Sunday, December 22, 2013

My regulators will be better than yours

Joseph Stiglitz writes "In No One We Trust ... Inequality is eroding our institutions and our way of life." in today's NY Times. What to do?
I suspect there is only one way to really get trust back. We need to pass strong regulations, embodying norms of good behavior, and appoint bold regulators to enforce them. We did just that after the roaring ’20s crashed; our efforts since 2007 have been sputtering and incomplete. Firms also need to do better than skirt the edges of regulations. We need higher norms for what constitutes acceptable behavior, like those embodied in the United Nation's Guiding Principles on Business and Human Rights. But we also need regulations to enforce these norms — a new version of trust but verify. No rules will be strong enough to prevent every abuse, yet good, strong regulations can stop the worst of it.
I had to chuckle at the UN recommendation.  More than a few of the member states (and their delegates) are not the folks I would go to for advice on clean government. I also had to smile at the idea that the New Deal years were without cronyism. Those were the days?

We all like to be seen as on the side of the angels. But does that mean we do not consider how great wealth was accumulated?  Was all of it nefarious? Do we begrudge Silicon Valley billionaires who improved our lives in tangible and profound ways?  Did the Wall Streeters who Stiglitz attacks not get bailout help from Stiglitz's friends in high places?

It's easy. My regulators will be better than yours. Very smart people still talk this way. Politics without romance (public choice economics) got James Buchanan a Nobel in 1986 but since then most people have managed to ignore the whole thing.

Were Buchanan still around, he might even see this as ironic vindication. Romantic notions are the last ones to go.


Here is "Public Choice 101" from Arnold Kling.


Greg Mankiw lists six ways to get median income trends wrong.  All the errors bias results in the same direction?  Coincidence?