Why the Worst Get on Top – in Economics and as CEOs

By William K. Black

Libertarians are profoundly anti-democratic. The folks at Cato that I debate make no bones about their disdain for and fear of democracy. Friedrich von Hayek is so popular among libertarians because of his denial of the legitimacy of democratic government and his claims that it is inherently monstrous and murderous to its own citizens. Here’s an example from a libertarian professor based in Maryland.

“[W]hen government uses its legal monopoly on coercion to confiscate one person’s property and give it to another, it is engaging in what would normally be called theft. Calling this immoral act “democracy,” “majority rule” or “progressive taxation” does not make it moral. Under democracy, rulers confiscate the income of productive members of society and redistribute it to various supporters in order to keep themselves in power.

In order to finance a campaign, a politician must promise to steal (i.e., tax) money from those who earned it and give it to others who have no legal or moral right to it. There are (very) few exceptions, but politicians must also make promises that they know they can never keep (i.e., lie). This is why so few moral people are elected to political office. The most successful politicians are those who are the least hindered by strong moral principles. They have the least qualms about confiscating other peoples’ property in order to maintain their own power, perks, and income. In his bestselling 1944 book, ‘The Road to Serfdom,’ Nobel laureate economist F.A. Hayek described this phenomenon in a chapter [10] entitled ‘Why the Worst Get on Top.’”

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CREATIONISM VERSUS REDEMPTIONISM: HOW A MONEY-ISSUER REALLY LENDS AND SPENDS

By L. Randall Wray

MMT has emphasized that there is a close relation between sovereign power to issue a currency and its power to impose tax liabilities. For shorthand, we say “Taxes Drive Money”. I’ve dealt with that topic in the previous instalments of this series on MMT’s view of taxes.

We’ve also demonstrated (as if it needed demonstration!) that sovereign governments do not “need” tax revenue in order to spend. As Beardsley Ruml put it, once we abandoned gold, federal taxes became “obsolete” for revenue purposes.  I’ll have more to say about good old Beardsley in the next instalment.

In today’s instalment I want to step back a bit to ask a more fundamental question: does the issuer of a money-denominated liability need to obtain some of those liabilities before spending or lending them?

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The Criminology of the “Sure Thing” Portrayed as “Risk”

By William K. Black

John Coates, a former derivatives trader at Goldman Sachs is now a researcher. He wrote a column in the New York Times entitled “The Biology of Risk” that I hope will be widely read.

In this column I explain why his most important conclusions cannot follow logically from his own description of his research finding. While he relies on blood tests, his account of trading when it goes horribly wrong is curiously bloodless and disingenuous. As a Goldman and Deutsche Bank refugee he knows better, but he presents a sanitized version of the crisis portraying the controlling officers and traders at the largest banks as helpless victims of raging hormones rather than fraud perpetrators and facilitators.

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Required: A Complete Pivot on Climate and Energy

By Michael Hoexter

With the release of Obama’s much heralded EPA regulations on coal fired power plants we are encountering once again the ongoing tragedy of low expectations with regard to climate action.  While compared to other Presidents, and there have been only three in the era of pressure for climate action, Obama’s proposal that coal-fired power plants reduce their carbon dioxide emissions by 30% from 2005 levels by 2030 is the most ambitious climate rule to be implemented, even the relative journalistic “friend” of the Obama Administration, Ezra Klein pointed out, this is a less ambitious path to cut carbon than that proposed by the Republican McCain/Palin candidacy in 2008.   Of course, there is a difference between campaign proposals and a President setting into motion energy and climate regulations but the degree to which expectations have been lowered even in the course of 6 years (despite the appearance of obvious changes in the climate itself) is frightening.  In the best case scenario, the ruling establishes a precedent that may be reinforced in the future.

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An Offer of Assistance to Senator Claire McCaskill in her Investigation of GM

By William K. Black

“‘I won’t be letting G.M. leadership, or federal regulators, escape accountability for these tragedies,’ Senator Claire McCaskill, the Missouri Democrat who is chairwoman of a Senate subcommittee on consumer protection, said in a statement.”

Senator McCaskill’s statement makes the correct points.  GM’s leadership and the federal regulators have, to date, “escape[d] accountability.”  I want to extend an offer of assistance to Senator McCaskill.  The key to understanding GM’s otherwise incomprehensible actions is to understand the perverse effects of the compensation system that GM’s leadership designed.  This is one of our areas of expertise.

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GM’s Cartoon Version of von Hayek’s “Road to Serfdom” – on the 70th Anniversary of D-Day

By William K. Black

The web has provided another proof of our family rule that it is impossible to compete with unintentional self-parody.  The day after GM’s preposterous congressional testimony and its release of the unintentionally hilarious Valukas report detailing GM’s criminal indifference to human health and life a libertarian blogger featured GM’s cartoon version of von Hayek’s “Road to Serfdom” to warn us of the fact that democratic government invariably leads to serfdom.

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The Reactionary University Critiqued by a Reactionary who Ignores Reactionary Economists

By William K. Black

Victor Davis Hanson begins an article with an interesting title: “America’s Medieval Universities.”  His fundamental critique of the universities is:

“Employment rates for college graduates are dismal. Aggregate student debt is staggering. But university administrative salaries are soaring. The campus climate of tolerance has utterly disappeared. Only the hard sciences and graduate schools have salvaged American universities’ international reputations.

For over two centuries, our superb system of American public and private higher education kept pace with radically changing times and so ensured our prosperity and reinforced democratic pluralism.

But a funny thing has happened on the way to the 21st century. Colleges that were once our most enlightened and tolerant institutions became America’s dinosaurs.

Start with ossified institutions. Tenure may have been a good idea in the last century to ensure faculty members free expression. But such a spoils system now encourages the opposite result of protecting monotonies of thought.”

Some of these statements are accurate, though Hanson (a recovering classicist at Hoover) provides no logical basis for blaming the universities and tenure for the faults.

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Wall Street Crime and Misdeeds

NEP’s Bill Black appeared at the Unstoppable Right/Left Convergence event in Washington D.C. on May 27, 2014. He talked about Wall Street Crime and Misdeeds.

Valukas Assumes GM’s Reported Quality Was Real despite 13.8 Million Recalls in Five Months

By William K. Black

I just posted an article about the ludicrous excuse that Mary Barra, GM’s CEO, offered in her congressional testimony for GM’s lengthy refusal to correct a design defect it knew was killing and maiming people.

The defective design caused GM cars, without warning, to suddenly lose electrical power essential to the driver’s ability to control the car and for the air bags to function.  The car became an unguided missile and simultaneously lost the protective device that was most critical to safety in such circumstances.  The design defect, therefore, endangered not only GM customers but also anyone in the vicinity when the GM car lost electrical power.

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How Institutional Defects Get Ignored: The GM – and Lehman Reports by Valukas

By William K. Black

The beleaguered profession of law has one lucrative growth area – preparing reports for a corporation on the misdeeds of the corporation. One of the leaders in this burgeoning field is one of the Nation’s top white-collar defense firms – Jenner & Black. Its head, Anton Valukas, is now famous for the “Valukas” reports for Lehman and GM. I testified at the same House hearing on Lehman’s failure with Valukas. Valukas famously suggested there could be grounds for criminal prosecutions of Lehman’s use of an accounting device designed to deceive investors and creditors about the (crippling) extent of its debt. Attorney General Holder and a senior SEC (anti) enforcement leader combined to allow Lehman’s officers commit this variant of accounting control fraud with impunity. (This is one the events that sparked the recent long-time SEC enforcement attorney’s evisceration of the SEC at his retirement dinner.)

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