Economist Milton Friedman (previous posts here, here and here) and former General Electric CEO Jack Welch are the subject of a couple of recent interviews and, as usual, both of them have interesting observations to pass along. First, Friedman:

“The great virtue of a free market is that it enables people who hate each other, or who are from vastly different religious or ethnic backgrounds, to cooperate economically. Government intervention canít do that. Politics exacerbates and magnifies differences.”

The US Treasury debt is held mainly by China, Japan and South Korea. Is the huge foreign balance of payments deficit a problem for the US and world economy?
“I donít think so. It may well be a statistical mirage. If you look at the balance sheet, the US is heavily in debt. If you look at the income accountóthe amount of interest the US pays abroadóit is almost exactly equal to the amount of interest that it receives from abroad. American assets held abroad are earning a higher rate of return than foreign assets held here.
That is understandable because what is most attractive about the US to people and countries with wealth is that it can provide security, insurance really, against political instability. Nobody is afraid that the money they place in the US is at risk of expropriation or of in some other way being taken away. For this safety, the wealth holders of the world are willing to accept a lower rate of return. US assets abroad, in contrast, are riskier and thus yield a higher rate of return.
This explains why there is a rough balance in real terms. It is not clear there really is a debt. It looks like the imbalance concerns are misleading. It doesnít worry me a bit that China and Japan hold so much US debt. In a way, it seems foolish for them to do it because they get lower returns than they might elsewhere. But that is their business.”
Does the large US fiscal deficit worry you?
“Not at all. It is the spending that got us there that worries me. If the US government spends 40 percent of the nationís income, as it does through either borrowing or taxes, that income is not available for people to spend. The deficit is an indirect method of taxation. Of course, politicians prefer to borrow instead of tax because then someone down the road has to deal with the consequences.
If anything, at the moment, the large deficit has a positive effect of holding down further spending. In that sense, it is a good thing. But it is not a good thing if produced by more spending.”

And then Welch, who was interviewed by Wall Street Journal columnist, Holman Jenkins:

Mr. Welch seems frequently to get razzed about “rank and yank,” a term popularized by Enron. But he tells audiences that GE’s method of systematically evaluating and weeding out employees involved a lot more coaching, and never involved dropping the hammer unexpectedly. OK, but was he really comfortable having those conversations in which he had to tell the laggards they weren’t making the grade? “Totally,” he says emphatically — “because I never surprised them.”
[Welch] maintains that a real manager has to be comfortable having such conversation [about “rank and yank”], but too many aren’t because of a misguided sensitivity to their underlings’ feelings. “That’s the cruelest form of management,” he continues. “You carry these people along. They get to be 50 years old. You have a recession. You say let’s cut costs 10%, and you walk down the hall, ‘Holman, you’re going home.’ ‘Why me?’ ‘Because you weren’t very good, Holman.’ And Holman’s reaction is: ‘I’ve been here 25 years. Why didn’t you tell me?'”
[Welch] was 13 years into his own career at GE before he learned what he now preaches as the key lesson of leadership–it’s no longer about your success, but about the success of others. He discovered this only when he gave up running GE Plastics to run a whole group of GE businesses.
“I realized I couldn’t run those businesses myself. I didn’t know anything about them. It was up to me to get great people. When I was running my own business, I was way too much of a meddler. I didn’t get it,” he says.
Now he got it. Seven years later, he was tapped to become [GE’s] CEO.