Ethical Questions of Investing in Pot
dealbook.nytimes.com
dealbook.nytimes.com
> The nation’s biggest banks — JPMorgan Chase and Bank of America — thus far refuse to allow marijuana companies to set up accounts. Even smaller local banks refuse to provide services to the industry.
The author seems to have made up his mind already. The reason banks don't allow marijuana companies to setup accounts is regulatory and risk management related, not ethical.
This whole article reads very much like a press release.
> The investment, in a firm called Privateer Holdings .... was heralded as a watershed moment for the fledgling cannabis industry, accompanied by positive headlines like the one in The Los Angeles Times: “Venture capital firm gives marijuana industry a shot of credibility.”
> In Silicon Valley, the deal was greeted as the latest disruptive change-the-world investment.
It isn't until well into the article that the authors notes:
> Legal marijuana businesses raised $104 million in 59 deals last year, according to CB Insights, a research firm that monitors deal-making.
It seems like the industry has had credibility for a while now.
I think its sad that the NYTime's Dealbook would put out a piece like this.
I seem to keep having to say this, but I'll do it again: companies are not bound by ethics or morality. Applying them to a company is inherently wrong because companies cannot have any goal other than shareholder value maximization long-term. Here's why:
1. Companies are not people, despite what the Supreme Court may say. They are legal constructs built around a set of rules.
2. Everyone who could potentially represent a company - a board member, an executive - plays a role and can be replaced at any time should they fail to perform their role adequately.
3. Executives are appointed by the board with one responsibility: to maximize the value of the company. This is the extent of a company's moral obligation: companies have a moral obligation to their shareholders to make money (or at least try in good faith to do so).
4. Should the board of a company appoint executives with a different goal than maximizing value, the share price will reflect this in the form of a lower value.
5. Assuming this is a public company, activist investors will accumulate voting shares of a company that is not maximizing its value (or undervalued). The activist investor will then either replace the board members with board members who will appoint executives with the goal of maximizing shareholder value, or they will pressure the existing board to do so themselves. Once the share price has recovered, the investor sells its shares and makes a profit. And the cycle continues.
So the reason banks don't allow marijuana companies to set up accounts is purely risk and regulatory related. If it was a moral decision, well, morals and ethics are different from person to person, so SOMEONE would do it. Or some activist investor would take over a smaller bank and force them to do it.
Individuals can have morals and ethics. If they control a company and choose to enforce their values through their company, well, that's their choice. But if the ownership of the company changed, so would the values.
There are three mechanisms that can cause companies to prioritise ethics and morality.
1. The voting public encourage their representatives to change the regulatory environment based on their morality. This is one reason why a whole host of unethical companies don't exist. Companies on the margins of morality suffer from extra risk that the regulatory environment will change too.
2. The customers exercising their personal morality are reluctant to buy from an unethical company, or boycott it, thus affecting the value of the company.
3. Key individuals find that there are moral and ethical limits to what they will do in pursuit of shareholder value, and they provide enough value in other ways that replacing them would be a net loss for the company (or activist shareholders actually share their views). Deliberately selecting your leadership team for poor ethics is likely to have some downsides too.
> Individuals can have morals and ethics. If they control a company and choose to enforce their values through their company, well, that's their choice. But if the ownership of the company changed, so would the values.
Exactly, and individually speaking, in my ethics, in role of voter, legislator, customer, shareholder, employee or executive of a company, morality and ethics certainly do play into my decisions. I believe that it is right that they should, and I expect the same of everyone.
In particular, you say
> [maximising value] is the extent of a company's moral obligation
Which is an assertion without evidence that I simply disagree with. Maximising value might well be what is promised to the shareholders, but it's obvious that just as with all promises there is a context and limits to that. No shareholder would expect the CEO of a company to sacrifice their life if it would increase the value of the company by a cent. Everyone understands that the trust we have that the management of a company is trying to make money for the shareholder exists in a context, and one of the large parts of that context is morality.
Your earlier statement almost seemed to imply that we shouldn't hold companies to standards of morality beyond the law, but that is just giving up. Expecting immoral behaviour from people in particular roles is a self fulfilling prophecy, and poisons the context.
I don't just mean that they like to invest in upstanding people who treat their employees fairly, because that's also justified economically. I mean that most investors don't invest in things they don't want to be part of, even when they think they'd make money.
For example, most investors won't invest in gambling, penny auctions or payday lending, since those things generally take advantage of unsophisticated consumers and seem like they're net-bad for the world.
On the other hand, it's easier to convince investors to invest in green energy, STEM education, and developer tools because they want more of that to exist and want to be part of it.
Investors cover the spectrum from very conservative to very liberal or libertarian. But whatever an investor's personal beliefs are, they are a significant factor in what they'll fund.
Is it really that surprising that people are choosy about what they invest in, and that translates into professional investors also being choosy (whether on behalf of their clients or themselves)?
Our dumb war on drugs transfors a public health issue into a public security issue.
Abusus non tollit usum: abuse does not take away use, i.e., is not an argument against proper use.
This is the same thing. Do you have a moral issue with marijuana? If you do, is it really ethical to fund a company that sells it?
Or it can be that simple if you believe ethics are a personal choice. It was ethics and morality that got us the War on Drugs, prohibition and a ban on gay marriage.
You can't say "those ethics don't matter, but my ethics do".
One of the many libertarian lies is that all uncoerced transactions are somehow value-neutral. For example, it's certainly a valid question whether it's ethical to support a weapons manufacturer, for example, no matter who's buying.
In this particular case, I think this is an ethical positive. I would classify MJ funding as a net good, as it will encourage legalization -- prevent a lot of wasted resources and people.
That doesn't mean that if you use another measure that all such transactions have a net positive value to society, though, and I don't feel even remotely non-Libertarian for saying that... where "libertarianism" would come in would be in arguing about what those standards should be and who gets to pick them. A libertarian will be far more inclined to accept the two participant's personal valuation and let micro-econ function with less constraint, but not 100%; 100% would make them anarcho-capitalists, an even rarer breed of person.
If you're referring to something else, then I'm curious.
Incidentally, it's going to be very hard to understand any sort of serious analysis of anything above the level of brute propaganda if you read (X -> Y) as a claim that X is true... you ought to consider the possibility you've been misreading lots of things for a long time. No sarcasm.
Let me stop you right here. Ever heard of notion of social dilemma ? Your assertion is just incorrect. 2 people may believe they have gained, others around will believe they have lost. Often overall that will be a net loss.
That's why it's valid to consider questions as if should drug trade be allowed and to what extent as ethical questions even if you believe that you shouldn't force any value system on parties making those transactions.
Really? I seem to remember learning in micro that "minimum wage causes unemployment" and then years later finding out what that model was based on, i.e. you must assume a healthy market clearing process exists, wages aren't sticky, labor is liquid, perfect information, no market power, etc.
Physics 101 on the other hand has "basic correctness" in the sense that within reason (like if you're well under the speed of light and much larger than an electron) it's an accurate description of reality. But finding a low-end labor market where minimum wage is even the main cause of unemployment seems next to impossible.
That sounds macro. There's a reason I distinguish between macro and micro. Macro I simply don't believe in due to it being anti-inductive (google it if you like).
I've actually seen micro reformulated into physics via thermodynamics, and seen it used to model ecosystems. It's far more fundamental than humanity itself.
Microecon is like thermodynamics, in that crazy applications of it can cause various effects that may initially seem to violate the theory, but are really just complication macro systems that produce seemingly-micro-defying results, like how a refrigerator is not a violation of thermodynamics. If you don't believe in microecon, you are not justified in then becoming a Marxist or declaring that governments are the solution or whatever other agenda you may have... you are declaring that we are profoundly ignorant and have no useful economic model whatsoever, and can claim nothing. If you can't believe in a free trade between two agents producing a net gain for both without political ideas intruding and immediately trying to reformulate this micro case in politically-loaded macro terms, you are not capable of thinking about economics at all. You're only thinking politics. (And if you read this as me trying to sneak a macro model in on you, you're still having trouble. This is basic stuff like the basics of how atomic bonds form; what glorious life forms may form out of those are wildly varied, and very difficult to derive just from a description of how molecules bond.)
I have no idea why anybody would try to reformulate microeconomics into physics via thermodynamics. That doesn't even make sense, you don't derive physics from thermo, it's the other way around.
[0] - http://ocw.mit.edu/ans7870/14/14.01SC/MIT14_01SCF11_rttext.p...
Its not so much a lie as true-by-definition that all uncoerced transactions are, at worst, value-neutral if you make:
(1) the assumptions of the rational actor model, (2) the definition that "uncoerced" means "no person not actively consenting experiences any negative utility as a result of the transaction".
OTOH, what is debatable is how much relevance this has to real world transactions wherein actors do not adhere to the assumptions about them in the rational actor model, and, even when they do, real transactions very often do have negative externalities somewhere, so few completely meet the definition of "uncoerced".
You forgot: (3) the assumption that two actors deciding on transaction are alone in the universe.
>>real transactions very often do have negative externalities somewhere, so few completely meet the definition of "uncoerced".
Well, here it is almost. Still the two actors gain, they are not coerced. The problem is other people lose and there might overall loss in the system. You would need to redefine coercion to pretty big extent to cover for what is actually the problem.
No, I didn't. The definition of uncoerced in #2 ("no person not actively consenting experiences any negative utility as a result of the transaction") along with the rational actor model (#1) makes that unnecessary -- if any person other than the decision-makers in the transaction experiences negative net utility compared to the best alternative without consenting, the transaction is not uncoerced, and they won't consent to that without violating the assumptions of the rational actor model, so the decision-makers don't need to be alone in the universe for the statement to be true as long as #1 and #2 are assumed.
All negative externalities are coercion, because people are forced to bear costs to which they do not consent.
I think it's a bit of a stretch to extend definition of coercion to such situations (social dilemmas). The costs other people bear often aren't direct and parties in the transaction often don't realize they impose those on others.
I don't believe that sentences: "Any voluntarily transaction between two actors in the system produces net gain in the system" and "Any voluntarily not coerced transaction between two actors in the system produces net gain" are equivalent. At least it's not immediately clear.
Anyway, if that is what you mean then I am sorry for tone of my comment. I am just allergic to libertarian anti-intellectual assertions about transactions and free choice and maybe I'vce read too much into the way your sentence was formulated.
That someone bears a non-consented cost as a result of a transaction is a not-uncommon definition of coercion in an economic context, and its the one mentioned upthread that, along with the rational actor model, suffices to make the statement under discussion true.
I would agree that this definition is broader than what coercion generally means in general conversation, but given that definition as was suggested upthread, the further requirement offered in response that the two primary participants in the transaction are alone in the universe is not necessary to make the statement true.
As I've said upthread, while those assumptions are sufficient to make the libertarian statement at issue true, they also don't represent real world transactions very well, because real actors don't adhere to the rational actor model even if it is a useful approximation with some predictive power over large aggregates in some common situations, and real transactions are very often not free of negative externalities which would constitute coercion which would invalidate the generality of the conclusion even if the rational actor model held.
When did this become a fact?