Friday, August 17, 2012

The return of rational economic thought?

I am not so certain that the problem with economists is corruption,  Even so, it is not at all surprising that Chinese economists sound a lot like the ones working for the Federal Reserve in USA.  In fact, Institutional Analyses practically demands that this is true.

NYT Says That China's Economists Are As Corrupt As U.S. Economists

22 July 2012

Given the failure of the economics profession to see the economic crisis coming or to devise an effective path forward, many people have come to question its competence and/or integrity. Somehow its assessments often seem to favor the rich.

For example, economists can be counted on to get really hot under the collar over a 20-30 percent tariff barrier that is designed to temporarily protect manufacturing workers, but don't even notice that patent protection for prescription drugs raises their price by tens of thousands percent. Economists can't even seem to remember that in a system of floating exchange rates, like the one we have, a decline in the value of the dollar is supposed to be the remedy for a trade deficit.

The NYT tells us that China's economists are equally incompetent and/or corrupt. It tells us that they are worried that the Chinese are not having enough kids:

"Pressure to alter the policy [the one child policy] is building on other fronts as well, as economists say that China’s aging population and dwindling pool of young, cheap labor will be a significant factor in slowing the nation’s economic growth rate."

Yes, that sounds like a real problem: "a dwindling pool of cheap labor." Any economist who complains about this is working for the people who want to employ cheap labor, he/she does not give a damn about the economy.

Insofar as growth is a measure of anything, it is per capita growth that matters. Why would anyone be happier if the economy grew 20 percent, but population grew 50 percent? This is unambiguously bad for the country as a whole, even if there are some people who might benefit from being able to hire cheaper labor.

Economists who are not employed by rich people understand that "cheap labor" means that lots of people are working for little money. This should not be a goal of any honest economist. more
And in even a less surprising set of conclusions, we see Mokhiber inform us that the "left" critique of Finance Capitalism is now coming from inside the world of business itself.  Again, IA tells us that this should be so.  The political "left" got distracted from their economic critique back in the 1960s sometime, so if there was going to be lefty critique of current practices, it would have to come from within.  After all, the guys who run businesses tend to be practical, moderate people—they have to see the damage caused by 35 years of relentless right-wing ideas more clearly than most.  So this is not a radical critique so much as a tug back towards the center.
JULY 30, 2012
On Corporate Crime and Glass-Steagall

Business Groups Take Left Flank


On corporate crime, business executives, corporate think tanks, business magazines and newspapers are starting to take the left flank of both the Republican and Republican parties.

No leaders of the Republican or Democratic Party are calling for tougher sanctions against corporate criminals. In fact, you will rarely find a politician on the national stage from either party using the term “corporate crime.”

No leaders of the Republican or Democratic Party are calling for the return of Glass Steagall, the depression era law that separated the investment from the commercial units of banks.

But business executives, free market think tanks and business magazines are starting to say yes – crack down on corporate crime, bring back Glass Steagall.

Last week, the Economist magazine ran a long article and editorial calling for tougher sanctions against corporate crime.

“At the moment, it seems, some corporate crimes pay handsomely,” the Economist declared in an editorial last week asking Is Crime Rational?

“Banks, drug companies and weapons makers have all been stung with record fines recently,” the Economist wrote. “But while fines keep going up, corporate rule breaking – for example, the LIBOR banksters – seems to be booming. Why aren’t high fines deterring bad behavior?”

“One reason could be that the fines, which can be seen as the price of crime, are too low. The economics of crime would support this idea. Many crime economists use a framework set out by Gary Becker of the University of Chicago. The idea is that would-be criminals rationally weigh up the expected costs and benefits of breaking the rules. If the probability of being caught or the level of fine is too low, then the expected costs might be outweighed by the benefits.”

Similarly, earlier this month, USA Today editorialized for more criminal prosecution of corporate executives.

In an editorial titled Fight Corporate Crime with More than Fines, USA Today concluded with this – “The way to change criminal behavior is with criminal penalties. In the finance and drug industry scandals, they’ve been too scarce.”

Eamonn Butler, director of the Adam Smith Institute, a free market think tank in London, took to the pages of the Wall Street Journal last week with a startling lead sentence – “More readers of this paper ought to be in jail.”

In an opinion article titled Charge the Criminals, Not the Companies, Butler quotes former New York Attorney General Eliot Spitzer as saying – “The only thing that will work is CEOs and officials being forced to resign and individual culpability being enforced.” more

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