Tag Archives: Akerlof

Economics could be a Science if More Economists were Scientists

By William K. Black
(Cross posted at Benzinga.com)

Raj Chetty has written an op ed in the New York Times designed to counter the abuse the Sveriges Riksbank (Sweden’s central bank) rightly received for its latest embarrassment.  Economics does not have a true Nobel Prize, so a central bank decided to create a near-beer variant.  The central bankers have frequently made a hash of it, often awarding economists who got it disastrously wrong and inflicted policies that caused immense suffering.  This year, not for the first time, the central bankers decided to hedge their bets – awarding their prize to economists who contradict each other (Eugene Fama and Robert Shiller).  The hedge strategy might be thought to ensure that the central bank’s prize winners were right at least half the time (which would be an improvement over the central bankers’ batting average in their awards), but that is a logical error.  It is perfectly possible for both of the prize winners to be wrong.  I’ll explain why I think that is the case in a future article.

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What if George Akerlof had written about Lethal “Lemons?”

By William K. Black
(Cross Posted at Benzinga.com)

If you have studied economics at the university level in the last 35 years it is likely you were introduced to the concept of “asymmetrical information” and George Akerlof’s famous 1970 article on markets for “lemons” (American slang for an automobile of terrible quality).  The Nobel committee that awards the prize in economics singled out that article for special praise in deciding to make him a Nobel Laureate in 2001.  The article discusses the implications of asymmetrical information in a number of contexts, but at least two of the contexts involved what criminologists call “control fraud” and a third involves the risk of fraud by borrowers.  Most of the examples Akerlof discussed involved fraud.  The frauds he analyzes concern deceit about the quality of goods being sold or the borrowers’ ability or willingness to repay a loan.    Continue reading