Bloomberg News Joins the “Inside Job” Team, Objects to Economics’ Inadequate Conflict of Interest Standards. It’s surprising and refreshing to see Bloomberg News, via an editorial, take on the way the economics profession has failed to clean up its act not simply in the wake of a massive intellectual failure but after the movie Inside Job highlighted some examples of corruption in the ranks of Famous Economists.
As the Bloomberg piece notes, the American Economics Association has responded to criticism about conflicts of interest, but the remedy is insufficient. The AEA will now require economists making public pronouncements or presenting papers to disclose any funding they received. That’s better than nothing, but short of what is necessary. First, an economist may have a past client that he would very much like to be a future client. Second, the conflicts don’t merely lie with those writing papers, but with those selecting papers for publication and presentation at conferences.
And Zingales points to a systemic bias in the discipline: Can I have that job? Economists’ ‘Inside Job’ Problem Begs More Than Disclosure: View. LIVE from the NYPL & The Aspen Institute Present: Capitalism and the Future. What will the American economic system look like in the months and years ahead? Who are the innovators currently shaping the future? And what will be the role of business in that future? President of the Aspen Institute, Walter Isaacson invites Niall Ferguson, MA, D.Phil., Laurence A.
Tisch Professor of History at Harvard University and William Ziegler Professor at Harvard Business School, Indra Nooyi, Chair and CEO of Pepsico, Eric Schmidt, Chairman of the Board and Chief Executive Officer, Google, and Nassim Taleb, scholar of randomness and risk, literary essayist, and derivatives trader, to consider the issues in the media and on the public mind. About Niall Ferguson Niall Ferguson is Laurence A. Tisch Professor of History at Harvard University, a Senior Research Fellow of Jesus College, Oxford University, and a Senior Fellow of the Hoover Institution, Stanford University.
Why is finance so complex? Lisa Pollack at FT Alphaville mulls a question: “Why are we so good at creating complexity in finance?” The answer she comes up with is the “Flynn Effect“, basically the idea that there is an uptrend in human intelligence. Finance, in this view, gets more complex over time because financiers get smart enough to make it so. That’s an interesting conjecture. But I don’t think it’s right at all. Finance has always been complex. More precisely it has always been opaque, and complexity is a means of rationalizing opacity in societies that pretend to transparency. Financial systems help us overcome a collective action problem. One purpose of a financial system is to ensure that we are, in general, in a high-investment dynamic rather than a low-investment stasis. We might describe this as a game with two Nash Equilibria (“ROW” means “rest of world”): If only everyone would invest, there’s a pretty good chance that we’d all be better off, on average our investments would succeed.
Update History: America’s Financial Leviathan - J. Bradford DeLong. Exit from comment view mode. Click to hide this space BERKELEY – In 1950, finance and insurance in the United States accounted for 2.8% of GDP, according to US Department of Commerce estimates. By 1960, that share had grown to 3.8% of GDP, and reached 6% of GDP in 1990. Today, it is 8.4% of GDP, and it is not shrinking. The Wall Street Journal’s Justin Lahart reports that the 2010 share was higher than the previous peak share in 2006. Lahart goes on to say that growth in the finance-and-insurance share of the economy has “not, by and large, been a bad thing....Deploying capital to the places where it can be best used helps the economy grow...” But if the US were getting good value from the extra 5.6% of GDP that it is now spending on finance and insurance – the extra $750 billion diverted annually from paying people who make directly useful goods and provide directly useful services – it would be obvious in the statistics.
Finally, better finance should mean better corporate governance.