Blacklisted Economics Professor Found Dead: NC Publishes His Last Letter
by Guest Post - Naked Capitalism
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Is it really plausible that economists threaten top banks that in the absence of some kind of payoff, they will change the theories they teach in a direction that is less favorable to the banks? There are certainly cases in history of the following sequence:
a. Economist E espouses views that are less favorable to certain special interest groups S. Doing so threatens the ability of S to extract rent from the public.
b. Later, E changes his view, thereby withdrawing the prior threat.
c. Still later, E is paid large amounts of money by representatives of S in exchange for services that do not appear particularly onerous.
For example, let E = Larry Summers and let S = the financial services industry. In 1989 E was (a) a supporter of the Tobin tax, which threatened to reduce the rent extracted by S. This threat was apparently later withdrawn (b), and in 2008 E was paid $5.2 million (c) in exchange for working at the hedge fund D. E. Shaw (an element of S) for one day a week.
. . . .If the theories of economists are harmful to the general welfare, why doesn’t someone try to persuade the public that these theories are mistaken? Collective action in this sense is infeasible. If we instead consider the efforts of a single individual, the cost in terms of time and effort of discrediting an economic theory is substantial, while the benefits are dispersed over many people and so are comparatively small. In any case, the efforts of one person are unlikely to be decisive in swinging the consensus of economists away from a given erroneous theory. It follows logically that the rational decision for an intellectual consumer is to be inactive on this front, and even to be ignorant of the flaws in economic theory.
It might be thought that when economic theories are marred by particularly glaring problems, the public would notice. However, the consequence may simply be to select for economic theories that are particularly difficult for the public to evaluate, without implying any increase in the aggregate accuracy of such theories.
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Read the rest of the letter (and comments) here