Sunday, July 12, 2015

The Nobel Memorial Prize for Socialism Disguised as “Economic Science”

By Thomas DiLorenzo

Joseph Stiglitz won the Nobel Prize in economics some years ago for some articles he published on the topic of “moral hazard,” one of myriad imaginary causes of market “failure.” For example, he argues that corporate managers face no negative consequences for bad management since the result is that share prices fall, and shareholders bear all of the costs.  Hence, corporate managers reap all the rewards of running a corporation but bear none of the costs, he claims.

This is unequivocally false.  Top corporate managers are always significant shareholders themselves, and declining share prices is often a very quick way to get yourself fired, or to attract a corporate takeover after which you will be fired.  It also looks kinda bad on your resume in terms of future employment opportunities in the corporate world.  Stiglitz is oblivious to all this even though there is a huge literature about it in the field of economics.

On the other hand, when it comes to government, why, Joseph Stiglitz just cannot get enough moral hazard.  In a recent Time magazine article he advocates a U.S. taxpayer-funded bailout of Greek politicians.  The moral hazard that will be here is is as follows:  1) International banksters lend Greek politicians billions; 2) Greek politicians, being hardcore socialists, go on a wild spending binge, growing government far beyond what even their borrowing capacity will allow; 3) This explosion of government kills off even more of what is left of the productive sector of the Greek economy, so that 4) Greece is incapable of paying off its debts to the international banksters.

A U.S. taxpayer bailout of “Greece” is in reality a bailout of the banksters, not of “Greece.”  If it happens, it will encourage Greek socialist politicians — and the politicians of other countries as well — to do more of the same — benefitting personally from playing Santa Claus with taxpayers’ money, while bearing NONE of the costs, politically, of their irresponsible behavior.   A U.S. bailout of the “Greek crisis” will therefore guarantee another, even worse, Greek crisis.  It will also encourage other international politicians to try to make even bigger chumps of American taxpayers, cheered on by economic frauds like Joseph Stiglitz.

The above originally appeared at

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