Letters from our readers.
Aug. 8 1997 3:30 AM

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The Pique in Review

Having read David Brock's essay in the July Esquire, I am aware of his penchant for the witless smear. But for him to claim in his latest "Dialogue" that "Ramesh Ponnuru ... sounds like a David Brock wannabe" is a truly low blow. For one thing, I don't rifle through people's underwear drawers to get my stories. Nor do I try to pass off rumors as fact. I make a point of checking facts before criticizing people in print. Finally, I'm not in the habit of being photographed surrounded by kindling and tied to a tree. But I suppose these are minor differences that shouldn't get in the way of the truly important things. Brock is still welcome at National Review's next party.

--Ramesh PonnuruNational Review

Greece Is the Word


David Franklin's complete misunderstanding of the Socratic method in "Trials of Socrates" leads him to the right conclusions for all the wrong reasons. Franklin writes under the impression that, as the law is a practical art and not a science, the Socratic method is improper. This is absurd. The Socratic method is effective only in seeking resolution to nonscientific matters: morality, justice, ethics. Thus the Socratic method is extremely effective for the training of attorneys.

The problem is that law schools fail to practice the Socratic method. Socrates never engaged more than a few individuals in a dialogue. Law school question-and-answer teaching is as Socratic as slam dancing is balletic. Contrary to Franklin's claims, a true Socratic method would require a student-to-faculty ratio of 5-to-1 and a higher quality of faculty.

Franklin is ultimately correct; radical reforms are needed. Nevertheless, the answers involve embracing the Socratic method (it is impossible to think of anything more radical than first-year law school classes with half a dozen students), not demeaning it.

--Patrick Daniel Gatti, Esq.Midvale, Utah



In reference to David Franklin's "Trials of Socrates," which is subtitled, "It's worse than sexist. It's idiotic," I ask you: Isn't sexism idiotic? To what are we comparing idiocy? A considerably audible "tsk, tsk" I send you, Slate.

--Elisabeth MeyerPaducah, Ky.

Passive Voice


In "Passive Aggressive," Daniel Akst is wrong to think that index investing is an example of the tragedy of the commons. Akst reasons as follows: 1) When markets are efficient it is in everyone's self-interest to passively invest in index funds; 2) When everyone passively invests in index funds, markets will no longer be efficient; 3) Therefore, index investing leads to inefficient markets. The flaw in the reasoning is that it is not in an individual's self-interest to invest in an index fund if everyone else is doing so.

Suppose that everyone invests in an index fund. Since no one does any research, shares in Microsoft will sell for the same price as shares in the Imafraud Gold Mining Co.--hence the evil of index investing according to Akst. But, should this situation ever occur, anyone who does even an iota of research could make a killing by buying Microsoft stock at a ridiculously low price. More generally, as the amount of index investing increases, the return to market research increases. We need not lose sleep, therefore, about any lack of market research.

Akst is perhaps confused by the following two truths: 1) If everyone researches the market, an individual should passively index invest; 2) If everyone passively index invests, an individual should research the market. The paradox is solved by realizing that everyone need not follow the same strategy. Index investing makes sense for those of us who don't have the time or inclination to closely monitor our investments. Researching the market makes sense if you are good at it and you are willing to do it full time. Index investors rely on researchers to keep the market tolerably efficient. Researchers rely on index investors to leave enough opportunity for them to make money based on their research. In either case, no tragedy occurs.

--Alex TabarrokBall State University, department of economics Muncie, Ind.


Daniel Akst responds: It's possible that, as at least one other reader has suggested in "The Fray," if indexing goes far enough, the marginal returns to research will become so great that research will pay, the market will be made efficient, and everyone will live happily ever after. It's also possible that this will not happen. In a world of indexers, I can certainly discover, through my research, that XYZ Corp. is a great deal at a given price, but in such a world, who will pay me the price I think I deserve? Certainly not the indexers. Indexing probably has already made the stock market less efficient, simply because a growing proportion of the money invested is now indifferent to ratios of price to performance and other measures of value, not to mention expectations of growth. Bad companies are already being subsidized in this way, and to the extent that the larger economy is any kind of commons, indexing is undermining it.

Girls Just Wanna Have Funds

In "Good Girl, Bad Girl," Graef Crystal has some very convoluted logic at the end of his piece. He writes: "We need a lot more women CEOs, and not merely because of considerations of fairness. Those extra women will expand the supply of CEOs and help to drive down, or at least moderate, the currently obscene levels of CEO pay. I only hope those new women CEOs are like Marion Sandler, rather than like Linda Wachner."

How will more women CEOs "moderate the current levels of CEO pay," when the two women he cites in his article represent both extremes? His assumption is that all women CEOs will manage alike. Can't we get past the gender stereotypes and just evaluate individuals, not groups? Maybe he meant that more CEOs will dilute pay, but he states in his piece that if a CEO wants to squeeze out more money from the compensation board, he/she will.

And isn't this issue more about a nation's culture than the gender makeup of CEOs? In Japan, most CEOs are paid only 10 times more than the lowest-paid worker in the company. In the United States, it's capitalism mixed with greed run amok.

Crystal's illogical argument reflects poorly on his journalistic abilities and the magazine.

--Janet ReynoldsWashington

Dish Pan

I share Herbert Stein's disappointment in "207 Channels" at the lack of quality programming on small satellite dishes, but it was strangely satisfying to learn that a leading economist was so thoroughly ripped off in the purchase of his dish. Next time any economist assumes that consumers behave rationally, they should be forced to read Stein's article.

Firstly, it's ridiculous to spend $120 (or any amount) on a service contract for one of these devices. Most service contracts are scams, and this sort of solid-state consumer-electronics gadget certainly doesn't warrant one. Secondly, $350 to install one of these things in an apartment is just plain gouging (and Stein, I'm guessing, is only in Washington, not New York). I did mine in two hours with a drill, a screwdriver, and a pair of pliers. And, unlike Stein's "professionally" installed dish, mine worked perfectly right away.

But I too wish there were more worthwhile things to watch--say, an enlightening discussion of microeconomic theory by a fellow of the American Enterprise Institute.

--Ken BroomfieldArroyo Grande, Calif.

Herbert Stein responds: Ken Broomfield thinks it was not rational for me to have my TV satellite dish installed by professionals and to buy a three-year service warranty. Whether it is rational for a person to make the decision I made depends on a number of factors, including: 1) the physical conditions in which the device is to be installed; 2) the person's manual dexterity; 3) the alternative uses of the person's time; 4) the person's risk aversion; 5) the person's tolerance for hassle; 6) the person's income; 7) the person's age; 8) the prospective marginal tax on the person's estate.

Considering these factors, I think that my decision was rational for me; it might not have been rational for Broomfield. I am not an economist who believes that people always make rational decisions, but I believe that they often do.

Chain and Fable

In 1988, I wrote an article in SPY magazine about the "St. Jude" chain letter. I am an unwitting expert on the subject--until recently I was the 29th person in the Manhattan phone book, and so received hundreds of copies of it. I started collecting them in 1984.

Seth Stevenson's "Bound In Chains" says, "The U.S. Postal Service estimates that the chain has circled the globe at least nine times." It is a curious claim. Firstly, because with $10 worth of stamps and a pen pal I could make it circle the globe another nine times all by myself. Secondly, because a reading of the St. Jude letter reveals this sentence: "It has been around the world nine times."

The recipient of the letter is asked to make copies and send them to friends, who are instructed to do the same. Eventually, the letter becomes illegible and has to be retyped and re-photocopied. As errors are introduced and propagated, it evolves. Names change--a man mentioned in a 1984 copy of the letter is named Carlo Daddit, then Carlo Laditt, then Andy Paddit, and by 1988 his name had mutated to Grodotit. One would expect that by now the letter would have mutated almost beyond recognition. But curiously, over the years the names revert to their original spellings. I have recent copies that are almost identical to ones I received 14 years ago. Obviously, there is a person or organization that continues to publish the original letter. But who?

--Andy AaronNew York City

Ruffled Feathers

Michael Kinsley makes some good points in "The Stock Market Chicken-Counting Orgy," but relates the arithmetic to the trillions of dollars in the U.S. economy. While the United States is a notable part of the world, there are quite a few of us who don't live there, and we consider ourselves to have economic activity. The U.S. stock market doesn't live in isolation. My investment in it breaks down one part of the Kinsley equations, as I'm not in the United States and didn't earn my money there. My investments are in Qualcomm and Globalstar. These are companies that plan to get a lot of money from places other than the United States, indicating that the U.S. stock market includes production worldwide. So Kinsley needs to have a more expansive view of the world to decide whether the chickens are over-counted.

Another of his points was the variation in valuation year by year. He is quite right to question it. The fact is that investors, myself included, have a very rough idea of what a company is worth, and plus or minus 20 percent is as accurate as people can guess, though we do our best. But on top of that, he asks what's new. Well, there is a realization that there is a never-before-in-human-history amalgamation of human activity and astronomical growth in creativity, with each development propelling us faster. One of the big ones, now widely recognized, is the computer revolution. Look at his own business, publishing. I read Slate for zero marginal cost. It would have cost $10 a couple of years ago.

We are entering the golden age of humanity, and to be a little sci-fi, people can now imagine there really might be a new form of life heaving into sight: a hybrid of organic [us] with human-created technology. The wild blue yonder is the limit. There is no limit.

Watch the Dow soar to 16,000 by 2002. And beyond. Don't forget another sneaky little matter that is much more prosaic than human imagination and the amalgamation of 6 billion people. Money printing. We are not richer because of money printing, but it does cause stock market valuations to soar. Economists torture themselves because they think there should be concomitant inflation, but they are now starting to see that the inflation that would normally exist as a result of such enthusiastic money printing is not happening because technology has reduced costs and improved productivity dramatically. Basically, the money printers are nicking off with much of the productivity improvements. It is just another tax, though a very sneaky and well-hidden one. In the good old German money printing, inflation did soar. But you don't see it this time. And won't.

--Maurice WinnAuckland, New Zealand

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