William K. Black — Roger Myerson Updated Paean to Plutocrats as Capitalism’s Greatest Treasure

Bill Black's posts are always must-reads at New Economics Perspectives for those into following the money, but some stand out. Today's post is one of those that goes to the core of the problem.

Bill attacks the rational that the "job creators" are chiefly responsible for creating wealth, so they should be untethered to do so. Bill points out that the argument rest on the false assumption that what is rational is ethical. This permits the rise of criminogenic environments that result in mayhem, which the elite responsible for the problem can largely avoid accountability, in that they control the system.

Once it is admitted that science is positive rather than normative and that economics is a science, then rational choice and action are considered always to be positive. Criminogenic environments are ruled out of economic theory, and so far only a very few people, and fewer academic economists, have been mentioning the primary role played by unethical and likely illegal behavior in the global financial crisis, at least in the United States. However, there is good reason to think that this was the case elsewhere as well, especially with TBTF/TBTJ financial institutions were involved.

So we hear that "no one predicted the crisis," and when it is objected that some did foresee and warn about it, the retort if "no model." Well, if crime and unethical behavior are rule out, how could a model acceptable to the mainstream get any traction there?

New Economic Perspectives
Roger Myerson Updated Paean to Plutocrats as Capitalism’s Greatest Treasure
William K. Black | Associate Professor of Economics and Law, UKMC

The game theoretic Laureates I criticize carefully avoid discussing the plutocrats’ political power...

Re-read Michael Perelman, The Power of Economics vs. The Economics of Power.

I recently attended an important conference in which virtually all of the participants were very market friendly. Their papers were all very thoughtful and made a great deal of sense. Besides being very intelligent, I was pleasantly surprised to learn that the presenters were unusually open to exchanges with people whose ideas differed from their own. 

One extraordinary paper gave an in-depth analysis of the development of Ronald Coase's influential suggestion for environmental regulation through negotiation. I found nothing in the paper with which to disagree: so long as all affected parties could negotiate a mutually satisfactory solution, Coase's procedure seemed thoroughly unobjectionable. Besides the obvious problem of identifying who should have standing to enter into such negotiations, one serious problem remained: the absence of any consideration of power. 

If I have a beef with a company that wants to locate a toxic waste dump that will affect my property values or even my health, it might be conceivable (though unlikely) that a mutually acceptable solution might exist. In reality, lacking power, I would be unlikely to get major corporations to sit down to negotiate with me, let alone receive satisfactorily compensation for their destructive activities. 

Even taking such businesses to court is virtually impossible. In the unlikely case that I would be able to get a hearing at court, any legal help that I might afford is almost certain to be outgunned by the corporation's powerful legal team. 
Most of the other papers at the conference were of a similar bent, showing how markets evolve naturally and work efficiently. Nowhere was there any consideration of power. The participants clearly understood the discipline of economics very well, but that was their problem. Part of the training of economists is the development of an instinct to avoid any consideration of power, other than presumptive abuses of government, which interfere with the functioning of markets. In conventional economics, power is reduced to a metaphor. We have the power of the market or the power of competition, but corporate power is nowhere to be found.