Roger Myerson has recently updated an article on his purported mechanism for explaining why our supposedly efficient markets are producing growing crises.
A MODEL OF MORAL-HAZARD CREDIT CYCLES (March 2010, revised September 2012)
Myerson’s credit cycle model is not the focus of this piece. I write about one recommendation he makes about how to respond to a financial crisis driven by control frauds led by financial CEOs. This is the third piece I have written on Myerson’s paean to plutocracy. He asserted in his Nobel Prize Lecture in December 2007, as a global systemic crisis was breaking out driven by an epidemic of control fraud that the key advantage of capitalism over communism was that capitalism produced severe income inequality in the form of exceptionally wealthy CEOs. Myerson claimed in that lecture and a lecture in December 2012 that CEOs were naturally dishonest and abusive towards shareholders. The only reliable exception was if they had enormous personal ownership in “their” bank.
Myerson’s “mechanism” for causing abusive bankers to act as if they cared about the interests of shareholders was for the shareholders to bribe the CEOs and for the CEOs to own a controlling interest in the banks they managed. The failure of Myerson’s designs to have any effect in containing the epidemic of accounting control fraud did not dissuade Myerson from his faith in plutocracy, cause him to read any of the relevant criminology literature, or to consider the work of a fellow Nobel Laureate in Economics, George Akerlof on “looting” (with Paul Romer).
Instead, Myerson has doubled-down on his pandering to plutocrats. Here is his suggestion on how we should respond to the latest wave of looting by financial CEOs.
“In this sense, a tax on poor workers to subsidize rich bankers may actually benefit the workers, as the increase of investment and employment can raise their wages by more than the cost of the tax [p. 25].”
The reader may wonder whether Myerson is making an effort at irony. No. Our family rule that it is impossible to compete with unintentional self-parody is once again vindicated.