simply give them an extra weapon they could have used to fight us. That's no way to effectively wage war.

The ability to detain enemy soldiers, in a military system with no civilian court review -- the ability that Judge Reinhardt is condemning -- is a basic, traditional, and necessary prerogative that any nation that's fighting a war must have. It can certainly be abused, as the other military prerogatives (say, of killing enemy soldiers in the field, or dropping bombs on enemy targets) can be abused. But that's no reason to shift this military matter into civilian courts.

UPDATE: UNC law brof and blawgger Eric Muller has a long post disputing the derision with which the Padilla and Gherebi decisions were received in the blogosphere. He's also got a link to his 1999 review of Chief Justice Rehnquist's book on civil liberties in wartime. Both well worth checking out. I find his analogy to Korematsu far more persuasive with respect to Padilla than Gherebi. It's one thing to indefinitely hold a US citizen who is taken into custody on US soil and held in a jail on US sil. It's something quite different to hold offshore foreign nationals captured in a war zone. For me, only the former looks remotely like the Japanese internment case.

^* Okay, I'll admit that that crack strayed a bit far into hyperbole. I have a hard time restraining myself when it comes to Reinhardt, who has been aptly described as "a gasbag whose posturing hurts his cause far more than it helps it." Unlike some of us other old gasbags, Reinhardt's posturing actually matters in the real world.

^** The good thing about all this is that I beat both Volokh and Reynolds to the blog punch - posted at 1:22 PM PST.

Joseph Drouhin Chablis Premier Cru 2000

Don't tell Hugh Hewitt, but I never boycotted French wines even when Bush and Chirac were being most pissy with each other. Yet, living in Los Angeles with an amazing array of California wines at every turn, I rarely drink anything but California wines. And, moreover, I do think one's palate becomes attuned to particular regions. Having said all that, however, France remains the center of the wine universe. And when I pondered matching a wine with the shellfish stew I made for dinner, I couldn't imagine anything picking other than a Chablis. For one thing, the limestone soil on which Chablis grows gives it a mineral flavor that goes really well with shellfish. For another, while Chablis is made from chardonnay grapes, very few producers use any oak. As a result, the wines are crisp and clean, without any of the heavy oak flavors (or, for that matter, over-acidification) typical of California chardonnay. I therefore suspected a Chablis would go really well with the tomato-based broth and, if I may say so, I was right.

The Drouhin Chablis is a pale straw color with a very stong nose of apples and freshly-cut grass. The palate is rich but with a pleasing tartness on the finish. There is a core of flinty mineral flavors. Grade: B+

Domestic Tranquility

As of today, not only is the semester over, but my Christmas shopping is done. I'd say it was Miller time, but I don't really drink beer. By a happy coincidence, the good wife is out tonight with her cousin, leaving the faithful dog and I unsupervised. Very long time readers know what this means: Bachelor night! Steak, roasted new potatoes, red wine, a DVD (Two Towers ... yes, again, its only the 11th time), followed by port and a cigar in the house. I'm going to make the faithful dog take the fall for the cigar, but I'll let her have the bone to make up for it.