Finance

Check out the companies making headlines before the bell:
Foot Locker (FL) – Foot Locker slid 3.6% in the premarket after the athletic footwear and apparel retailer said it expects global supply chain constraints to persist through this quarter. The slide comes despite a beat on both the top and bottom lines for Foot Locker’s most recent quarter, as well as better-than-expected comparable store sales.

Dillard’s (DDS) – The department store operator’s stock added 3.2% in premarket trading after the company announced a $15 per share special dividend, payable on December 15 to shareholders of record as of November 29.
Farfetch (FTCH) – The online luxury fashion marketplace operator’s shares plunged 21.4% in the premarket after it reported a narrower-than-expected quarterly loss and saw revenue fall short of Wall Street forecasts. The company also gave weaker-than-expected adjusted earnings guidance.
Applied Materials (AMAT) – Applied Materials came in a penny shy of estimates with adjusted quarterly earnings of $1.94 per share. The semiconductor equipment maker’s revenue fell short of forecasts as well. Applied Materials also gave a weaker-than-expected current-quarter outlook amid supply shortages of certain components, and its stock tumbled 5.7% in premarket action.
Williams-Sonoma (WSM) – Williams-Sonoma reported adjusted quarterly earnings of $3.32 per share, beating the consensus estimate of $3.14. The housewares retailer saw better-than-expected revenue and raised its full-year forecast, noting a strong jump in e-commerce and strength across its brands. Williams-Sonoma also reported higher-than-expected selling, general and administrative expenses during the quarter, and the stock fell 7.7% in the premarket after rising in five of the past six sessions.
Palo Alto Networks (PANW) – Palo Alto shares jumped 3.9% in premarket trading, reversing initial losses that occurred after the cybersecurity firm gave weaker-than-expected full-year guidance. Palo Alto beat forecasts on the top and bottom lines for its most recent quarter, earning an adjusted $1.64 per share compared with a consensus estimate of $1.57.

Intuit (INTU) – Intuit earned an adjusted $1.53 per share for its latest quarter, well above analyst forecasts for a profit of 97 cents per share. The financial software firm also reported better-than-expected revenue and gave an upbeat forecast as it benefits from its acquisition of Credit Karma late last year and MailChimp last month. Its stock surged 13.4% in premarket trading.
Ross Stores (ROST) – Ross Stores reported quarterly earnings of $1.09 per share, topping the 78-cent consensus estimate, with revenue also beating forecasts. However, the discount retailer said it was seeing significant supply chain issues, causing uncertainty heading into the holiday shopping season, and the stock slid 3.4% in the premarket.
SoFi (SOFI) – SoFi fell 1.9% in premarket action following news that investor Chamath Palihapitiya sold 15% of his stake in the fintech firm to help build his cash reserves and fund new investments.
Workday (WDAY) – Workday beat estimates by 24 cents with adjusted quarterly earnings of $1.10 per share, while the maker of human resources software saw revenue top estimates amid faster growth in subscription revenue. However, the company said the effects of the Covid-19 pandemic will weigh on growth in the coming year, and the stock tumbled 7.3% in premarket trading.
Buckle (BKE) – The fashion accessories retailer’s stock rallied 5.6% in the premarket following an upbeat quarterly earnings report. The company earned $1.26 per share for the quarter, beating the 92-cent consensus estimate, with revenue also topping Street projections.

WATCH LIVEWATCH IN THE APP More

Overall losses caused by DeFi exploits have totaled $12 billion so far in 2021, according to a report from Elliptic.
Fraud and theft accounted for $10.5 billion of that sum — a sevenfold increase from last year.
DeFi, or decentralized finance, products aim to replicate traditional financial services using blockchain.

An illustration showing physical bitcoins alongside binary code displayed on a laptop.
Jakub Porzycki | NurPhoto via Getty Images

LONDON — Investors have lost billions of dollars to criminals targeting so-called “decentralized finance” platforms this year.
According to a report from London-based firm Elliptic, more than $10 billion worth of user funds has been stolen in cases of fraud and theft on DeFi products, which aim to replicate traditional financial services using blockchain technology.

DeFi has often been referred to as the “Wild West” of cryptocurrencies. Such services often promise users huge returns but lack any involvement from middlemen like banks. High-interest rate savings and lending products are a common sight in the space.
But, as is to be expected with a young industry like crypto, DeFi platforms aren’t regulated. It’s something regulators have tried to come to grips with recently amid a spate of major hacks and scams.
Overall losses caused by DeFi exploits has totaled $12 billion so far in 2021, according to Elliptic, a firm which tracks movements of funds on the digital ledgers that underpin cryptocurrencies.
Fraud and theft accounted for $10.5 billion of that sum — a sevenfold increase from last year.
“The DeFi ecosystem is an incredibly exciting and fast-moving space, with financial services innovation happening at light speed,” said Tom Robinson, chief scientist at Elliptic.

“This is attracting large amounts of capital to projects that are not always robust or well-tested. Criminal actors have seen the opportunity to exploit this.”
Over the last two years, the total amount of money deposited at DeFi services has spiked from just $500 million to $247 billion.
It comes as the price of bitcoin and other cryptocurrencies have rallied this year. Ethereum, the network behind the world’s second-biggest digital coin, is considered the backbone of many DeFi applications.

But as the market has grown in size, so has the level of illicit activity. Earlier this year, DeFi platform Poly Network lost more than $600 million in what was, at the time, the biggest cryptocurrency theft of all time. 
In a bizarre turn of events, the entirety of the funds was later restored by the hackers, which claimed they exploited Poly Network to highlight flaws in its system.
There have also been a number of so-called “rug pulls,” where scammers convince investors to buy their token and then take off with the funds after raising a certain amount.

Regulation

Regulators are growing concerned about the rapid rise of DeFi.
The Securities and Exchange Commission is seeking information from Uniswap Labs, the start-up behind a decentralized crypto exchange of the same name, on how investors use the platform and the way in which it is marketed.
A Uniswap Labs spokesperson said the firm was committed to complying with the law and assisting regulators with their inquiries.
The problem, experts say, is that DeFi services often market themselves as decentralized, when that isn’t always the case.
The Financial Action Task Force, a global anti-money laundering watchdog, recently released revised guidance on cryptocurrencies calling on countries to identify individuals with “control or sufficient influencer” over DeFi programs.

WATCH LIVEWATCH IN THE APP More

Stock futures edged up in overnight trading on Thursday as the S&P 500 aims to post a winning week.
Futures on the Dow Jones Industrial Average climbed 20 points. S&P 500 futures and Nasdaq 100 futures both gained 0.1%.

The market rally appeared to have slowed down a bit near record levels even amid strong corporate earnings. Macy’s and Kohl’s both blew past analyst estimates in their quarterly earnings reports on Thursday.
So far this week, the blue chip Dow is down 0.6%, on pace for its second negative week in a row. The S&P 500 and the tech-heavy Nasdaq Composite are headed for modest gains, up 0.5% and 0.8% this week, respectively. The S&P 500 is on track for it sixth positive week in seven, sitting 0.3% below its all-time high.
More than 90% of the S&P 500 companies have handed in their financial results for the third quarter, and over 80% of them reported earnings better than Street’s expectations, according to Refinitiv. S&P 500 companies are on track to grow profit by 41.5% year over year.

Stock picks and investing trends from CNBC Pro:

“Better than expected earnings has been the name of the game this week for the market,” Mike Loewengart, managing director of investment strategy at E-Trade Financial. “While investors may have entered earnings season with some trepidation, there are some clear signs that consumers are resilient and corporate balance sheets are strong despite pricing pressures.”
On Thursday, investors digested U.S. jobless claims data that more or less matched expectations. Initial filings for unemployment insurance fell slightly to 268,000 for the week ending Nov. 13, the lowest level since March 2020, and the seventh straight weekly decline. Economists polled by Dow Jones expected them to have fallen to 260,000.

“With jobless claims hovering around pre-pandemic lows, the question now is will the momentum continue— both in terms of our economic recovery and market trajectory,” Loewengart said.
Investors are also keeping an eye on President Joe Biden’s pick for the next Federal Reserve chair, which is expected to unveil by the weekend. Many expect an even more dovish Fed if Lael Brainard is named the central bank chief, meaning it would take longer to raise interest rates or tighten policy than under Jerome Powell. 
In Washington, the House is trying to approve the $1.75 trillion Build Back Better economic package this week. The Senate then plans to take up the legislation after it returns from a Thanksgiving recess.

WATCH LIVEWATCH IN THE APP More

A nomination hearing for President Joe Biden’s pick to be comptroller of the currency, Saule Omarova, turned fiery on Thursday as Democrats and Republicans took jabs at each other.
Omarova’s nomination to be one of the country’s top bank regulators is uncertain given fierce opposition from the GOP and skepticism from moderate Democrats.
Ranking Member Pat Toomey, R-Pa., began his remarks by asserting that Omarova’s ideas would “devastate” community banks.

Nominee to be the Comptroller of the Currency Saule Omarova (R) speaks with an aide as she testifies before the Senate Banking, Housing and Urban Affairs Committee during a hearing on Capitol Hill in Washington, DC, on November 18, 2021.
Jim Watson | AFP | Getty Images

WASHINGTON — A nomination hearing for President Joe Biden’s pick to be comptroller of the currency, Saule Omarova, turned fiery on Thursday as Democrats and Republicans took jabs at each other over the candidate’s unconventional academic works and her upbringing in the former Soviet Union.
Omarova’s nomination to be one of the country’s top bank regulators is uncertain given fierce opposition from the GOP and skepticism from moderate Democrats including Sen. Jon Tester of Montana.

The main concern among Republicans and a handful of Democrats is Omarova’s writings as a legal scholar, which consider sweeping changes to the U.S. banking system.
Republicans on the Senate Banking Committee’s kicked off the hearing with a review of the Cornell University law professor’s legal studies. They challenged ideas she’s explored to augment the power of the Federal Reserve and effectively franchise community banks as a threat to the future of the U.S. financial system.
The ranking GOP member, Sen. Pat Toomey of Pennsylvania, began his remarks by asserting that Omarova’s ideas would “devastate” community banks.
“Taken in their totality, her ideas amount to a socialist manifesto for American financial services,” Toomey said in his opening remarks.

CNBC Politics

Read more of CNBC’s politics coverage:

In one recent article, the Cornell University law professor explores the idea of taking consumer deposits away from community banks and parking them at the Federal Reserve. Community banks would then be paid by the U.S. government to operate ATMs and otherwise act as a local liaison on behalf of the Fed.

Sen. Richard Shelby, R-Ala., said he agreed with Toomey and added that he is “troubled” by her nomination and what he views as her ideas hostile to community banks.

The comptroller regulates about 1,200 banks with total assets of around $14 trillion, or two-thirds of the entire U.S. banking system. Its representatives work with big banks to ensure lenders are abiding by federal law and providing fair access to financial services and otherwise examining bank management.
If confirmed to lead the Office of the Comptroller of the Currency, an independent bureau of the Treasury Department, Omarova would be the first woman, immigrant and person of color to hold the role.
Omarova countered Shelby by noting the important role local banks play in vitalizing small businesses and how she felt when she opened her first U.S. checking account in 1991.
“Holding a check book in my hand was a symbol of economic freedom and autonomy,” she said, a comparison to her childhood growing up in Kazakhstan when it was part of the Soviet Union.
Despite the GOP’s focus on her academic works, Omarova insists that those writings are purely theoretical and should be viewed in the context of an ongoing debate among scholars. She also protested Republican efforts to paint her as anti-bank.
“If I am confirmed to lead the Office of the Comptroller of the Currency, my top priority will be to guarantee a fair and competitive market where small and mid-size banks that invest in their neighbors’ homes and small businesses can thrive,” she said in opening remarks.
If confirmed, she later said, community banks would “know no better ally than that would find in me.”
“I know that difference between the job of an academic, and the freedom that academics have in terms of exploring ideas … and the job of a regulator, which is very circumscribed,” she told CNBC on Tuesday.
It remains to be seen whether her recent comments are enough to persuade Democrats like Tester, who have yet to decide whether to back Omarova. Other centrist Democrats, including Sens. Joe Manchin and Kyrsten Sinema, are also reportedly unsure whether they will back Biden’s pick to lead the Office of the Comptroller of the Currency.

Ranking member Pat Toomey (R-PA) questions nominee to be the Comptroller of the Currency Saule Omarova as she testifies before the Senate Banking, Housing and Urban Affairs Committee during a hearing on Capitol Hill in Washington, DC, on November 18, 2021.
Jim Watson | AFP | Getty Images

Asked if her comments on Thursday pushed him for or against her candidacy, Tester told reporters that he is “going to synthesize what we heard.”
“I’ll probably have a statement later,” he added. “I don’t know about today, but it’ll be soon.”
Omarova’s advocates say her candidacy is being tainted by discrimination based on where she was born.
A tense moment came just before 11 a.m. ET, when Sen. John Kennedy, R-La., asked Omarova about her membership in a youth communist group during her childhood in Kazakhstan.
Omarova replied that membership in the Communist Party was required under the totalitarian government and noted that members of her family were murdered by the Communist Party led by Joseph Stalin.
Committee Chairman Sherrod Brown, D-Ohio, interrupted Kennedy’s line of questioning as personal and irrelevant to her candidacy, a rare move that drew protests from the Republican at the end of his allotted time.
“I’m struggling with what to call her,” Kennedy said. “I don’t know whether to call her ‘Professor’ or ‘Comrade.'”
Those comments were quickly rebuked by Democrats including Massachusetts Sen. Elizabeth Warren, who called such attacks on Omarova “vicious.” Sen. Jack Reed, D-R.I., added that he is “disturbed” by the personal nature of the criticism.
But Democrats weren’t alone in disavowing the focus on where Omarova was born. Sen. Thom Tillis, Republican of North Carolina, said he has “grave” concerns about her policy positions but has no qualms about her upbringing.
“For somebody’s who’s lost family members in the time that she was young, for somebody who was growing up in Russia, I would think that some of the decisions that Dr. Omarova may have made back at the time had as much to do with survival as anything else,” he said. “I don’t have any concern with where she came from: You can’t pick where you were born and you picked the greatest nation on earth to become a citizen.”

WATCH LIVEWATCH IN THE APP More

The Securities and Exchange Commission published a risk alert Nov. 10 detailing how financial advisors sometimes overbill clients for their services.
Investors may be unaware. It’s harmful because that money would otherwise be invested in the market.
There are steps investors can take, such as verifying the accuracy of fees on account statements, getting a detailed breakdown from their advisor at least once a year, or perhaps switching to an advisor with a simpler fee structure, experts said.

DjelicS | E+ | Getty Images

Some financial advisors may be overbilling for their services. Fortunately, there are steps a client can take to protect themselves.
A recent Securities and Exchange Commission investigation of advisors’ fees found several errors that resulted in clients overpaying.

In some instances, advisors charged fees that differed from their contractual rate, double-billed clients or assessed fees based on an incorrect account value, according to the SEC alert, published Nov. 10.
Further, the agency found some advisors furnished false or misleading fee disclosures to investors. Sometimes they didn’t have disclosures at all.
More from Personal Finance:How muni bond interest can trigger Medicare premium hikes5 things investors need to know about the GE and Johnson & Johnson spinoffsRetirees are ‘unretiring’ — and that’s good for the labor market
Getting overcharged or receiving inaccurate fee information is especially harmful to financial advisors’ clients “because every dollar an investor pays in fees and expenses is a dollar not invested for the investor’s benefit,” according to the SEC.
This isn’t to say all, or even most, advisors make fee errors. (The SEC alert is based on data from examinations of 130 advisory firms.) And the errors might not be fraudulent; they may merely be accidental.

“There’s intentional fraud and there are mistakes,” said Andrew Stoltmann, a Chicago-based attorney who represents consumers in fraud cases. “Both can be rectified by verifying [account] statements, and not just taking the word of the advisor.”

Account statements

Clients should, at minimum, consult their annual statements from financial advisors. Make sure the charges and fees listed on the statement match those initially quoted by the advisor, Stoltmann said.
It’s a good idea to check more regular statements, whether monthly or quarterly, too, he said.
This may sound simple — but many clients don’t take these precautions, Stoltmann said.
Assessing a financial statement isn’t always easy, though. Financial advisors have many different fee structures, depending on the firm, some more complicated than others.

For example, the traditional way advisors bill is a flat percentage (perhaps 1%) of a client’s investment account value. (An advisor managing $1 million for a client would receive $10,000 a year.) Advisors often take fees directly from the client’s account; the client doesn’t write a check.
However, advisors may use other, more-involved methods, like “tiered” or “breakpoint” billing, whereby advisors charge different fees at various client asset levels.
The numbers may be hard for average investors to verify on financial statements. Locating the right information may not be easy since account statements can sometimes run 30 pages long, Stoltmann said.
“It’s hard to say there’s an easy, blanket solution,” said Dylan Bruce, financial services counsel at the Consumer Federation of America, an advocacy group. “Because from firm to firm, there are a lot of differences.”

Challenge your advisor

Morsa Images

To circumvent a hard-to-decipher account statement, the best starting point is to ask your advisor for a detailed explanation of the fees on your account statement, at least once a year, he added.
“If in that process you’re not getting the full [rundown] about what you’re being charged, why you’re being charged it and what the effect on the account might be long-term and short-term — and if [the advisor] is not willing to have that discussion with you in enough detail to make you feel comfortable and fully informed — perhaps that’s a red flag about your investment advisor,” Bruce said.
Similarly, clients can also request a detailed fee breakdown in letter or spreadsheet form directly from the investment advisor, Stoltmann said.
“That’s a legitimate request,” Stoltmann said. “If they don’t follow it, that’s a huge issue.”

There are other avenues investors can take, too.
Investors may seek out advisors with less complex fee structures, for example.
Some firms have adopted hourly rates and monthly subscriptions for their services, giving more certainty over the dollars involved. (Of course, this may not work well for all investors, especially those who want their advisor to retain management of their investments.)
Investors may also request that advisors charge them directly for their services, instead of pulling fees from their account behind the scenes. It may not prevent advisors from charging incorrect fees, of course — but it may make investors more aware of and savvy about how much they’re paying.  

WATCH LIVEWATCH IN THE APP More

Liberty Media Chairman John Malone said the market’s fixation on growth and soaring equity valuations remind him of the dot-com bubble in the late 1990s.
“There’s no question that the equity markets right now are so interested in growth above all other criteria and this is, like, the bubble in the late ’90s … through 2000,” Malone said. “This is a land rush right now. Profitability to be determined later.”

John Malone
Getty Images

Liberty Media Chairman John Malone said the sizzling IPO market and soaring equity valuations remind him of the dot-com bubble in the late 1990s.
“There’s no question that the equity markets right now are so interested in growth above all other criteria and this is, like, the bubble in the late ’90s … through 2000,” Malone said in a recorded interview with CNBC’s David Faber that aired Thursday. “It’s all about growth. This is a land rush right now. Profitability to be determined later.”

It’s been a blockbuster year for U.S. public market listings, which just surpassed an unprecedented $1 trillion marker, a record that more than doubles 2020 levels. Amid the IPO boom, many money-losing start-ups are able to score sky-high market capitalizations that some believe are detached from their fundamentals. The fixation on future growth and profitability sparked worries among investors and strategists on Wall Street about the level of froth in the market right now. The S&P 500 is up 25% this year.
“If you have a lot of cheap money creating too much competition particularly in capital-intensive businesses, it can wreck the profitability of any business,” Malone said. “There’s a car company [Rivian] that I guess is just going public that has a $130 billion market cap.”
Rivian notched the second-highest valuation for a listing this year after its offering increased its total by about $67 billion. Shares of the electric vehicle maker at one point doubled in value, trading around $150 billion at their high. Yet, the company is still losing money and barely generating revenue.
Rivian is producing and selling its first product, an electric pickup called the R1T. The company announced it started producing saleable vehicles at its Illinois factory in September, followed shortly after by shipments to employees and early customers who had reserved the truck.

Arrows pointing outwards

The 80-year-old mogul said he’s spent his career building businesses with long-term horizons and solid fundamentals.

“I’ve always been a long-term investor and so I’m much more interested in building this business brick by brick, making it solid and sticky,” Malone said. “‘How can you grow it,’ and, ‘how can you grow pricing power,’ and, ‘how can you defend the franchises that you’re building?'”
Malone built cable empire TCI in the 1970s before selling it to AT&T in 1999 for roughly $50 billion. Malone is now chairman and the largest voting shareholder of Liberty Media.

WATCH LIVEWATCH IN THE APP More

EmirMemedovski

Have you always been financially faithful in your relationships?
If the answer is no, you’re not alone.

Some 43% of adults with combined finances in a relationship said they’ve committed an act of financial deception, according to a poll from the National Endowment for Financial Education.
Financial deception ranges from lying to your partner or spouse about money to hiding things such as cash, bills or a purchase, according to the report. The survey of more than 2,000 adults was conducted online by The Harris Poll in June.

Money is often a reason for stress in relationships and is even a leading cause of divorce. That may be because it’s a difficult subject to broach.  
“As a society, we talk about money with the assumption that everyone starts at the same place in terms of understanding, and that is very untrue,” said Billy Hensley, president and CEO of the National Endowment for Financial Education, adding that this can make discussions about debt, saving and spending more uncomfortable.
“At the foundation of it is that we don’t provide enough financial education in schools or in any other venues so people have the confidence necessary to approach these topics early on,” he said.

Why people commit financial infidelities
The survey found that most deceptions happen for a few main reasons. Thirty-eight percent felt that some aspects of money should remain private, 34% had discussed finances but thought their partner would disapprove and another 33% were too afraid or embarrassed about their finances to speak about it.  
Of the couples who had experienced financial deception, 42% said that it resulted in a fight. Others said that the event eroded trust and privacy, led to separation of finances or triggered the termination of the relationship altogether.
To be sure, some respondents were able to use a financial infidelity to make their relationship stronger — 19% said they were closer after, and 16% said the deception helped them communicate more proactively later.
More from Invest in You:The ‘Great Resignation’ is burning out those who stayUse these resume strategies to stand out to recruitersSwitching jobs can boost income. When to put yourself on the market
Check in with your partner or spouse about money
If you have committed financial infidelity, it’s probably best to come clean to your spouse or partner as soon as you can, said Hensley. That way, you can work through the issue together.
“Maybe it’s time to recalibrate your financial relationship and say, ‘you know what, this hasn’t worked too well for us, is there a way we should do this that’s better for us?'” Hensley said.
It may also be a good idea to work with a financial therapist or coach to have a neutral third party that can help you talk about money, Hensley said.
To avoid financial issues in a relationship, couples should discuss how they’d like to combine — or not combine — their finances before doing so, or before deciding to cohabitate.
It’s important that people realize that there is not one way for couples to manage money. Some experts recommend that committed partners keep some aspects of their finances separate.

For example, Suze Orman, a personal finance expert and the host of the “Women and Money” podcast, has never had a joint bank account with her partner of more than 20 years.
“You have to have money of your own, the last thing you want to do is have to ask permission,” said Orman. “You might have a joint account, for joint expenses, but then you each need your own individual account.”
Couples should also discuss their financial goals and make sure they’re on the same page — and check in regularly to track their progress as they work towards those goals.
“If you have shared goals and you’ve talked about the distribution of how you cover your bills and so forth, it takes a level of pressure off to be able to start your relationship or to be able to heal within your relationship,” said Hensley.
SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox.
CHECK OUT: How to make money with creative side hustles, from people who earn thousands on sites like Etsy and Twitch via Grow with Acorns+CNBC.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns. More

IN HIS CABIN aboard the SS Bashan, a luxury river boat sailing to Wuhan, Janos Kornai was sleepless with excitement. The Hungarian economist, who died last month, was one of seven foreign experts invited in 1985 to share their views on China’s economic reforms. As Julian Gewirtz recounts in his book “Unlikely Partners”, Mr Kornai stole the show. On a week-long cruise with an audience of Chinese technocrats, he dissected socialism’s familiar “cares and woes” (featherbedded firms, rushed growth and consumer shortages). And he offered a hopeful vision of a restrained, guided capitalism. His book “Economics of Shortage” soon became a bestseller in China, although he never saw any royalties.Forty years earlier, Mr Kornai lay on the roof of a Jesuit monastery in Budapest, hiding from a fascist raid down below, even as Soviet forces dropped bombs from above. The skyline had a “hellish beauty”, he wrote. As a Jewish Hungarian who had lost his father and a brother to the Holocaust, he welcomed the Soviets as liberators. He did not even mind when they stole his watch. His gratitude was one reason why he became an enthusiastic communist, so devoted to his work on a party newspaper that he missed the birth of his first child. His communism, in turn, explains why he became an economist. He pored over Karl Marx’s “Das Kapital”. Enlightenment radiated from it “like sunshine”, he later wrote. “I had no more doubts about what profession to choose.”The spell of Marxism broke when he met a victim of the torture it entailed. He also came to hate the improvised haste of journalism. He turned instead to research at Hungary’s Institute of Economics. But his reporter’s habits served him well in his dissertation. By interviewing managers, grumbling with them about bureaucratic idiocy, wastage and “disregard for customer needs”, he crafted a rare systematic account of how a planned economy actually worked, as opposed to how it was supposed to work. The book also served as an index of shifting political winds. It was celebrated in the lead-up to the Hungarian revolution in 1956, denounced after that revolution was crushed by Soviet tanks, then approved for translation into English, all by the same person, the director of the institute.Some socialist reformers thought that widespread state ownership was compatible with market forces and price signals. But Mr Kornai recognised that getting prices right, even if it were possible, would not be enough. Under capitalism, a firm cannot defy prices for long without going bust. Under socialism, things were different. State-owned firms knew they could always appeal to higher authorities to bail them out. In 1979 Mr Kornai called this a “soft budget constraint”: the sharp line drawn by economists on their blackboards was smudged. If firms do not fear losses, they need not heed prices. This lack of financial restraint also allowed firms to indulge their “investment hunger”, an excessive appetite for resources, which squeezed out consumers and resulted in chronic shortages.The argument made his name: it was a “congenial” extension of a concept familiar to mainstream economists. Mr Kornai had once had larger ambitions, hoping to smash the crystal through which most economists viewed the world. He had studied neoclassical theorists such as Kenneth Arrow with much the same care he had lavished on Marx. But he could not square their ethereal “general equilibrium” theory with his observations of the living, breathing economy. The mismatch reminded one economist of a line by the poet Edith Sodergran: “You searched for a woman and found a soul—you are disappointed.”On the China cruise, Mr Kornai convinced his audience of the need to harden the budget constraints of the country’s firms. One of his fellow passengers is now China’s banking regulator. But the imposition of financial discipline remains a work in progress. The rise in defaults, even of state-owned firms, in recent years is evidence of some harder financial lines. But it comes only after years of gluttonous investment.China has not, however, suffered chronic shortages. On the contrary, it is a “super-surplus” economy, marked by massive excess capacity, as Xu Chenggang, one of Mr Kornai’s students, has pointed out. One reason is that state-owned enterprises do not have the economy to themselves. They coexist with fiercely competitive private firms. The surpluses may also reflect the dual nature of investment. It is both an immediate source of demand and an eventual source of supply. In the short run, it makes a claim on the economy’s resources, which can crowd out consumers. But when the investment bears fruit, it adds to the economy’s ability to supply goods and services, resulting in abundance not scarcity.Team transitoryLike the economies he deciphered, Mr Kornai inhabited two worlds. He was half in the mainstream of economics, half out. From 1983, he was half in America, half out. The transitions were not always easy. It took him time to perfect his English. In his Boston driving test, he declared that a “no hitchhiking” sign was a “no hijacking” sign. In a lecture, he repeatedly mispronounced warehouse as whorehouse. On returning home to Hungary each year, he had to remember to drop his upbeat stateside persona and complain a bit more.But although he straddled different worlds, he was in no doubt where his allegiances ultimately lay. “Despite its detrimental and morally nasty features…I would sooner live under the capitalist system than in the happiest barrack in the socialist camp,” he wrote in his memoir. And although he was intellectually opposed to patriotic bombast, he felt an instinctive pride in the achievements of his compatriots. It was their music and literature that moved him. Their unillusioned meliorism that animated him. He counted in Hungarian. And when he wasn’t sleepless with excitement, he dreamt in it too. ■This article appeared in the Finance & economics section of the print edition under the headline “The inbetweener” More