Arnold Kling  

Russ Roberts on Capitol Hill

Book Update... Chabon's Unkindest Cut...

At a hearing on the "pay czar," he doesn't mince words.

We don't need a Special Master to level the playing field. We just need to take the crony out of crony capitalism so we can get back to the real thing.

You'll see that his prepared remarks are mostly rhetorical. You can complain that he does not spell out in detail how to do things differently. But this is not a hearing on financial regulation in general. It is a hearing on the pay czar. And I think Russ is doing the right thing.

An experienced team of pickpockets can have some of its members use a little street theater to distract passersby, whose wallets are then stolen by the other members of the team. The pay czar serves a similar purpose. Instead of looking at whether government-subsidized mortgage credit is a good idea, or whether the Fed is focusing on banks profitability with the overall economy as an afterthought, the pay czar gets the news media to focus on pay and bonuses.

Street theater.

UPDATE: More on the hearing, from Russ.

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COMMENTS (2 to date)
Steve writes:

I'm not so sure I can even be that angry with Wall Street. What would have happened to a firm that did not lever up on highly rated fixed income securities (MBS) during a period of Fed easing? Would investors not have second-guessed them and made them pay for it?

What has less risk than MBS? Certainly not equity. Probably not any other form of non-government debt, either. Whatever sector Wall Street wound up investing in during the long period of easing would seem likely to have inflated as a bubble (in hindsight).

If you managed an investment bank, how would you have positioned yourself in the early part of this decade?

Michael Rulle writes:

This is exactly my point in my commentary on your later post. How do we change people's minds? You assume (as I do) that Russ is correct. But if "econometric studies" do not change people's minds, what's the point? I am sure the Fed and Treasury do not think the street pick pocket metaphor is apt. Where is the evidence that can make one's opinion appear anything but political (meaning favoring certain groups in society)? Like a nut, I keep making this same point on economics blogs. How does one persuade people--voters--that ones economic views are accurate. If this is not even possible in principle--or close to that--one wonders why one should even have an opinion on such matters. I am stating it extremely, but not that extremely.

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