Home > ethics, financial crisis, The Economics Profession > Punishment and reward in economics

Punishment and reward in economics

from David Ruccio

The discipline of economics has an extraordinary system of punishments and rewards, which is regulated by a combination of external surveillance and internal monitoring.

Some mainstream economists (like Alan S. Blinder and David Card [ht: sg]) are severely punished for stepping just a bit out of line, like arguing that some jobs will be lost as a result of external trade or that minimum jobs do not cause unemployment.

Others (like Bernard Connolly) lose their jobs when they raise questions about the arrangements they helped to create.

But those same economists can find themselves rehabilitated and richly rewarded if their ideas can be “monetized.”

In 2005, when Greek, Portuguese and Irish bonds were trading at rates barely higher than Germany’s, Mr. Connolly’s work at AIG Financial Products persuaded a small group of hedge funds and independent investors to bet on a euro zone crackup.

They did so by buying the credit-default swaps of what he saw as the most vulnerable European countries.

When fears that those countries would default took off in 2008 and 2009, sending the values of those swaps skyward, they were able to sell — reaping large profits.

“It took a while, but we finally were able to monetize Bernard’s views on Europe,” said James Aitken, who worked with him at AIG Financial Products and describes his job at the time as translating Mr. Connolly’s arcane musings into actual investment strategies.

The problem, of course, is that mainstream economists, including those who have been punished, turn around and make sure none of the rest of us, who have never been part of the mainstream, are marginalized from the conversation.

  1. November 20, 2011 at 5:42 pm

    “The problem, of course, is that mainstream economists, including those who have been punished, turn around and make sure none of the rest of us, who have never been part of the mainstream, are marginalized from the conversation.”
    The solution is to start another conversation. The challenge is to get a large number of people to listen in and get engaged.

    • November 20, 2011 at 8:21 pm

      Right on, Helge. A new conversation around horizontal leaderless democratic civilization will be looking for qualitative growth, which includes more fun and universal health care. The current mode cannot function in a gently declining population of fully educated, information age world citizens. Do you know anyone analyzing what rural/urban population mix will tend to yield optimum land use efficiency and eliminate dietary dependence upon dispossessed semi-slaves ?

      • November 21, 2011 at 12:17 pm

        “Do you know anyone analyzing what rural/urban population mix will tend to yield optimum land use efficiency and eliminate dietary dependence upon dispossessed semi-slaves ?”

        Optimum land use – any use – is achieved by extracting all land rent for public benefit. Then only those who really want to use land will own it.

      • November 21, 2011 at 12:44 pm

        hi Carol, I was thinking more simply, in computable areas of eco ag that yields up to twice as much per acre as corporate agriculture.

  2. Dave Taylor
    November 21, 2011 at 4:21 pm

    Twice as much what, Garrett? Money or foodstuff?

    • November 21, 2011 at 9:37 pm

      Twice as much food, Dave. Indigenous agriculture in many places is so disrupted by war, colonialism and corporate land grabs it’s hard to see. A little education which includes women leap frogs mechanical and chemical corporate output per acre, reduces migration to urban areas and leads to more education, then smaller families and reduced environmental stress. Corporate factory farms are measured by efficiency per employee hour and huge grain fields are often the reference crop, though, as I understand, it takes 10 calories of oil to raise one calorie of food.

      For example, see, Olivier De Schutter | United Nations Special Rapporteur on the Right to Food http://www.srfood.org/

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