By William K. Black
You know the austerians are panicking when the temple devoted to the worship of austerity, the Wall Street Journal, runs a story with the subtitle: “Eurozone’s Largest Economy Has Its Worries, but Isn’t on Brink of Collapse.” We can all sleep well at night because while Germany has screwed up its economy and the eurozone economy with self-destructive austerity it “isn’t on brink of collapse.”
“August’s shocking 4% decline in German industrial production versus July doesn’t signal an economy falling off a cliff. But the outlook for Germany—and by extension for the eurozone—is far from bright.
Germany’s second-quarter gross domestic product was disappointing, registering a contraction of 0.2% on the quarter. August’s data put in question the modest rebound many economists are expecting in the third quarter. Surveys of economic sentiment have been declining: Markit’s manufacturing purchasing managers index for September entered contraction territory, at 49.9. Weaker global demand and concerns about the tensions between Russia and Ukraine are to blame. If this unpleasant mix persists, then growth seems unlikely to pick up.”
By William K. Black
In Fiddler on the Roof, Perchik and Teyve have this exchange:
Perchik: Money is the world’s curse.
Tevye: May the Lord smite me with it! And may I never recover!
I was reminded of this when reading the Wall Street Journal editorial claiming that “regulatory capture” was “inevitab[le]” and that we should therefore replace financial regulation with “simple rules” that “can’t be gamed.”
In my first installment I showed that the WSJ’s “simple rules” not only can be gamed – they are invariably gamed massively in the epidemics of accounting control fraud that cause our recurrent, intensifying financial crises. This installment refutes the “inevitability” of “regulatory capture.” As I promised to explain, I can personally attest that regulatory capture is not “inevitab[le]” even in circumstances that are ripe for capture. Further, “regulatory capture” has no definition and economists use it and the term “rent-seeking” as sloppy swear words to describe regulatory actions that are the opposite of regulatory capture. I conclude by showing that we know how to avoid harmful “regulatory capture,” but the ideologues that oppose effective regulation deliberately chose anti-regulatory leaders who create a self-fulfilling prophecy of regulatory failure. The WSJ editors and neo-classical economists are the jockeys who insure that their horse loses – and then blame the horse.