Archive for the ‘corruption’ Category

Ben Bernanke: The revolving door between Wall Street and U.S. government agencies continues to revolve.

April 19, 2015 5 comments

from David Ruccio

Apparently, the door between Wall Street and the U.S. government agencies in charge of regulating Wall Street continues to revolve. Former Federal Reserve chair Ben Bernanke is the latest to walk through the door.  Read more…

Piketty’s response to Mankiw et al.: “and some consume academics.”

January 17, 2015 7 comments

from David Ruccio

I didn’t attend the most recent American Economic Association/Allied Social Sciences Association meetings in Boston. But, according to Chuck Collins, several sessions focused on the sensation of French economist Thomas Piketty and his 2014 book on inequality, Capital in the Twenty-First Century.

As an outsider to academic economics, I was struck by just how compartmentalized and smug the field appears. At one point, [Gregory] Mankiw even put up a slide, “Is Wealth Inequality a Problem?” Any economist who ventures across the disciplinary ramparts will, of course, find a veritable genre of research on the dangerous impacts of extreme inequality.

We now have over two decades of powerful evidence that details how these inequalities are making us sick, undermining our democracy, slowing traditional measures of economic growth, and turning our political system into a plutocracy.

Mankiw, at another point in his presentation, had still more embarrassing comments to make. Piketty, he intoned, must “hate the rich.” Piketty’s financial success with his best-selling book, Mankiw added, just might lead to self-loathing.

These clearly well-rehearsed quips, aimed at knee-capping the humble French economist, fell flat. Mankiw’s presentation, entitled “R > G, so what?,” came across as little more than an apologia for concentrated wealth.

And Piketty’s response? Read more…

Eric Holder: The reason Robert Rubin isn’t behind bars

October 2, 2014 1 comment

from Dean Baker

The big news item in Washington last week was Attorney General Eric Holder decision to resign. Undoubtedly there are positives to Holder’s tenure as attorney general, but one really big minus is his decision not to prosecute any of the Wall Street crew whose actions helped to prop up the housing bubble. As a result of this failure, the main culprits walked away incredibly wealthy even as most of the country has yet to recover from the damage they caused.

Just to be clear, it is not against the law to be foolish and undoubtedly many of the Wall Streeters were foolish. They likely believed that house prices would just keep rising forever. But the fact that they were foolish doesn’t mean that they didn’t also break the law. It’s likely that most of the Enron felons believed in Enron’s business model. After all, they held millions of dollars of Enron stock. But they still did break the law to make the company appear profitable when it wasn’t.

In the case of the banks, there are specific actions that were committed that violated the law. Mortgage issuers like Countrywide and Ameriquest knowingly issued mortgages based on false information. They then sold these mortgages to investment banks like Citigroup and Goldman Sachs who packaged them into mortgage backed securities. These banks knew that many of the mortgages being put into the pools for these securities did not meet their standards, but passed them along anyhow. And, the bond-rating agencies rated these securities as investment grade, giving many the highest possible ratings, even though they knew their quality did not warrant such ratings.  Read more…

“But surely not every member of the profession has sold out?”

Here are some highlights from a strong post from Steve Denning on Forbes blog that condemns Joseph Stiglitz for shielding the “villains”.

Joseph Stiglitz, who this week offers his final entry in the New York Times’ series, The Great Divide, with the conclusion that inequality is not inevitable. The United States that was once a “shining city on a hill” has now become, he writes, “the advanced country with the greatest level of inequality.” In effect, it’s a choice that our society can make one way or the other. As a result of the actions of many individuals, our society has chosen inequality.

And Stiglitz names those responsible for this choice. They include CEOs, bankers, private equity titans, venture capitalists, politicians, deregulators, lobbyists, the Supreme Court, and those who run corporate welfare, the prison system, the high-price justice system and the unequal health system.


The missing villains: economists

Yet there is one category of actor curiously missing from Stiglitz’s list of villains: his fellow economists.

Read more…

Reinhart and Rogoff: One year later

May 6, 2014 6 comments

from Dean Baker

It has been a bit more than a year since the Excel Spreadsheet error that shook the world. For those who may have missed it, in April of 2013, Thomas Herndon, a University of Massachusetts graduate student in economics, found an error in the calculations of Harvard Professors Carmen Reinhart and Ken Rogoff on the relationship between government debt and economic growth.

Reinhart and Rogoff had done analysis showing that countries experienced sharply slower growth once their debt to GDP ratio exceeded 90 percent. With the United States and many European countries reaching debt to GDP ratios in this 90 percent range, Reinhart-Rogoff’s work was seen as a warning alarm. It was taken as providing evidence that they would have to reduce spending and/or raise taxes to get or stay below the 90 percent cutoff.

Political leaders and central bankers around the world were happy to trumpet the Reinhart-Rogoff findings. The story was that cutting deficits may slow growth in the short-term, and seriously hurt those directly affected by the cuts such as laid off government workers, but it was essential medicine for sustaining a healthy economy.

The spreadsheet error uncovered by Herndon, and analyzed in a paper co-authored with two University of Massachusetts professors, Michael Ash and Robert Pollin, showed that the Reinhart and Rogoff story was not true. Working off the spreadsheet that Reinhart and Rogoff had created, they showed there was no 90 percent cliff. Reinhart and Rogoff’s cliff depended both on the spreadsheet error and also a peculiar way of aggregating growth rates across countries. Read more…

Economics textbooks – how to get away with scientific fraud

November 29, 2013 10 comments

from Lars Syll


As is well-known, Keynes used to criticize the more traditional economics for making the fallacy of composition, which basically consists of the false belief that the whole is nothing but the sum of its parts. Keynes argued that in the society and in the economy this was not the case, and that a fortiori an adequate analysis of society and economy couldn’t proceed by just adding up the acts and decisions of individuals. The whole is more than a sum of parts. This fact shows up already when orthodox – neoclassical – economics tries to argue for the existence of The Law of Demand – when the price of a commodity falls, the demand for it will increase – on the aggregate. Although it may be said that one succeeds in establishing The Law for single individuals it soon turned out – in the Sonnenschein-Mantel-Debreu theorem firmly established already in 1976 – that it wasn’t possible to extend The Law of Demand to apply on the market level, unless one made ridiculously unrealistic assumptions such as individuals all having homothetic preferences – which actually implies that all individuals have identical preferences. Read more…

“A revolt against the orthodoxy has been smouldering for years and now seems to have gone critical.”

November 21, 2013 5 comments

from today’s Guardian and

Orthodox economists have failed their own market test

Students are demanding alternatives to a free-market dogma with a disastrous record. That’s something we all need

From any rational point of view, orthodox economics is in serious trouble. Its champions not only failed to foresee the greatest crash for 80 years, but insisted such crises were a thing of the past. More than that, some of its leading lights played a key role in designing the disastrous financial derivatives that helped trigger the meltdown in the first place.

Plenty were paid propagandists for the banks and hedge funds that tipped us off their speculative cliff. Acclaimed figures in a discipline that claims to be scientific hailed a “great moderation” of market volatility in the runup to an explosion of unprecedented volatility. Others, such as the Nobel prizewinner Robert Lucas, insisted that economics had solved the “central problem of depression prevention”.

Any other profession that had proved so spectacularly wrong and caused such devastation would surely be in disgrace. You might even imagine the free-market economists who dominate our universities and advise governments and banks would be rethinking their theories and considering alternatives.

After all, the large majority of economists who predicted the crisis rejected the dominant neoclassical thinking: from Dean Baker and Steve Keen to Ann Pettifor, Paul Krugman and David Harvey. Whether . . . .     continue reading here

As the door turns

November 21, 2013 8 comments

from David Ruccio


We can now add former Treasury Secretary Tim Geithner to the long list of those who have walked through the revolving door between Wall Street and the White House, which makes Noam Scheiber just a bit worried. Read more…