Cochrane Proposes “Restoring the Rule of Law” by Letting CEOs Defraud with Impunity

By William K. Black
May 16, 2016     Bloomington, MN

John Cochrane is a theoclassical economist.  I struggle to explain to readers how radical theoclassical economics has become.  The more their anti-regulatory policies prove disastrous the more extreme their policies become.  Cochrane wrote a column recently in the Wall Street Journal that exemplifies this pattern.  We are just emerging from the worst financial crisis since the Great Depression.  The three “de’s” (deregulation, desupervision, and de facto decriminalization) caused the three most destructive epidemics of financial control fraud in history.  Much of this was driven by the perverse financial incentives that CEOs crafted to rig the system and produce an intensely criminogenic environment.

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Mankiw’s Mythical Ten Commandments of Theoclassical Economics

By William K. Black
May 16, 2016     Bloomington, MN

This is the second column in a series on the N. Gregory Mankiw’s myths and dogmas that he spreads in his economic textbooks.  The first column exposed the two (contradictory) meta-myths that begin his preface.  This column de-mythologizes Mankiw’s unprincipled “principles” of economics – the ten commandments of theoclassical economics’ priestly caste.  Some of these principles, correctly hedged, could be unobjectionable, but in each case Mankiw dogmatically insists on pushing them to such extremes that they become Mankiw myths.

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The Unprincipled and Mythical Mankiw Principles of Economics

By William K. Black
May 15, 2016     Bloomington, MN

In this first installment I discuss the unacknowledged contradiction that lies at the core of the two meta-myths in the preface to N. Gregory Mankiw’s textbooks.  Mankiw is among the leading providers of introductory economics textbooks.  In his preface to these volumes he preaches his first meta-myth in his first substantive sentence about economics.

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Stop Calling Deals That Help CEOs Pillage with Impunity “Free Trade”

By William K. Black
May 14, 2016     Bloomington, MN

This is the second column in my series on the “Mankiw’s myths and Mankiw morality.”  In the first column I showed that N. Gregory Mankiw’s own unprincipled principles of economics predicted that the financial system would be rigged by and for the financial CEOs.  In his New York Times column Mankiw purported to be writing to dispel myths, but actually did the opposite, asserting that the financial system could not be rigged.  I explained in the first column how Mankiw famously decreed that it would be “irrational” (rather than ethical) for a CEO not to “loot” a firm that he controlled.  I term this view that being ethical is irrational for a CEO “Mankiw morality.”  Under Mankiw morality, financial CEOs would have the incentive and the ability to rig the system and would do so repeatedly.

My second column responds to some of Mankiw’s myths about the “trade deals.”  I again apply Mankiw morality and theory to refute Mankiw’s myths about “trade deals” being good for America.  Mankiw morality predicts that CEOs, whenever they can personally get away with it, will rig the system to create a “sure thing” allowing the CEO to become wealthy through fraud and other abuses.  The CEOs see regulators and prosecutors as the paramount risks to their ability to get away with rigging the system.  They look for every opportunity to discredit and render ineffective regulation, to make it difficult to prosecute elite white-collar criminals, and to ensure that agency heads and attorney generals will be appointed who are unwilling to effectively regulate and prosecute corporate elites.

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A Global Marshall Plan for Joblessness?

By Pavlina Tcherneva
(Crossposted from INet)

Global unemployment is expected to surpass 200 million people for the first time on record by the end of 2017, according a recent ILO study, and limitations of official statistics suggest that the problem is much larger . As conventional measures increasingly fail to produce tight labor markets and jobless recoveries become the norm, economists grapple with this new reality by calling it secular stagnation and by adjusting upwards the rates of unemployment deemed ‘natural’ — but the human, social and economic costs of this growing problem are rarely considered in economic modeling.

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Money and Banking Part 14: Financial Crises

By Eric Tymoigne

While visiting the London School of Economics at the end of 2008, the Queen of England wondered “why did nobody notice it?” In doing so, she echoed a narrative that had been promoted among some prominent economists: the Great Recession (“it”) was an accident, a random extreme event and no one so it coming. This narrative is false. Quite of few economists saw it coming and it was not an accident. A previous post showed how different theoretical framework about financial crises lead to different regulatory responses. This post studies more carefully the mechanics of financial crises and how an economy gets there.

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Mankiw Morality in a Mash Up with Mankiw Myths

By William K. Black
May 8, 2016     Kansas City, MO

N. Gregory Mankiw writes leading textbooks in economics that present neoliberal economic nostrums as economic “principles.” Mankiw wrote a column in the New York Times entitled “The Economy Is Rigged, and Other Presidential Campaign Myths.” The title reflects the central nature of his attack on Bernie Sanders explaining how the economy is rigged in favor of elite bank fraudsters.  This first column in a series responds to Mankiw’s myths about the rigged financial system.  The next column deals with Mankiw’s myths about the trade deals.

Mankiw misfires immediately because he does not even attempt to refute Bernie’s explanations of how finance is rigged.  Instead, Mankiw conflates income inequality and the rigging of finance.

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Over-Arching Perspective

By J.D. ALT

I’m attracted to “big picture” vistas that put the day’s momentary developments into what at least feels like a meaningful perspective. It helps me to imagine things are more manageable than they otherwise seem to be. In reading my daily news (currently The Washington Post), I’m always on the lookout for at least two articles that fit together somehow to create a glimpse of this over-arching view. Today (Friday, 6 May) I got what feels like a pretty good peek.

First is an article about the EPA’s twenty-five year struggle to define and implement rules and regulations about lead in America’s water supply. Basically, the efforts have focused on requiring municipalities to test their water for lead on a regular basis―and then implement some kind of remediation if the lead-levels test too high. The problem lies in the complex relationship between the testing and the remediation: Testing must occur at the tap, not at the supply, because lead contamination occurs in the old, lead pipe-connections which the water, pure as it may be when it starts out, must pass through to get to the tap. The corrosiveness of the water, which is controlled by many factors and chemicals, determines how much lead is picked up along its journey through the lead-infested pipes. If the tap water tests too high, municipalities must implement a complex calculation of how to reduce the water’s corrosiveness.

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Web Site Devoted to Helping Customers Cheat Cheated its Customers

By William K. Black
May 4, 2016     Bloomington, MN

To the shock of no one, with the possible exception of men who would use such a site, it is alleged that the website devoted to helping their customers cheat their loved ones cheated their customers.  (Yes, another example of the myriad forms and layers of “spontaneous order” that von Hayek does not want you, or any economist, to think about.)  This was reported in Corporate Counsel.  Plaintiffs are trying to bring a class action fraud lawsuit against the firm Ashley Madison (“Life is short.  Have an affair”).  The firm’s client list was made public by a hacker who expressed distress at the firm’s business plan of encouraging affairs.

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Free Markets Mean Zero Economic Profit – or a 99% Profit Markup

By William K. Black
May 3, 2016     Bloomington, MN

Open up a conventional economics text and you will be taught that high among the glories of “free markets” is the “fact” that they lead to firms earning “zero economic profits.”  Economic profits are not the same as accounting profits.  An economic profit occurs when a firm receives greater profits than the minimum required to be able to raise capital in their industry.  A firm that receives a profit greater than that minimum requirement is receiving monopoly “rents” due to its market power.  Conventional economists used to believe that was a bad thing, but many conventional economists from the right are now openly hostile to antitrust concerns.

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