Saturday, January 24, 2009

Hart and Zingales, Stupid or Dishonest?

On 3 December 2008, Oliver Hart and Luigi Zingales wrote on the funny pages of the Wall Street Journal:
"This year will be remembered not just for one of the worst financial crises in American history, but also as the moment when economists abandoned their principles. There used to be a consensus that selective intervention in the economy was bad."
What kind of principle of economics is this that tells us what policy should be?

It is obviously untrue that any such consensus existed. Corporations for which their owners have limited liability could not be founded without a selective government intervention in the economy. Any legal protection for Intellectual Property, such as any non-zero period for copyrights and patents, is a selective government intervention. The existence of the Federal Reserve is a selective government intervention. Furthermore, economists have had no consensus for decades on claims that monetary policy is ineffective or that the monetary authorities should conform to the Cassels/Friedman rule of growing the money supply at a constant rate. Bankruptcy law, including its recent tweaking against the interests of debtors, is a selective government intervention. Hart and Zingales demonstrate, with the balderdash in their first paragraph, that they have not given a serious moment's thought to the theory of the firm, industrial organization, or macroeconomics.

What has been demonstrated is, in general, orthodox economists are willing to serve as lackeys to the malefactors of great wealth. (I could pick many more examples.) What effect on elite opinion does this willingness of supposed academic experts to teach nonsense in the news organs of the affluent have, do you think?


Anonymous said...

You Bail Them Out, We Opt Out.

Dear [May Be Too Much to my Taste, OK!, It will rather be:] Expensive Chairman Ben S. Bernanke,

All of Our Economic Problems Find They Root in the Existence of Credit.

Out of the $5,000,000,000,000 bail out money for the banks, that is $1,000 for every inhabitant of this planet, what is it exactly that WE, The People, got?

If my bank doesn't pay back its credits, how come I still must pay mines?

If my bank gets 0% Loans, how come I don't?

At the same time, everyday, some of us are losing our home or even our jobs.

Credit discriminates against people of lower economic classes, as such it is unconstitutional, isn't it? It is an supra national stealth weapon of class struggle.

Credit is a predatory practice. When the predator finishes up the preys he starves to death. What did you expect?

Where are you exactly in that food chain?

Credit gets in the way of All the Principles of Equal Opportunity and Free Market.

Credit is a Stealth Weapon of Mass Destruction.

Credit is Mathematically Inept, Morally Unacceptable.

You Bail Them Out, We Opt Out

Opting Out Is Both Free and Strictly Anonymous.

My Solution: The Credit Free, Free Market Economy.

Is Both Dynamic on the Short Run & Stable on the Long Run, The Only Available Short Run Solution.

I Am, Hence, Leading an Exit Out of Credit:

Let me outline for you my proposed strategy:

My Prescription to Preserve Our Belongings.

Our Property Title: Our Free, Anonymous Right to Opt Out of Credit.

Our Credit Free Money: The Dinar-Shekel AKA The DaSh, Symbol: - .

Asset Transfer - Our Right Grant Operation - Our Wealth Multiplier.

A Specific Application of Employment, Interest and Money.
[A Tract Intended For my Fellows Economists].

If Risk Free Interest Rates Are at 0.00% Doesn't That Mean That Credit is Worthless Already?

Since credit based currencies are managed by setting short-term interest rates, on which you have lost all control, can we still say that they are managed?

We Need, Hence, Cancel All Interest Bearing Debt and Abolish Interest Bearing Credit.

In This Age of Turbulence The People Wants an Exit Out of Credit: An Adventure in a New World Economic Order.

The only other option would be to wait till most of the productive assets of the economy get physically destroyed either by war or by rust.

It will be either awfully deadly or dramatically long.

A price none of us can afford to pay.

“The current crisis can be overcome only by developing a sense of common purpose. The alternative to a new international order is chaos.”

- Henry A. Kissinger

What Else?

You Bail Them Out, Let's Opt Out!

Check Out How Many of Us Are Already on Their Way to Opt Out of Credit.

Let me provide you with a link to my press release for my open letter to you:

Chairman Ben S. Bernanke, Quantitative [Ooops! I Meant Credit] Easing Can't Work!

I am, Mr Chairman, Yours Sincerely [Like do I have really the choice?],

Shalom P. Hamou AKA 'MC-Shalom'
Chief Economist - Master Conductor
1 7 7 6 - Annuit Cœptis
Tel: +972 54 441-7640

Anonymous said...

What the two Serious Economists mean by "selective intervention" means "industrial policy".

But the USA republicans and the UK Tories (and their rivals) have indeed supported a very clear industrial policy: to support some sectors and companies withing those sectors as "national champions", favouring the rise of giant multinationals by removing anti=monopoly policies.

The sectors supported by the USA and UK industrial policies (even if undeclared) have been those sponsored and sponsoring the wealthy: for the USA it has been Microsoft, Boeing, Exxon, hollywood, pharma, agribusiness, financial services, all of which have been supported and protected by the USA government.

The USA (and UK) governments have also made industrial policy in disfavoring some sectors and companies, broadly speaking manufacturing and other unionized ones.

Keeping a strong dollar (for a a while), imposing international accords favoring the national champions of the USA, a low interest rate policy all have constituted the tools of this industrial policy, with disproportionate impact on different people.

Hart and Zingales know this very well, as we do. I don't think that they are stupid.

YouNotSneaky! said...

You're equivocating. It's an opening paragraph, a lead in. They get more specific later on:
"The first is that it should intervene only when there is a clearly identified market failure. The second is that government intervention should be carried out at minimum cost to taxpayers."

All them examples you list are instances where the first principle and sometimes the second applies.