By William K. Black
February 18, 2017 Roma, Italia (5th in my series on Jean Tirole)
When in Rome, trot out a venerable Latin quotation from Juvenal: “Who will guard the guards?” I have “buried the lead” in this series of article about Jean Tirole by relegating my discussion of his proposal for fixing the problem of the criminal CEO – appoint a criminal “monitor” – to the fifth article in this series. His proposal is in his 2001 article titled “Corporate Governance.”
By William K. Black
February 14, 2017 Bloomington, MN (4th in a series on Jean Tirole)
In my second article in this series I began to discuss Tirole’s 2001 article (“Corporate Governance”), which contains this remarkable admission about orthodox economists’ ‘group faith’ (no thinking involved) that results in the “implicit assumption” that some unexplained force “perfectly” protects employees, creditors, and the public from predation by firms.
The economists’ implicit assumption is that employees, suppliers, customers, and other natural stakeholders are protected by very powerful contracts or laws that force controlling investors to perfectly internalize their welfare whereas the contractual protection of investors when the natural stakeholders have control is rather ineffective, and so investors must receive the control rights. The details of the argument have not yet been worked out [p. 4].
By William K. Black
February 12, 2017 Bloomington, MN (Part 3 in my Tirole series)
I discussed Jean Tirole’s 2001 article (“Corporate Governance”) and this remarkable admission about orthodox economists in my second article in this series.
The economists’ implicit assumption is that employees, suppliers, customers, and other natural stakeholders are protected by very powerful contracts or laws that force controlling investors to perfectly internalize their welfare…. [The] details of the argument have not yet been worked out.” [p. 4]
I explained that this was a particularly pernicious example of “group think” that furthered the dominant ideology of orthodox economists (laissez faire) and served their self-interest in getting hired, published, honored, and advanced. I explained that it was anti-scientific and failed Tirole’s test of what it took to be a scientist. I noted that Tirole’s admissions also demonstrate the dishonest nature of his and his disciples’ attacks on heterodox economists and promised to discuss that point in this subsequent article.
By William K. Black
February 11, 2017 Bloomington, MN (Part 2 in my Tirole series)
In his letter to the French education minister denouncing French heterodox economists as a “motley crew” of academic failures, Jean Tirole, the 2014 Nobel Laureate in Economics, stated his test for the standard for an economist to be a scientist.
Secondly, like the other great scientific disciplines, modern economic science relies on the continuous questioning of its hypotheses, testing its models against the facts, and abandoning theories that fail the test of reality.
Tirole and his Toulouse school of orthodox economists fail the Tirole test. Their models, policies, and theories, typically “fail the test of reality” – yet they do not abandon the falsified theories. Further, they ignore reality-based scholarly work. Worse, as Tirole admits, the Toulouse school’s failures are typical of orthodox economists. Tirole shows that the foundational errors fall into three categories, and the nature of those errors supports three other underlying errors. Tirole’s admissions also demonstrate the dishonest nature of his and his disciples’ attacks on heterodox economists, as I will explain later in this series of articles.
William K. Black
Dublin, Ireland April 4, 2017
I presented a talk today at the Trinity Economic Forum in Dublin. The Forum is a wonderful annual event run by the students that brings together thoughtful and forceful economic speakers from diverse viewpoints. Steve Keen also gave a talk at the Forum and I thank him for bringing the subject of this column to my attention. France is the home of some of the most theoclassical economists in the world.
Orthodox French economists, a bastion of laissez faire, are enraged that theoclassical economics is in increasing disrepute and heterodox economists are leading powerful challenges to the doyen of French economic orthodoxy, Jean Tirole. Tirole received the Nobel Prize in economics in 2014 for his work on “regulating” oligopolies. Tirole denounced all heterodox economists as a “motley crew” and claimed that they had failed to meet “internationally recognized norms of evaluation” for science. Triole stated that it would be a “catastrophe” if heterodox economists taught French students.
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