Video Series - "Capitalism: Success, Crisis and Reform" Douglas W. Rae, Yale

[bsteadman]

Video: 1. Exploding Worlds and Course Introduction

http://youtu.be/M3aw2ih626s


Capitalism: Success, Crisis and Reform (PLSC 270)

Professor Rae introduces the concept of capital as accumulated wealth used to produce more wealth. Questions about what constitutes capital are posed and discussed. The biggest story in recent economic history is the substitution of labor intensive production to capital intensive production. This transition, and the various speeds and scales with which it has occurred in different places at different times, has generated large income disparities around the world. Characteristics of capitalism are presented and discussed.

00:00 - Chapter 1. Introduction and Class Agenda
01:15 - Chapter 2. Capital
27:27 - Chapter 3. Capitalism
35:16 - Chapter 4. Course Outline

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Wikipedia: Professor Douglas W. Rae, Professor of Management and Political Science, Yale University

https://en.wikipedia.org/wiki/Douglas_W._Rae

[bsteadman]

Video: 2. Thomas Malthus and Inevitable Poverty

http://youtu.be/4MArzSSF7WU

Professor Rae shows how countries over the last two centuries have experienced improved life expectancies and increased incomes per capita. Dynamic graphical representation of this trend reveals how improved life expectancies tend to predate increases in wealth. Malthus' "iron law of wages" and diminishing returns are explained. Questions about why the industrial revolution occurred in England at the time that it did are then posed. Professor Rae then shows the importance of the "world demographic transition" to economic history and contemporary economics. All countries tend to follow similar demographic patterns over the course of their economic development. Countries tend to have high birth and death rates in Phase I, falling death rate and high birth rate in Phase II, falling birth rate to meet the death rate in Phase III, and low birth and death rates in Phase IV. These demographic patterns are associated with different levels of capital and labor. While all countries follow this demographic transition, they do so at different times, and world trade is a way of "arbitraging" between different stages in the world demographic transition.

00:00 - Chapter 1. Introduction
05:48 - Chapter 2. Mapping the Surge
21:52 - Chapter 3. Malthus and the Logic of Perpetual Poverty
34:50 - Chapter 4. Gregory Clarke's Explorations
42:57 - Chapter 5. Biology Gone Good[/B]

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[B]Reference for the lecture: Gapminder World - http://www.gapminder.org/

[bsteadman]

Video: 3. Counting the Fingers of Adam Smith's Invisible Hand

http://youtu.be/3p1sW9aIQ-Y


Professor Rae introduces Adam Smith's notion of the "invisible hand" of the market. Several preconditions must be met for the invisible hand to work. Markets must be open, and there cannot be just one buyer or one seller who can control product prices. No producer can hold a pivotal private technology, and there must be more or less truthful information across the whole market. Governments must enforce property and contracts. However, many of these preconditions are at odds with the Porter Forces, which represent general rules of thumb, or principles, for a firm trying to make above average profits. These principles include avoiding direct competition, establishing high barriers to entry, and avoiding powerful buyers and powerful suppliers. Professor Rae suggests that submission to Adam Smith's invisible hand may be contrary to basics of corporate strategy. Corporations can leverage powerful political influence to affect the movements of the "invisible hand." Guest speaker Jim Alexander, formerly of Enron, discusses problems of very imperfect information, as well as the principal-agent problem. Professor Rae also discusses Adam Smith's complicated ideas about self-interest and morality.

00:00 - Chapter 1. Course Recap
13:19 - Chapter 2. When is the Invisible Hand Truly Invisible?
23:48 - Chapter 3. Smith and Smithism in Today's World, with Jim Alexander

[bsteadman]

Video: 4. Karl Marx, Joseph Schumpeter, and an Economic System Incapable of Coming to Rest

http://youtu.be/-pCfJOj8QSo


Professor Rae relates Marxist theories of monopoly capitalism to Schumpeter's theory of creative destruction. Both Marx and Schumpeter agree that capitalism is a system that is "incapable of standing still," and is always revising (or revolutionizing) itself. Professor Rae critiques Marxist determinism and other features of Marx's theories. To highlight Schumpeterian creative destruction, Professor Rae uses examples from technological revolutions in energy production since water-powered mills. Marx's labor theory of value is discussed. Professor Rae highlights aspects overlooked by Marx, including supply and demand for labor, labor quality, and the role of capital in economic growth. Professor Rae also notes problems with Marx's predictions, including the prediction that the revolution will occur in the most advanced capitalist economies. Professor Rae also discusses Marx's theory of the universal class, the end of exploitation, and the withering away of the state.

00:00 - Chapter 1: Introduction
06:30 - Chapter 2: Marxist Historicism
11:36 - Chapter 3: Monopoly Capitalism
27:31 - Chapter 4: Falling Rates of Profit
34:42 - Chapter 5: Immiseration of the Working Class in Late Capitalism
38:30 - Chapter 6: Inevitable Revolution in Advanced Capitalist Systems
42:06 - Chapter 7: Theory of the Universal Class
43:23 - Chapter 8: Withering Away of the State

[bsteadman]

Video: 5. Property, Freedom, and the Essential Job of Government

http://youtu.be/yYrhDxApqgg


A practical theory of freedom is discussed, based on Hayek's Constitution of Liberty. Free societies can be thought of as great learning machines capable of aggregating individuals' knowledge and accomplishments. Professor Rae uses examples from automotives and university administration to illustrate how freedom allows everybody to profit from others' knowledge. Professor Rae also highlights Hayek's story of the rock climber who is stuck at the bottom of the crevasse, and discusses whether refusing to assist another is an implicit act of coercion. Hayek's theories of freedom are applied to modern cases of extreme poverty in developing countries. Professor Rae also discusses Yale University Press' decision not to publish controversial cartoons depicting the prophet Mohammed within a recent book. The lecture concludes with de Soto's notions of live and dead capital, and the importance of property rights in unlocking the productive power of capitalism.

00:00 - Chapter 1. Introduction
04:19 - Chapter 2. The Hayek Framework
39:14 - Chapter 3. The Nation State Framework
44:14 - Chapter 4. The De Soto Framework

[bsteadman]

Video: 6. Rise of the Joint Stock Corporation

http://youtu.be/yw7xkPeyeIY


Professor Rae explains how the growing scale and complexity of railroads in the US were foundational to the development of modern capitalism. Operating the railroad system required professional managers and new management techniques, and the scale of railroad financing gave rise to the formation of the joint stock corporation. Professor Rae then discusses how different forms of company ownership differ along liability, liquidity, financial scalability, accountability, and role of ownership dimensions. Joint stock corporations are shown to be extremely efficient ways to raise large amounts of money, even if they suffer principal-agent problems.

00:00 - Chapter 1. Introduction
06:13 - Chapter 2. The Double Challenge Faced by Railroads
20:16 - Chapter 3. The Joint Stock Corporation & Its Main Alternatives

[bsteadman]

Video: 7. Can You Sell a Scheme for Operating on Beating Hearts and Make a Business of It?

http://youtu.be/eqeOUfon-Ps


Dean of the Yale School of Management, Sharon Oster, explains the CardioThoracic business case. Barriers to CardioThoracic's success are discussed, including competition from other medical firms, "gatekeeper problems," other medical procedures, and difficulties understanding needs of the firm's customers. Various players in the case are identified, as well as their specific interests and potential strategies for articulating these interests. Dean Oster analyzes interest misalignments, information asymmetries, and discrepancies in values among the various players in the case.

00:00 - Chapter 1. Introduction
01:11 - Chapter 2. Case Discussion: Cardio Thoracic Systems
04:08 - Chapter 3. Cardio Thoracic Systems: Competition
14:38 - Chapter 4. Cardio Thoracic Systems: Buyer Issues
40:06 - Chapter 5. Case Summary: Cardio Thoracic Systems

[bsteadman1]

Video: 8. Mortal Life Cycle of a Great Technology

http://youtu.be/Su6XsLoi8ZQ


Professor Rae uses the case of Polaroid cameras to highlight key features of the capitalist system. Polaroid's business model, corporate culture, and firm trajectory are discussed. Important firm decisions are analyzed, including product offerings and mergers. Professor Rae explores factors that led to Polaroid's demise, including the company's relentless focus on scientific innovation at the expense of market research and product development. Polaroid was unable to keep up with market changes, such as the advent of the one-hour photo processing and the revolution in digital photography.

00:00 - Chapter 1. Video: Former CEOs of Polaroid
07:24 - Chapter 2. Case Discussion: Polaroid: Creation & Destruction Inside the Family Camera
28:43 - Chapter 3. Polaroid: Vertical Integration
32:20 - Chapter 4. Polaroid: Why did the Company Fail?
42:47 - Chapter 5. Polaroid: What Could Have Been Done to Save the Company?

[bsteadman]

Video: 9. Guest Lecture by Jim Alexander: Managing the Crooked E

http://youtu.be/kZuh7_t6xMg


Jim Alexander, former CFO of the Enron subsidiary Enron Global Power and Pipeline, offers an insider's account of Enron's corporate culture and operations before the company's spectacular fall. The leaders of Enron, Mr. Alexander asserts, disregarded concerns over the company's ethics. Enron strategically found and exploited loopholes in accounting regulations to make their transactions as opaque as possible. Lack of regulation and oversight allowed Enron's traders to inflate their numbers. Organizations that were in a position to oversee Enron's operations sometimes faced grossly misaligned incentives that rewarded negligence. Mr. Alexander emphasizes the notion of the "rational economic man" in Enron's corporate culture, and its predominance over notions of ethical corporate behavior.

00:00 - Chapter 1. Introduction
04:38 - Chapter 2. Enron Backgrounder with Jim Alexander
10:47 - Chapter 3. Enron: What Went Wrong?

[bsteadman]

Video: 11. Institutions and Incentives in Mortgages and Mortgage-Backed Securities

http://youtu.be/lE0Eu19547Q


Guest speaker Will Goetzmann, Director of the Yale International Center for Finance and professor at the Yale School of Management, provides a brief history of debt and financial crises. Professor Goetzmann begins with a discussion on debt slavery in the ancient world, and moves on to real estate financing in New York City. Professor Goetzmann also presents recent research by himself and others on the collapse of the real estate market. He explores the notion that the collapse of the mortgage market followed from the fallout of the larger financial crisis, rather than the other way around. Data on the real estate market is presented and discussed. Larger claims about responsibility of different players for the economic crisis are briefly assessed.

00:00 - Chapter 1. Financial History, with Will Goetzmann
24:20 - Chapter 2. Current Financial Crisis
26:56 - Chapter 3. Price Growth vs. Subprime Approvals
35:12 - Chapter 4. Estimating the Relationship between Past Growth and Future Growth in Mortgage Prices
40:27 - Chapter 5. 2006 Mortgage Regressions
45:44 - Chapter 6. Evidence for Three Demand Effects and Loan Level Likelihood of Approval

[bsteadman]

Video: 12. Accountability and Greed in Investment Banking

http://youtu.be/rhWxN5vXExw


Professor Rae explores the creation of incentives and disincentives for individual action. The discussion begins with the Coase Theorem, which outlines three conditions for efficient transactions: 1) clear entitlements to property, 2) transparency, and 3) low transaction costs. Professor Rae then tells the story of a whaling law case from 1881 to highlight the power of incentives and property rights. The conversation then moves to Hernando de Soto's portrayal of the development of property rights in the American West, and then shifts to a discussion of New Haven deeds, property values, and valuation of real estate. The lecture concludes with a discussion of Mory's.

00:00 - Chapter 1. Introduction and Agenda
02:51 - Chapter 2. Coase "Theorem"
18:04 - Chapter 3. Ghen v. Rich (1881)
23:24 - Chapter 4. De Soto in America

[bsteadman]

Video: 13. The Mortgage Meltdown in Cleveland

http://youtu.be/yr2HkVjRHs0


Professor Rae discusses the subprime mortgage crisis. Major actors are presented and analyzed, including homebuyers, brokers, appraisers, lenders, i-banks, and rating and government agencies. Major actors' incentives and risks are assessed. Professor Rae also presents a brief history of government involvement in mortgage markets. Deregulation of the industry and its consequences are explored, and Professor Rae facilitates a discussion on apportioning blame for the collapse of the U.S. housing market.

[bsteadman]

Video: 14. The Political and Judicial Elements of American Capitalism

http://youtu.be/Ks8ZZvHXu8k


Professor Rae uses the Merck-Vioxx business case to highlight political elements of U.S. capitalism, including government regulatory agencies, federalism, lobbying, regulatory capture, tort law and liability, and patent law. Professor Rae discusses the importance and influence of concentrated business interests in Washington DC. The Merck legal battles underline how important political and judicial details are in the operation of capitalism. The case also shows the constraints that reform-minded politicians face in attempting to change the status quo.

00:00 - Chapter 1. Introduction: Using Merck-Vioxx as a Main Case
08:07 - Chapter 2. Patterned Advantage
18:41 - Chapter 3. Merck Background
25:43 - Chapter 4. Common Law Tradition
31:19 - Chapter 5. The Plaintiff Bar & Mark Lanier

[bsteadman]

Video: 15. Mass Affluence Comes to the Western World

http://youtu.be/c_V3QIjPCKA


Professor Rae discusses the rise of mass affluence, the joint stock corporation, and advertising/consumer culture in America. Gregory Clark's theory of the causes of the Industrial Revolution, including England's "downward social mobility" in the medieval and early modern periods, are explored. According to this theory, the upper classes produced children in greater numbers than in other countries, and there were fewer jobs of high social status. This led to upper class children working in "lower class" jobs, infusing lower economic strata with upper class outlooks toward work. Clark also touches on a genetic, Darwinian explanation for England's Industrial Revolution. Professor Rae also discusses other causal explanations for the Industrial revolution, including exogenous and endogenous growth theories, institutions, and Schumpeter's theory of creative destruction. The wealth-generating power of the joint stock corporation is also presented.

[bsteadman]

Video: 16. Braudel's Bell Jar

http://youtu.be/Wvpr6Xn09KA


Professor Rae explores Hernando de Soto's theories of dead and live capital and the power of property rights. According to de Soto, informal property must carefully be integrated into the formal property system. Professor Rae presents the example of Baltimore's row house vacancy problem, and the difficulties in designing and implementing innovative property policies when existing interests of local stakeholders are firmly entrenched. The Coase theorem and transaction costs are revisited. Professor Rae also facilitates a discussion with students on how a developing country should most productively invest 5% of its gross domestic product (GDP). Complexities of economic development are explored.

00:00 - Chapter 1. Introduction and Class Agenda
02:23 - Chapter 2. The Capitalist Take-Off
33:17 - Chapter 3. The Joint Stock Corporation
40:56 - Chapter 4. Culture of Consumption