Economists, finance professors, options and derivatives experts and business school professors have dropped the ball completely when it comes to the financial crisis. Not only did less than a handful see it coming, the silence coming from the rest today is deafening as they avoid speaking out on the economy's ills, real bank reform, controlling derivative and systemic risk, the damage that corporate lobbying is doing to our country or the risks to the middle class in the U.S. and Europe of free and unfettered trade with very low wage countries such as China.
Of course there are one or two who have carried the load such as Simon Johnson of MIT and Anat Admati of Stanford who have tried their hardest to push congress and regulators to enact meaningful bank reforms, but most professors are laying low so as not to offend the very banks and corporations who pay them for speeches, wine and dine them, employ them in joint ventures, hire them as expert witnesses and fund their universities.
I have been writing about this failure of academia to address its responsibilities to society since 2004. I realized that the balance of political power had dramatically shifted in the U.S. to corporations, who not only dominated the private marketplace with their size and monopolies, but nearly completely controlled political discourse in the country through their campaign contributions to congress, the president and judges and their professional lobbyists who appeared to me to be nothing more than bag men for the corporations and banks. Now, they are spending exorbitant amounts on campaign advertising that the Supreme Court has chosen to leave unregulated.
Our founding fathers understood that absolute power corrupts absolutely so built our government based on a separation of powers. Actually, we had a further balance by ceding most market and purely economic power to corporations, but maintaining most political power in the government. But, if our government or private enterprises failed us, we always had our media and our university professors to call them on the carpet and alert the public to abuses.
Our traditional media is now mostly corporate owned; media companies themselves are some of the biggest lobbyists in Washington and they depend on corporate advertising for much of their revenue. Even PBS has quietly started funding a larger and larger percentage of their budget through corporate sponsorship. Under these arrangements, it is hard to imagine our traditional media leading a charge to expose corporate malfeasance.
That leaves our universities and our professors as our last line of defense. Anat Admati describes this in a short blurb she wrote for the back of my new book:
"...Talbott identifies the key problem our society and economic system face - corporations, especially banks, have way too much political power,..., as governments, regulators, and even academics betray their responsibilities to the public" - Anat Admati, Stanford University
Now, a new and important voice enters the debate. Luigi Zingales, a finance professor at the University of Chicago, the geocentric hub of conservative free market thinking, has written an outstanding new book entitled A Capitalism for the People: Recapturing the Lost Genius of American Prosperity. I give the book my ultimate compliment; it is so full of new and innovative ideas that it makes you pause and think on every page. Its main emphasis is a warning that American capitalism has lost its way and that the U.S. economy risks deteriorating into a crony-capitalist system that is pro-business rather than pro-market and run by corrupt politicians funded by campaign contributions from big business and their lobbyists.
Zingales also draws attention to the issue of why more academics haven't spoken up about the causes of the financial crisis or pushed for more meaningful reforms.
Where was I? I could try to defend myself by saying that my research, at least until then, was not in housing or in banking. Still, I feel responsible. We economists have witnessed the failure of our profession, a failure that needs to be analyzed and fixed.
His comments carry far greater weight than mine because he is a true insider. He is a big time economist who is also the Vice President of the American Finance Association. He is a finance professor at University of Chicago's business school who clearly understands the need for bank regulation and that derivatives need to be monitored and made more transparent. When he speaks about failures in academia, people, especially other professors, should listen. Here is more from his book:
If regulators can be captured, why couldn't economists (and especially economists like me), who work in business schools and had business ties sometimes be captured as well-that is, defend the interests of business over those of free and competitive markets?
Or this on academics in general:
Groupthink happens when group members desire to minimize conflict within the group, and it is exacerbated when the group feels superior to the outside world, since any member who challenges the consensus runs the risk of being excluded from the group and thus losing the status that it confers.
Finally, he nails the coffin shut with this incredibly perceptive observation which not only applies to academia, but to the entire spectrum of professions that have stratified into the elites and the rest of us as our country has become increasing less egalitarian.
As the division of labor increases specialization, the interests of the specialized, technically competent elite diverge from those of the rest of the people.
Students need to tell their professors to speak out. And it isn't just professors of economics and finance that need to come out of the closet. Law professors have a very important role to play as the true causes of the financial collapse can be traced back to fundamental ways our country's government is organized and how our government representatives are motivated. Finally, all professors, even professors in the humanities should speak out because the self-serving dealing of these misguided finance professors and academic economists is giving your universities' reputations a black eye that will take decades to heal and repair.
John R. Talbott is a best selling author and economic consultant to families whose books predicted the housing crash and the economic crisis. You can read more about his books, the accuracy of his predictions and his financial consulting activities at www.stopthelying.com