William Black: Theoclassical Law and Economics Makes the Law an Ass

By William K. Black, Associate Professor of Economics and Law at the University of Missouri-Kansas City and author of The Best Way to Rob a Bank is to Own One

One of the great advantages of blogs is spurring informative debate. The debates also tend to morph as commentators develop their arguments. I want to address the initial and the morphed debate that Yves’ column kicked off: The Continued Stealth Takeover of the Courts. Yves warned that corporate CEOs are making concerted efforts to direct political contributions in a manner designed to elect judges that will champion CEOs’ interests. Note that I stress that the person that controls the corporation, typically the CEO, is the key actor and that the CEO commonly maximizes what he believes will be his interests at the expense of the corporation and its shareholders, creditors, and employees. This harms the nation. Yves’ blog prompted responses that eventually morphed into a debate about the role of law and economics in judicial decision making and discussion of what students are being taught in law and economics.

I have taught five multidisciplinary courses at the University of Missouri – Kansas City that integrate law, economics, criminology, finance, regulation, political science, and accounting. One of those courses is law and economics. My spouse, June Carbone (a professor at UMKC Law), and her co-author Naomi Cahn discuss the role of elected v. appointed judges in their recent book Red Families v Blue Families. You can see why we are interested in these debate topics.

The Supreme Court’s Citizens United decision allows businesses to make unlimited political contributions to judges and politicians. When judges are elected, the need for these contributions inherently turns judges into politicians. Sympathetic judges are corrupt businesses’ most valuable allies. Corporations and their senior officials can commit civil or criminal wrongs with impunity if their case is assigned to a friendly judge. The Robber Barons often had judges on their payrolls. Judges can serve a corporation as both a shield and a sword. They can declare statutes and regulations unlawful. They can issue favorable decisions when corporations sue their critics, which can intimidate, tie up, or even bankrupt the critics.

The fact that corporations are “investing” so heavily in getting pro-business judges elected demonstrates that their CEOs believe that the election of friendly judges will increase their incomes and decrease the risk that they will ever be sanctioned. It’s a business decision – not a decision based on which judicial candidate would be more qualified or better serve justice. CEOs want to win cases when doing so would be unjust and contrary to the law, which is why they hire top attorneys and make the contributions necessary to elect judges they believe will be allies. The empirical evidence in Texas shows that judicial elections and contributions produces perverse dynamics. One study showed that hiring the former law firm of a Texas Supreme Court justice markedly increased the chances that the Texas Supreme Court would exercise its discretion and hear your appeal from an adverse decision. Hiring the former law firm of the Chief Justice of the Texas Supreme Court produced an even greater chance of having one’s appeal heard.

Yves noted that the Chamber of Commerce was leading the effort to elect CEO-friendly judges. The Chamber is one of the points of intersection in the discussions about electing judges and whether law and economics has played a perverse role in causing catastrophic policy, regulatory, and judicial blunders. The Chamber distributed a plan for a hostile takeover of university departments of economics and finance (and the courts and the media) proposed by Lewis Powell (the soon to be Supreme Court Justice). Extremely conservative “law and economics” proved to be central to this effort. The law and economics movement began as a non-ideological approach to explaining and aiding judicial decision-making. The scholars leading the movement had diverse views. The Olin Foundation transformed law and economics into an ultra ideological field dominated almost exclusively by passionate opponents of government “interference” in “free enterprise.” Olin specialized in creating well-funded positions in academia for scholars that had an “Austrian” approach to economics. Austrian economics has, generally, become more extreme since its formative years when Hayek warned that mixed economies (e.g., the U.S. and Europe) were inevitably consigned to the Road to Serfdom. Here is how the National Review praised the Olin’s takeover of the field:

Law and Economics: The John M. Olin Foundation has devoted more of its resources to studying how laws influence economic behavior than any other project. The law schools at Chicago, Harvard, Stanford, Virginia, and Yale all have law-and-economics programs named in honor of Olin. “You should not forget that without all the work in Law and Economics, a great part of which has been supported by the John M. Olin Foundation, it is doubtful whether the importance of my work would have been recognized,” said Ronald Coase, who won the 1991 Nobel Prize in economics.

In addition to these centers specializing in law and economics, Olin created scores of endowed chairs at a wide range of universities. Some of these are in economics departments and others are in law. Olin also indirectly funded the “boot camps” at which U.S. judges were taught Austrian economics as if it were undisputed science. The academic journals in law and economics are dominated by virulent opponents of regulation. The textbooks used to teach law and economics treat economic theory as having demonstrated conclusively the folly of most government actions purportedly designed to help the public. (I say “purportedly” because Austrians almost always claim that the government intervention was really designed to benefit a special interest rather than a substantial portion of the public.)

Here are two examples that illustrate how false, but so influential and harmful these Austrian nostrums have become through teaching falsified economics to thousands of lawyers. Austrian law and economics is based on suppositions that have long been known to be false. Dickens famously had Mr. Bumble (in Oliver Twist) respond to being informed that the law supposed him to be responsible for his wife’s behavior by remarking that if the law supposed such an absurdity then “the law is a ass.” The dominant law and economics text on corporate law for years was by Easterbrook and Fischel. Judge Easterbrook is a colleague of Judge Posner on the 7th Circuit and Fischel was for a time Dean of the University of Chicago’s law school. They assert that “a rule against fraud is not an essential or even necessarily an important ingredient of securities markets” (1991: 283). Their book was written after Professor Fischel, as a consultant to three of the most notorious control frauds of the 1980s, tried out their theories in the real world – and found that they failed catastrophically. Fischel praised the worst frauds. Fischel & Easterbrook did not disclose to their readers that their theories were falsified in the real world. Note how extreme their claim was, the utter certainty of the claim, and the lack of any data supporting the claim – a claim they knew to be false. The taught students that, in the context of securities, we did not need:

1. Any laws against securities fraud
2. The FBI and the Department of Justice
3. The SEC
4. Any rules against fraud
5. Any ability to bring civil suits

Fraud is impossible because securities markets are “efficient” and act as if they were guided by an “invisible hand.” Markets cannot be efficient if there is accounting control fraud, so we know (on the basis of circular reasoning) that securities fraud cannot exist. Indeed, when Easterbrook and Fischel try to explain why the securities markets automatically exclude frauds their faith-based logic becomes even more humorous. They claim that honest securities issuers send one or more of three “signals” of honesty to guide investors to purchase their securities – and that only honest firms can send any of these three signals.

1. Hire a top tier audit firm
2. Have their CEO own a substantial amount of stock in the company
3. Cause their firm to have extreme leverage

In reality, accounting control frauds “mimic” each of these signals and each signal aids their frauds. Easterbrook and Fischel’s ideas are not merely wholly ineffective against accounting control fraud – they are outright criminogenic. That is why Fischel praised the real world accounting frauds when he was a consultant. Each of the three massive accounting control frauds that Fischel praised sent each of these three signals – and they sent them years before Easterbrook and Fischel wrote their book and made claims they had seen repeatedly falsified by Fischel’s fraudulent clients without warning their readers.
Note the continuing damage that these three law and economics dogmas about “signaling” honesty had in the current crisis. Regulators continued to treat professionals as if they were “independent” and provided expert judgments on which regulators should rely. Basel II, for example, reduced capital requirements dramatically if the rating agencies gave a high rating to a toxic mortgage derivative. Economists, criminologists, and reality had long falsified the claim but theoclassical law and economics never challenges its foundational dogmas.

Easterbrook provided a classic example of faith-based law and economics’ misplaced faith in private professionals in a decision that prompted Robert Prentice’s wonderful article: The Case of the Irrational Accountant: A Behavioral Insight into Securities Fraud Litigation (2000). The plaintiff alleged that he was the victim of a securities fraud that the outside auditor had aided. Easterbrook’s opinion stated that the plaintiff should not be allowed to engage in discovery designed to support this claim because it would be “irrational” for an audit firm to aid a securities fraud. Easterbrook’s logic is so irrational on so many different levels that it proved a treasure trove for Professor Prentice. In the interest of space, consider only four aspects of why Easterbrook’s logic fails. First, Easterbrook is the one who co-authored the textbook claiming that serious securities fraud cannot occur. That makes him someone that cannot admit that fraud exists. He certainly doesn’t want plaintiffs finding facts demonstrating fraud. Second, the same textbook claimed that only honest corporations could hire a prestigious audit firm. He premised this (long falsified) dogma on the claim that it would be irrational for an audit firm to give a clean opinion to a control fraud. If the plaintiff had been allowed discovery and demonstrated the falsity of this dogma it would falsify Easterbrook’s entire thesis. Third, theoclassical economics rests on even more fundamental dogmas – economic actors are supposed to act rationally and almost entirely to maximize their self-interest. Empirically, even economists have long known what non-economists have always known – these dogmas are often false. Why should a plaintiff not be permitted to discover evidence that accountants act irrationally? Fourth, Easterbrook assumes away reality even if we assume rational behavior. The “auditor” acts through humans called audit partners. Audit partners gain income, power, and status within the firm primarily by bringing in large clients. Accounting control frauds understand this and select audit partners that will give them clean opinions. They also put prospective audit partners in competition with each other to intensify the “Gresham’s” dynamic that turns market forces perverse and causes bad ethics to drive good ethics out of the profession. Top economists had explained why this dynamic explained why S&L accounting control frauds had consistently hired top tier audit firms and been able to get clean opinions from them despite the fact that their financial statements were fraudulent.

As James Pierce, Executive Director of the National Commission on Financial Institution Reform, Recovery and Enforcement (NCFIRRE) explained:

Accounting abuses also provided the ultimate perverse incentive: it paid to seek out bad loans because only those who had no intention of repaying would be willing to offer the high loan fees and interest required for the best looting. It was rational for operators to drive their institutions ever deeper into insolvency as they looted them.

The National Commission on Financial Institution Reform Recovery and Enforcement (NCFIRRE) (1993), reported on the causes of the S&L debacle. It documented the distinctive pattern of business practices that lenders typically employ to optimize accounting control fraud.

The typical large failure was a stockholder-owned, state-chartered institution in Texas or California where regulation and supervision were most lax…. [It] had grown at an extremely rapid rate, achieving high concentrations of assets in risky ventures…. [E]very accounting trick available was used to make the institution look profitable, safe, and solvent. Evidence of fraud was invariably present as was the ability of the operators to “milk” the organization through high dividends and salaries, bonuses, perks and other means.

The top tier audit firms knew that the “typical large failure” “invariably” involved fraud by senior S&L executives, who used “every accounting trick available” in order to create fictional income in order to aid the executives’ looting of the S&L. These lenders followed a distinctive pattern – deliberately making bad loans – that was rational only for accounting control frauds. The unique pattern that optimized fraudulent accounting income was simple for an auditor to spot. The S&L accounting control frauds always hired top tier audit firms and virtually always succeeded in getting clean opinions for fraudulent financial statements. That was supposed to be impossible under Easterbrook and Fischel’s theories. NCFIRRE explained the “agency” problem that Easterbrook and Fischel missed.

[A]busive operators of S&L[s] sought out compliant and cooperative accountants. The result was a sort of “Gresham’s Law” in which the bad professionals forced out the good.

Theoclassical law and economics scholars continued to chant the second signaling dogma – though falsified throughout the S&L debacle and Enron era accounting control frauds – throughout the nonprime mortgage era. They asserted endlessly that modern executive compensation “aligns” the interests of the CEO with the shareholders’ interests. The reality was that it frequently magnified the long-standing misalignment of those interests. That is the key point of Akerlof & Romer’s classic article – the CEO profits by using accounting fraud to loot the bank that he controls. He arranges his executive compensation to be extremely large and based primarily on short-term reported accounting profits. Akerlof and Romer explain why accounting fraud is a “sure thing”— mathematically guaranteed to report extreme (albeit fictional) profit in the short-term. The combination of accounting control fraud (“blessed” by a top tier audit firm’s clean opinion) and deliberately misaligned (anti) “performance pay” is that the CEO is guaranteed to become wealthy – immediately. Moreover, by using seemingly normal executive compensation bonuses to become wealthy he coverts large amounts of firm assets to his personal benefit while minimizing the risk of prosecution. The result of a strategy that employs deliberate adverse selection in lending is typically a bankruptcy that wipes out the shareholders. No greater misalignment of the interests of the CEO and shareholders is possible than that caused by modern CEO compensation. Modern executive and professional compensation are often criminogenic, yet theoclassical economists strive even now to preserve the ability of CEOs to loot through perverse executive compensation.

The third “signaling” dogma, however, is never discussed today by theoclassical law and economics scholars. The Austrians generally ignore the endemic accounting control fraud (their heroes have always been business cowboys) in their explanation of why we suffer recurrent, intensifying financial crises. The Austrians love to blame the Federal Reserve and “easy money” for producing low interest rates. The Austrians claim this led to excessive leverage, and blame the global crisis on extreme leverage. It is inconvenient to this new meme to recall that the extreme law and economics scholars used to light candles to leverage and chant its praises as a unique signal of honesty. Accounting control frauds do optimize fictional accounting income by engaging in extreme leverage. The leverage is a tactic of the accounting control frauds that drive modern crises, not the cause of the crisis. Because accounting control fraud produces exceptional reported income it is easy for the frauds to borrow enormous amounts (lenders virtually break down the frauds’ doors in their eagerness to lend). The more money an accounting control fraud borrows, the greater the sums the CEO can loot.

Michael Milken was the original high priest of the extreme leverage dogma and the claim that it signaled honesty (Fischel was his acolyte). Milken was, of course, an expert at signaling honesty while practicing control fraud. His time in prison only increased his hate for U.S. government “interference” in “free markets.” The Milken Institute, therefore, now commissions articles about the ongoing crisis that emphasize (in huge fonts):

From Main Street to Wall Street, one common thread runs through all facets of this story: excessive leverage.

http://www.milkeninstitute.org/pdf/Riseandfallexcerpt.pdf (p. 9)

That’s right – the fraud whose entire junk bond business model at Drexel Burnham Lambert rested on the dogma that corporations had too much capital and needed to massively increase their leverage (e.g., through LBOs) is now running an institute whose scholars claim that (far lesser) leverage that modern U.S. banks employ is the primary cause of global catastrophe. Of course, there’s no mea culpa by Milken admitting that his earlier dogma was false.

The fact that, empirically, accounting control fraud is a severe problem is no barrier to theoclassical law and economics ignoring control fraud. I invite readers who have taken law and economics and corporate law classes to inform me whether their textbooks discussed Akerlof and Romer’s article: Looting: The Economic Underworld of Bankruptcy for Profit. Akerlof was awarded the economics version of the Nobel Prize in 2001 and Romer is also a brilliant economist. Neither Easterbrook nor Fischel is an economist. Akerlof and Romer’s article explains how the managers that control a firm use accounting fraud to create a “sure thing” of fictional profits. The managers get rich, the firm dies. Akerlof & Romer provide theory, data, and real world examples. The lawyers that seek jobs at the financial regulatory agencies are the lawyers most likely to have taken law and economics and corporate law courses in which Easterbrook & Fischel’s claims were treated as objective science. In my experience, it is vanishingly rare for them to even be aware of Akerlof & Romer’s work or the work of white-collar criminologists documenting and explaining accounting control fraud.

When regulators believe that control fraud is impossible – they make control fraud certain by eviscerating regulation and supervision. The most infamous recent example of this is Alan Greenspan (like Fischel, a former consultant to the most infamous S&L control fraud – Charles Keating’s Lincoln Savings). Greenspan refused to believe that fraud could occur in financial markets. He refused to take any effective regulatory steps against what the FBI had warned him (in 2004) was an “epidemic” of mortgage fraud even though they correctly predicted that it would cause a “crisis.” The Fed had unique regulatory authority under HOEPA to regulate all mortgage lenders.

Law and economics has, for over two decades, been dominated by theorclassical economic dogmas that have proved false. These dogmas are premised on an ideological hate for regulation – even by democratic governments. The Olin Foundation did not buy the souls of the economists and lawyers to whom it provided fellowships and endowed chairs. It simply selected true believers for its largess. It knew how desperately eager universities were to raise funds. There are now tens of thousands of law and economics graduates that have taken a class in theoclassical law and economics. They were taught that theoclassical economic assertions (often falsified decades ago) were objective facts devoid of ideological content. They have been taught that economics has proven that regulation is unnecessary, hopeless, and harmful. Some students accept this dogma as revealed truth, but many reject it. (If your goal as a professor is to indoctrinate students you should prepare for a life of disappointment.) Few economics, business school, or law students have been introduced to effective regulation or economic/finance theories that have proven to have predictive strength. It is the non-ideologues we need to reach and inform them about the reality-based alternative to the faith-based version of economics they were taught.

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  1. attempter

    This, like every other piece of evidence, proves that “regulation” of rackets, including expecting the courts to restrain them, cannot work. We have to eradicate the rackets completely.

    What to do about the courts? As I said in that previous thread (from the post mentioned above), we’ll need to accept that many of the courts themselves have become lawless and be prepared for defiance of them. If they’re able to enforce anti-law, anti-public, gangster dictates, any hope of redeeming America will become that much more distant. As for the people having access to the courts, we see how that too is under assault, and there’s no easy way to fix that within the law.

    Regarding appointing judges instead of electing them, Hamilton himself declared pre-emptively that the revolving door (which he vaguely foresaw) would illegitimate judicial authority. So if we were to try to redeem our judiciary, we’d need to put an end to this conflict of interest. In principle there are rules against a sitting judge also working for a private firm. (Or maybe by now even rules like that are being eroded.) Conceptually what’s so hard about extending such prohibitions?

    We don’t let a doctor and a lawyer switch back and forth at will between those professions. Why shouldn’t we similarly maintain professional separation between a private practice lawyer and a public interest jurist?

    As this post demonstrates, those are in fact radically different disciplines requiring radically different training and skills and involving a radically different culture.

    1. Ina Deaver

      I think that you misunderstand a little: you would have to extract those interested in public law at the law school phase, and send them exclusively to schools that trained them for public law only. Otherwise, you end up with people who are friends with people on the other side: human nature dictates that you have warm feelings about people with whom you have something in common. That something can be common home town, background, school, overbite — anything at all.

      When a firm of which you have fond memories – the place that gave you your start on the road to success and chose you for partner – comes before you, the only thing to do is recuse. Ethics law requires that Federal judges recuse from any firm in which they have an active association – such as a relative at the firm. But to my mind, active associations are so much less fond than past associations.

      There is no real difference between public law and private law, really. You want people trained in both moving back and forth, because you want judges to understand the true practical impact of their decisions, and you want them to know the kinds of things that happen in the real world. You want private lawyers, the best in their fields, to wind up judges. The fact that it does not work that way (although to our great benefit, it does sometimes) now says that something is wrong. I would argue that electing judges is always a bad idea. I’m from Texas, and I would know. But I don’t know what to do instead that would insulate judges from politics and the machines necessary to nominate people, groom people — it’s all got issues up and down.

      And instead of trying to make things more independent, all I hear is constant schemes to make judges “accountable.” Constant schemes to keep track of decisions that are lenient, that are populist, that are independent and mark the judges involved for removal.

      We need to think critically about what we expect from justice and how to get there.

      1. attempter

        Well, I agree that most schemes to hold judges accountable are pretty weak.

        My proposal may be a blunt instrument, but that’s probably the only kind of measure which can work by now.

    2. i on the ball patriot

      Bring back the draft … draft judges …

      The scam ‘rule of law’ has now become a selectively enforced charade tool of the global wealthy elite. It stands today as scamerican ‘justus’ for the global rich!

      This post is in many ways a Vanilla Greed lament — less corrupt profit driven Vanilla Greed Law has had its clocks cleaned by the far more corrupt control driven Pernicious Greed Law, and now Vanilla Greed Law wants the good old less corrupt days back. Its time to clean house of the closely intertwined both of them.

      The problem is that Vanilla Greed and Pernicious Greed both suck and we are where we are through the effects of aggregate generational corruption of all institutions of government. Just as economics has been hijacked by the global wealthy ruling elite’s Mr. Global Propaganda, so too has the scam rule of law been similarly hijacked through controlling public perceptions.

      Elimination of the draft was one such perception change made in the public psyche. The masses went for it because it was sold as a means to end war, when in reality it was a means to “privatize’ (read gangster hijacking of the commons) the military [Yes, the military is the ultimate commons!] and replace draftees with a pool of (intentionally made poor by debt trapping the economy) very needy citizens willing to rent/sell their ever shifting morality for a buck.

      It is the duty of all citizens to share equally in the defense of justice and the administering of justice. Anyone in the front lines of administering justice should be drafted from the community at large for a period of eighteen months. That should include cops and judges both civilian and military. A core record keeping body of government clerks, with no judicial power and minimal incentive to grow their organization, would maintain records.
      To those that say the ‘rule of law’ is to complex for the ordinary citizen to understand and pass fair judgment on, I say, work to increase citizen understanding and work to decrease the intentionally corrupt complexity in the law. A hybrid transitional period needs to be worked out,

      Of course all remedial measures require that we have a government that is responsive to the will of the people. We do not! Remedying that corruption is job one. I’ll spare you my usual election boycott rap.

      Deception is the strongest political force on the planet.

      1. attempter

        Yes, a real community would have such institutions, though it wouldn’t need all that much of a draft since most people would freely take on their responsibilities as citizens.

        As for the ending of all drafts, I’ve placed that in the same category as substituting government debt for taxation. In both cases the kleptocracy wants to get away with setting up the infrastructure for debt slavery and liquidating all public institutions and aspects of citizenship by placing almost no burdens on the atomized individual in the meantime.

        He’s to be lulled into sheephood through neglect and circuses and the phony simulacrum of “liberty”. Then, the slaughter.

      2. Doug Terpstra

        Great description of the end of the draft and the rise of the all-mercenary military, now including a high percentage of soldiers of fortune, profiteer goon squads.

        That reminds me, I got drafted for jury duty this afternoon. Anybody have an angle on how I can profit from that? Citizenship? That’s for suckers.

        1. attempter

          Criminal case:

          Nullification. If the defendant’s a non-elite and the victim’s an elite (or the “property” of an elite), then vote to acquit no matter what, unless the crime is really heinous.

          Victimless crimes like drugs, you know what to do.

          Civil case:

          If it’s at all a class war case, you know what to do.

          Just like with something like defaulting on mortgages, here too we need to mirror the way the elites handle the “legal” system. Reciprocation in all things should be our watchword.

      3. Patriot

        Compulsory service in a Swiss-style reserve would do a lot to reduce the influence of the right wing in the American military. Conscripts and people doing their 2 weeks a year could also fill in a lot of jobs currently done by the Dept of Homeland Security, which would be positive. This is because conscripts/volunteers have a greater incentive to blow the whistle on abuses of power; their careers aren’t on the line. And, letting people take their weapons home, the way the Swiss do, would defang all the private right wing militias that claim to be defending state’s rights. People who still wanted to do that would out themselves as insurrectionists and not patriots.

        Coupled with a wider jobs guarantee, a Swiss-style reserve would also be an excellent way to get the US economy going again.

  2. SidFinster

    “securities fraud cannot occur because it was not rational?”

    By such lights, Charlie Ponzi, who sold something which bore a resemblance to securities, call them “derivatives” if you will, was the Prophet of the Age.

  3. Voltron

    Prof Black, I love your work, but I think you are mixing up Austrian economics with Objectivism.

      1. run75441

        And Andy:

        Easterbrook is a problematic judge on the 7th district not prone to discussion or criticism having persecuted some attorneys such as Mann who have dared to challenge him. He is the lessor when compared to Posner.

  4. Ignim Brites

    Murray Rothbard identified the demand deposit account in our fractional banking system as the central fraud of our economic culture. It hardly seems appropriate then to categorize Austrian economics as being skeptical of the possibility and economic siginificance of fraud. And where does the “theo” come from in the characterization of the theories of law being critiqued. There are all kinds of ideologies that are “faith based” but are anti-theo or at least a-theisitic. Marxism is a prominent one. But positivism, characterized by Habermas, as the ontology of the “facts” (whatever those are ) is another. Prof Black seeks to bolster his argument with a sheen of “scientific” authority by referring to empirically “falsified” propositions. Suffice it to say that in political and historical analysis “falsification” is not going to play the same role as it allegedly does in natural science.

    1. DownSouth

      “…in political and historical analysis ‘falsification’ is not going to play the same role as it allegedly does in natural science.”

      Sadly, that is true. Despite the repeated, demonstrated failures of classical and neoclassical economic theory, both during the 19th and early 20th centuries and again during the last four decades, it still keeps coming back from the dead.

      Perhaps no one put it better than Reihold Nieburh, wrting in The Irony of American History:

      The contest between Marxism and the bourgeois world is a debate between two ideologies, each of which proceeds confidently to certain conclusions upon the basis of presuppositions which are only partly true. Marxism is so formidalbe a political creed precisely because it expresses the convictions of those who have discovered the errors in the liberal-bourgeois creed in bitter experiences.

      And yet, despite all its historical and political failures, people still cling to theoclassical economic theory as if it were the one true faith.

      1. Siggy

        I think you are correct to the extent that most students of economics tend to accept whatever is presented as being the last word. Few students are exposed to the concept that the writings of earlier and current economists represent a dialogue in progress wherein the viewpoints expressed are taken from differing positions and do not represent a comprehensive and unified body of theories that fully explain economic activity.

        To date I have not encountered a particular set of theories that fully explain economic activity. I tend to favor the Austrian point of view, but, most emphatically do not see it as being the complete and absolute point of view.

        In the main I see the theological aspect of the relationship between law and economics as being the result of ignorance. Clearly, certain economic tenets are contrary to experience and expectation. One of my special peeves is the canard of ceterus paribus in a thought experiment intended to demonstrate any given tenet. My observation and experience tell me that if you change one thing, there is a very high probability that most of the other elements in your consideration will change as well.

        Now then, this corruption of the judiciary begins with a democratic effort by way of election. Immediately the elected judge is corrupted in that he is beholden to his electors and not necessarily the law. Now appointed judges are beholden to their appointers. Clearly the issue is: first, how do force the judiciary to be beholden only to the law; and second, how do you ensure that the law is equitable and fair to all?

        Our current economic difficulties are the product of false theories and the failure of academia, the public and the financial community to address, most critically, the frauds that have been perpetrated.

        1. Anonymous Jones

          One of the best comments I’ve ever read at the site, Siggy. I agree whole-heartedly. The world is complex. The economy is complex. There is no unified theory. Justice is expensive. We should strive for justice, but we should know that it is forever out of our reach, and we should not let the perfect be the enemy of the good.

          I personally think the “theological” aspect is generally the result of an innate desire to control one’s life, and one cannot control one’s life when the world is complex and by its nature, chaotic and unpredictable. The stronger the person’s desire to control his surroundings, the more likely he will gravitate to some theology, whether it be one God or one set of principles about the way the world works.

    2. readerOfTeaLeaves

      Prof Black seeks to bolster his argument with a sheen of “scientific” authority by referring to empirically “falsified” propositions. Suffice it to say that in political and historical analysis “falsification” is not going to play the same role as it allegedly does in natural science.

      FACT: The Supreme Court’s Citizens United decision allows businesses to make unlimited political contributions to judges and politicians.
      FACT = TRUE

      Black’s Conclusion #1: When judges are elected, the need for these contributions inherently turns judges into politicians. Sympathetic judges are corrupt businesses’ most valuable allies.

      Black’s Conclusion #2: The fact that corporations are “investing” so heavily in getting pro-business judges elected demonstrates that their CEOs believe that the election of friendly judges will increase their incomes and decrease the risk that they will ever be sanctioned.

      FACTS: (1) Yves noted that the Chamber of Commerce was leading the effort to elect CEO-friendly judges. (2) The Chamber is one of the points of intersection in the discussions about electing judges and whether law and economics has played a perverse role in causing catastrophic policy, regulatory, and judicial blunders.(3) The Chamber distributed a plan for a hostile takeover of university departments of economics and finance (and the courts and the media) proposed by Lewis Powell (the soon to be Supreme Court Justice).
      As far as I am aware:
      FACT 1 = TRUE
      FACT 2 = TRUE
      FACT 3 = TRUE

      Black then provides causal relationships following from his facts in a sequence of observations that logically follow the facts he has presented, i.e.: the Olin Foundation’s endowments;
      the Olin funded ‘boot camps’ for US judges to be taught Austrian economics as if it were undisputed science;
      the domination of academic law and econ journals by opponents of regulation; dominant law school texts written by people (Easterbrook, Fishel) one of whom has asserted that “a rule against fraud is not an essential or even necessarily an important ingredient of securities markets” (1991: 283)..
      Note also that that one of the authors (e.g., Fishel) consulted to three of the ‘most notorious control frauds of the 1980s’, and also that his attempts to test his theory in the real world was a disaster.

      FACT: law students are being taught that we do not need laws against securities fraud (because the people who write the textbooks don’t believe that this type of fraud exists). They also don’t believe we need the FBI, the SEC, nor the DoJ. Nor any ability to bring suits.
      Again, this FACT = TRUE, given his previous explanations.

      Black then points out that if one assumes that markets are ‘efficient’, then fraud is supposed to be impossible.
      IN OTHER WORDS, Black points to a logical error.
      IF it is true that markets are efficient… but what if markets are not efficient. If they are not efficient, then we have a potential petri dish for rampant control fraud, originating in ‘inefficiencies’ that the legal scholars don’t appear to recognize.

      In other words… ‘crikey!!’

      Black’s arguments in this post do not need to be dressed up as ‘science’ in the sense of presenting lists of Figures, Tables of data, Methods section, Results section, nor any other feature of a ‘scientific’ research report. I don’t see Black claiming to be ‘scientific’ in that sense; your claims that he seeks to be ‘scientific’ are not warranted.

      Given the level of detail in this post, the ‘names named’, and the sequences of cause > effect > subcause >> subeffect >>, like branches off a rotting tree, Black makes a powerful and important argument — buttressed with causal branches, that the belief systems driving both econ and legal training have core flaws that result in massive societal dislocations (and transfers of power to entities that perpetuate these false beliefs).

      Black serves up plenty of of “IF”, “THEN”, “AND”, “OR” logical relationships in this post.
      Those may not be ‘science’ in the sense of a great deal of data collection and statistical analysis, but that approach would not fit the purposes of this post, IMVHO.

      (Indeed, it may bore you to read this, but what Black is doing is far closer to one branch of computer science or information science that are based on T/F statements than it is to say… forestry or oceanographic ‘science’.)
      You seem to want tables of comparisons.
      He offers what would easily be translated into some good data visualizations; that does not in any way diminish the power of his argument.

      Rather than tables and figures, this post would better lend itself to a visualization that would reveal the relative relationships over time between Milken’s time at Drexel, then his time in prison, then the way that he’s used his money since prison to claim that government should have no power to stop the kind of fraudulent activity for which he was sent to prison.

      You appear to slam Black for not being ‘scientific’, but that’s a red herring. He didn’t claim to be ‘scientific’, so if you want to discount this post, then I hope that you will do it on **its own terms.**

      If you compared a Wordle (see: http://www.wordle.net/) of Black’s post, and put it next to an article by Easterbrook, I’m guessing that the two would have very little convergence.
      Which is worth noting.
      It would be interesting what an FBI Wordle on the topic of ‘control fraud’ would look like; probably a lot closer to Black’s, than to Easterbrooks.

      That may not be ‘science’ you can use to slam Black, but in the Information Age, it’s no small thing.

      1. jfree

        You are dead wrong and clearly have not read the Citizens United decision.

        It does NOT allow corporations to make unlimited contributions to judges or politicians. Judges and politicians remain employees of the state — and it is entirely up to legislatures to decide who/what can contribute to them. Direct campaign contributions are NOT “free speech”.

        The decision does allows corporations (as entities of voluntarily cooperating citizens) to buy ads in the mass media and exercise political speech — and BYPASS politicians/judges in making their case directly to other citizens/voters.

        The decision was ENTIRELY about exercising speech TO VOTERS — without having to go through politicians/judges. It was the McCain/Feingold law that mandated that NO “unauthorized by DC” speech could occur near an election unless it went through channels controlled by incumbents. And the FEC was quite clear that McCain/Feingold even authorized them to burn books (which are published by corporations) if they so chose.

        1. readerOfTeaLeaves

          Any decent response would require more time than I have left today, but I’ll try to leave a response within 24 hours. (Mostly because it irks me when other people leave blog comments, but then fail to follow up on new info, challenges, etc, etc., I do try to revisit any comments that I leave.)

          Bear in mind that now money can be used to advertise in judgeships, and in my state (Washington), the past few years have brought us a hullaballoo in State Supreme Court judicial elections.

          Suppose that I am a housing developer; through one or another of my builder PACs, I can donate several thousand dollars — and receive a tax write off for every one of those PAC donations because it’s ‘business related’.
          As a single voter, I am not allowed to deduct any political campaign donations.
          This sets up some political dynamics that have resulted in some rather strange electoral results in my state.

          More later —

          1. readerOfTeaLeaves

            I would argue that in some respects, “Citizens United” is an attempt by SCOTUS to make sense of new media, new communication technologies, and new types of networks in an era of globalization.

            That said, the Court’s syllabus and decision can be found here:

            “Citizens United” made “Hillary: The Movie” using money from for-profit corporations. A cable network paid $1,200,000 to distribute the movie on-demand, and “Citizens United” made 30-second and 10-second ads to promote the movie on a variety of networks and outlets. Did this constitute ‘corporate speech’, and should it remain under the existing legal constraints?

            Basically, the way that I read the decision – and the analysis that I’ve read – show that SCOTUS determined:
            (1) it’s too complicated trying to regulate all this ‘speech’, and efforts to regulate are ‘chilling’.
            (2) PACs are onerous, and corporations sometimes have ‘expertise’ and should not have to do the hard work of setting up the bookkeeping and reporting processes required by PACs, so therefore they are ‘chilling’ to free speech, i.e. A PAC is a separate association from the corporation. So the PAC exemption from §441b’s expendi-ture ban, §441b(b)(2), does not allow corporations to speak. Even if a PAC could somehow allow a corporation tospeak—and it does not—the option to form PACs does not alleviate the First Amendment problems with §441b. PACs are burdensome alternatives; they are expensive toadminister and subject to extensive regulations. For example, every PAC must appoint a treasurer, forward donations to the treasurer promptly, keep detailed records of the identities of the persons making donations, preservereceipts for three years, and file an organization statementand report changes to this information within 10 days.See id., at 330–332 (quoting MCFL, 479 U. S., at 253– 254).
            And that is just the beginning. PACs must file detailed monthly reports with the FEC, which are due at different times depending on the type of election that is about to occur… (p. 28 of linked SCOTUS decision)

            Further, the SCOTUS ruling states that they will not limit the ‘free speech’ — even of foreign-based corporations that might wish to influence US elections by promoting political messages.

            We need not reach the question whether the Govern-
            Cite as: 558 U. S. ____ (2010) 47
            Opinion of the Court
            ment has a compelling interest in preventing foreign individuals or associations from influencing our Nation’spolitical process. Cf. 2 U. S. C. §441e (contribution and expenditure ban applied to “foreign national[s]”). Section 441b is not limited to corporations or associations that were created in foreign countries or funded predominatelyby foreign shareholders. Section 441b therefore would be overbroad even if we assumed, arguendo, that the Government has a compelling interest in limiting foreign influence over our political process. See Broadrick, 413
            U. S., at 615.
            (p. 54 of attached SCOTUS link)

            This comments offers only a brief gloss about this SCOTUS decision; no doubt the decision will serve as the basis for thesis, legal decisions, and professorships.

            It is hard to believe that anyone reading this SCOTUS decision would fail to recognize that they have eliminated limitations on the corporate funding of political messages, and their influence on elections.

            In many states (like mine), judges are elected — even to the state’s Supreme Court. The “Citizens United” decision leaves us vulnerable to being punk’d by any ‘corporation’ set up by any dictator, on any continent, by having money corrupt our electoral processes and political conversations.

            There are many more ‘bones to pick’ regarding this decision, but my comments here have already been too long.

  5. Ignacio

    To me, i am spanish, this is amazingly amazing. Not to say that US law system is more corrupt than spanish. Here in Spain it seems that the number of CEO-friendly judges is also increasing.

    An old spanish curse says “tengas pleitos y los ganes” (I hope you are involved in lawsuits and win them). The curse is to be involved in neverending lawsuits.

  6. jake chase

    Many thanks for this wonderful post. Those who have practiced corporation law will tell you that fraud is not a bug in the business system; it is a feature.

    Everything about corporate law is rigged from the inside. State corporation laws compete to be business friendly, which means fraud friendly. Delaware provides a garden of eden for executive theft. The whole fiction of director responsibility is a pious fraud, since directors are chosen by management for their willingness to enable executive looting; indeed their livelihoods depend upon continued cooperation. The average corporate director serves on as many as a dozen boards. Their qualifications focus on gender, race, previous military service, elective office. Most are in every sense retired. They must play ball or lose highly profitable gigs.

    If business fraud were abolished tomorrow I expect GDP would be reduced by at least a third.

    1. Gerald Muller

      I have the feeling that the exact opposite of your last sentence is true: people being greedy as they are would have to do real work to keep they life style instead of cheating and stealing and therefore the GDP would increase. Not the reverse.

      1. liberal

        No, because bogus “income” (rent collection) is counted as income in computing GDP.

        Now, if you mean “true wealth building,” which isn’t perfectly aligned with GDP, your claim is true.

  7. anon

    “I invite readers who have taken law and economics and corporate law classes to inform me whether their textbooks discussed Akerlof and Romer’s article: Looting: The Economic Underworld of Bankruptcy for Profit.”

    Since I am the poster who initially said that Yves shouldn’t assume that when a lawyer talked about law and economics or economic analysis of the law, that s/he was necessarily talking about Posner (or his ideas), I’ll reply.

    I took both law and econ and corporate law. Neither textbook mentioned that article but I’d graduated by the time it was written. The textbooks that I used rarely (never?) mentioned any articles, even ones written by the professor (who had usually authored the textbook that was used in a class), so my guess is that it would not have been included even if I’d graduated after then. But many articles were recommended or discussed in classes, even if they weren’t mentioned in the textbook. E.g., in my tax classes (where we spent a fair amount of time discussing what was deemed by my law school to be “the economic analysis of law” – although it would apparently not be so characterized here, we spent *far* more hours (weeks) discussing Rawls than we did any other topic (even form over substance). Rawls was not mentioned in any of the textbooks we used for those classes. Yet most of the students read Rawls as well as articles written by our prof, even if neither of their works were ever mentioned in the textbooks or directly recommended by the prof. Does the fact that our textbooks didn’t discuss any of Rawls’s work mean that his ideas were unimportant in those classes? (Or that we shouldn’t read our profs’ most recent articles, even though those were never mentioned in the textbooks we used?) We students certainly didn’t think so.

    In a more direct example, my law and econ professor suggested that we read “Do Trees Have Standing?” (which gives you some clue as to how long ago I attended law school) as an important work that deals with how (1) the law and (2) economic theory might deal with interests that are difficult to correctly price in an economic model. I’m not sure but I doubt that the book was discussed in our textbook.

    I’m sure that law and econ can be taught in the manner in which you describe. But, at least as taught in the school that I attended (or in the schools of most of the lawyers I know), law and economics was not a monolithic, right-wing dogma. Law and econ didn’t teach us that “economics has proven that regulation is unnecessary, hopeless, and harmful.” It often taught us the opposite. (E.g., it was a big part of my consumer protection class that focused on protecting the consumer, not dismantling consumer protection laws.) I’m sure some profs used it to push a right-wing agenda, just as they used other methods to push that same agenda. But do you honestly believe that a leading proponent of critical legal studies pushed that agenda when he taught contracts (a class that included a good deal of the economic analylsis of the law curriculum)?He did not (nor did others of similar persuasions). That was the primary point I was trying to make to Yves and others: it’s inaccurate to assume that a lawyer talking about law and econ or the economic analysis of the law is referring to the ideas of Posner or, e.g., Easterbrook. Some will be. Others won’t be.

  8. DownSouth

    The theology of the Austrians, the libertarians and the neoliberals is at its heart Augustinian. As Robert H. Nelson thoroughly documents in Economics as Religion, this theology found its way into modern economic thought (what Black calls “theoclassical”) through the sermonizing of the seminal figure of the Chicago School, Frank Knight.

    It is a theology that condemns society. Reinhold Niebuhr, writing in “The Children of Light and the Children of Darkness,” asserts that “man’s capacity for justice makes democracy possible, but man’s inclination to injustice makes democracy necessary.” Augustine, along with his Austrian, libertarian and neoliberal acolytes, reject this rather optimistic view of society for a much more pessimistic one. They deny that man has this “capacity for justice.” As Niebuhr wrote in Moral Man & Immoral Society of Augustine’s theology, “The individual, and more particularly society, are regarded as too involved in the sins of the earth to be capable of salvation in any moral sense… Thus Augustine concludes that the city of this world is ‘compact of injustice,’ that its ruler is the devil, that it was built by Cain and that its peace is secured by strife.” As Niebuhr goes on to point out, in Augustinian theology “Usually the individual is saved by the grace of God, while society is consigned to the devil; that is the social problem is declared to be insoluble on any ethical basis.”

    With the advent of modernity, Augustine’s pessimistic theology gets transformed into the secular theology of the Austrians, libertarians and neoliberals. The duality between the individual and society is preserved, and society is still consigned to the devil. However, instead of the individual being saved by the grace of God, the individual becomes God. Michael Allen Gillespie, writing in The Theological Origins of Modernity, explains how this transformation occurred:

    What actually occurs in the course of modernity is thus not simply the erasure or disappearance of God but the transference of this attributes, essential powers, and capacities to other entities or realms of being. The so-called process of disenchantment is thus also a process of reenchantment in and through both man and nature are infused with a number of attributes or powers previously ascribed to God.


    Locke believed that one could find moral imperatives sufficient to guide human life within the divinely created natural world. Newton saw time and space as the forms of divine being. After these divine capacities had been transferred to man or nature, it was easy for the Encyclopedists Diderot, D’Alembert, and Holbach to demonstrate that revealed religion was not only false but also superfluous. By the end of the Enlightenment, many thinkers treated human beings as quasi-divine. This is especially clear in someone like Kant who asserts that human beings are infinitely valuable ends in themselves. Such a view is only possible because of the transference of what hitherto were considered divine attributes to human beings. The Enlightenment (and post-Enlightenment) exaltation of human individuality is thus in fact a form of radical (although concealed) Pelagianism. Divine or at least quasi-divine powers reemerge although always in disguise. Nature is an embodied rational will; the social world is governed by an “invisible hand” that almost miraculously produces a rational distribution of goods and services; and history is the progressive development of humanity toward perfection.

    Enlightenment thinkers believed both the individual and society took on divine qualities. Knight, on the other hand, sticking to Augustinian theology, accepted the divinity of the individual, but still consigned society to the devil:

    In the broadest view, one might say that, intellectually and theologically speaking, much of American history has reflected a struggle between the pessimistic Puritan view of fallen, sinful humankind and the optimistic Enlightenment view of rational, utilitarian humankind. If the great majority of American economists have fallen on the Enlightenment and progressive side of this divide, Knight was one of the rare exceptions.


    For Knight, freedom…means a maximum of power for an individual to control his or her actions, and this must be “an end or value in itself,” not something merely “instrumental to efficiency.”
    –Robert H. Nelson, Economics as Religion

    So in Knight’s secular theology the individual, and by extension the self-interest and fitness of the individual, becomes the end all and be all. The problems that plague society, and the pursuit of group-interest and group fitness, are declared to be insoluble on any ethical basis.

    1. Blissex

      «What actually occurs in the course of modernity is thus not simply the erasure or disappearance of God but the transference of this attributes, essential powers, and capacities to other entities or realms of being. The so-called process of disenchantment is thus also a process of reenchantment in and through both man and nature are infused with a number of attributes or powers previously ascribed to God.»

      As another book author has pointed our, The Free Market has been invested with those attributes or powers; probably because it is perceived to be on the side of the Elect, the WINNERS who deserve everything, by bestowing on them ever greater wealth and power, and punishing the LOSERS by inflicting on them ever greater poverty and irrelevance.

      And since it is all-seing and infallible, these outcomes are deserved, here and now, no need to wait for afterlife reward or punishment. Glorious are the wealthy whom the perfectly-efficient free markets reward for their superiority, cursed are the poor whom the perfectly efficient market punishes for their inferiority.

      It is a very comforting, useful theology to endorse.

      1. DownSouth

        “And since it is all-seing and infallible, these outcomes are deserved, here and now, no need to wait for afterlife reward or punishment.”

        In short, theoclassical economic theory replaced divine right.

    2. readerOfTeaLeaves

      Ah, Knight and Augustine both lived before the Magnetic Resonance Imaging (MRI) technologies that now enable psychologists, neurologists, and physiologists to far better understand that — in a growing body of experimental tests — it turns out that ‘man’ is a ‘moral actor’. That something about balanced humans requires justice, and seeks it. And that ‘no man is an island’.

      Start with the fact that at least 200 people would have been involved with the last restaurant meal that I ate (growing the meat and veggies, transporting it, preparing it, serving it, bookkeeping for every phase in the network, etc, etc, etc) the fact is that most things in the modern world depend on **networks of human beings, all performing their jobs** to at least a level that engenders reasonable trust in order to produce even something as seemingly simple as a restaurant meal.

      Getting the gas in my car to drive to the meal was a whole other (sometimes overlapping) network of productive activity.

      Knight’s dim views simply don’t stand up in the face of current findings.
      The current findings underscore the enormous costs of criminogenic systems; however, our ‘pricing mechanisms’ (apart from higher prices for organic produce) do not yet reflect this growing body of knowledge about human behavior. Humans are social critters, and to prosper, they require a socially healthy system — which requires justice.

      1. DownSouth

        I think that man is a moral actor is too much of a generalizaton.

        MRI studies show that different individuals respond differently to the same stimulus. For instance, seeing someone in pain doesn’t trigger the same MRI response in all individuals. There are some individuals who are unmoved.

        However, the chemical and electrical responses triggered by those capable of empathy are now measurable. This makes it impossible for theoclassical economists, along with their New Atheist allies in the fields of biology, psychology and evolution, to claim that empathy, and by extension morality, doesn’t exist somewhere within the depth and breadth of human experience.

          1. Francois T

            Indeed it does blow all their hocus pocus out of the water.
            Alas, it will be imperative to show the door to the apostles of these now refuted “theories” ASAP.

            And that will only be possible by loosening the grip of their backers within the elites.

  9. hermanas

    Con men could not write better arguements. What’s on the agenda once they’re elected judge?

  10. i on the ball patriot

    Is Mr. Global Propaganda at work here with a little avoid the gallows facetious intent bullshit?

    “When regulators believe that control fraud is impossible – they make control fraud certain by eviscerating regulation and supervision. The most infamous recent example of this is Alan Greenspan (like Fischel, a former consultant to the most infamous S&L control fraud – Charles Keating’s Lincoln Savings). Greenspan refused to believe that fraud could occur in financial markets. He refused to take any effective regulatory steps against what the FBI had warned him (in 2004) was an “epidemic” of mortgage fraud even though they correctly predicted that it would cause a “crisis.” The Fed had unique regulatory authority under HOEPA to regulate all mortgage lenders.”

    It is laughable that anyone with just a little bit of savvy could believe that Alan Greenspan did not know EXACTLY what he was doing and EXACTLY what fraud is. His actions were not only knowingly made, they were also willingly made, and very intentional. He is a scum bag crook that deserves the ultimate penalty.

    Its not about selecting true believers its about selecting those who are willing to tout the Noble lie.

    You are either drinking the Kool aid or selling it.

    Deception is the strongest political force on the planet.

    1. Blissex

      «It is laughable that anyone with just a little bit of savvy could believe that Alan Greenspan did not know EXACTLY what he was doing and EXACTLY what fraud is. His actions were not only knowingly made, they were also willingly made, and very intentional. He is a scum bag crook that deserves the ultimate penalty.»

      And so are all those voters he was out to please on behalf of his clique, and who regarded his constant boosting of their balance sheets (stock and real estate properties) as the gift that kept giving.

      «Its not about selecting true believers its about selecting those who are willing to tout the Noble lie.
      You are either drinking the Kool aid or selling it.
      Deception is the strongest political force on the planet.

      Actually the most potent force is hypocrisy: all those deeply corrupt voters knowing in their hearts that everybody else was drinking Kool-aid and how only themselves would come out ahead in the end, as the only WINNERS among so many LOSERS. A pyramid scheme of hypocrisy, with the sponsors of the “noble lie” peddlers as the only real winners.

      1. DownSouth

        Power draws people towards the centre from which it emanates. None of the people in this book have committed their acts by themselves—-all have had very willing and able accomplices. Elizabeth Bathory may only have had a few like-minded sadists to help her along the way, but whole sections of Cambodian, German, Russian and Ugandan society mobilized behind Pol Pot, Hitler, Stalin and Amin in conducting mass killings. When Ivan the Terrible created his army of henchmen, the Oprichniki, he had no shortage of volunteers. Atilla’s bloodthirsty army drew people from throughout the civilized world and, for many Ugandans, Amin’s promise of wealth and unlimited power over life and death led hundreds to join his State Research Bureau. Men and women followed these evil leaders because they knew that complicity was the path to influence, money and power. Despite having to deal with the unpredictability of their leaders, people followed their baser instincts.
        –Miranda Twiss, The Most Evil Men and Women in History

        1. i on the ball patriot

          “Men and women followed these evil leaders because they knew that complicity was the path to influence, money and power. Despite having to deal with the unpredictability of their leaders, people followed their baser instincts.”

          Not true! This also reeks of ‘socializing’ the crime. Will you let Greenspan off the hook?

          Some pigs, the prime mover pigs, are more responsible than others, and “complicity” is not always knowing and willful. It can be a matter of coercion by many means, including propaganda — like Mr. Global Propaganda — the tool of the wealthy ruling global elite.

          See my comments to Blissex. Greenspan is a lying scum bag, there is no plausible deniability here.

          Deception is the strongest political force on the planet.

      2. i on the ball patriot

        Blissex said: “And so are all those voters he was out to please on behalf of his clique, and who regarded his constant boosting of their balance sheets (stock and real estate properties) as the gift that kept giving.”

        You attempt to ‘socialize’ the crime here but it won’t work.

        True, you make a good point. There are those among us who have schooled themselves to coat tail the latest scam machinations of the wealthy ruling elite, but in this crisis, many of them, In the Vanilla Greed for Profit school have unwittingly been used by the Pernicious Greed for Control school and in effect have slit their own throats by aiding and abetting the crisis. They sit around now waiting for inflation and greater debt trap bubbles to bail them out. They wait in vain. It will not happen. Pernicious Greed for Control no longer has any use for them and they will be deflated into the perpetual conflict of the masses.

        The majority of scamericans, fooled by the propaganda, do not have the same depth of understanding, culpability, or similar rapacious intent, and therefore have lesser responsibility. Some pigs are more equal than others and should be made to pay accordingly. Those at the top, like scum bag lying piece of crap Alan Greenspan, who orchestrated the scam, are more responsible than others and should pay a far greater price for creating the conditions that led others to betray trust and be gullible. No con artist — no scam!

        Hypocrisy is not the strongest political force on the planet. Hypocrisy is a by product of deception it is not the other way around.

        Scamericans all, to the degree that they are aware of it, are hypocrites in that they consume a disproportionate share of the world’s pie. But even there again, the top pigs have justified to the average scamerican their unfair share of the world’s pie with myths of spreading; ‘freedom’, ‘free markets’ and ‘capitalism’ around the globe. Nothing could be further from the truth, those are all non existent deflective decoys used to mask the machinations at the top, ask the over one million dead Iraqis and the four million displaced Iraqi citizens.

        And the scamerican electoral system is a farce that proves just how gullible — not intentionally corrupt — those who are propagandized are.

        This is not a crime that can be socialized. To repeat; some pigs, the knowing and willful prime mover pigs, like Alan Greenspan, ARE more responsible than others.

        Deception is the strongest political force on the planet.

  11. Peripheral Visionary

    This is an interesting discussion, but the move toward judges as political figures does not come from their interaction with the business world. It is, rather, in large part a public reaction to “soft on crime” judges, those who hand out unusually light sentences for serious crimes, particularly crimes against children. I do not think we would see nearly the prevalence of elected judges we are seeing now if it were not for the few who hand out absurdly light sentences for child molestation, rape, domestic violence, etc. A large portion of the populace has lost its faith in the judiciary, and is therefore demanding direct accountability, and the route to that accountability has been through converting judicial positions to elected positions, directly accountable to the general public. The impact on the power of special interest groups is a side effect, not the primary cause.

    The common thread would be a loss of confidence in the judiciary. It may certainly be possible to move toward more appointed judges, but for that to happen, and for the general public to support it, there will need to be a greater level of confidence in judges, that they are serving the public interest first and resisting inordinate influence from special interest groups, among whom I would include not just the business community, but the legal profession (whose best interests are served neither by properly disciplining the worst offenders nor by reforming them, but rather by keeping them moving in and out of the courts, thus ensuring a constant stream of business, although this is a much larger topic of conversation.)

    But at the highest level, what is needed most of all is greater responsibility and accountability on the part of legislatures. The courts should follow the will of the elected bodies; having the courts take precedence over the legislatures should be the exception and not the rule. If we have totally lost faith in the legislatures and are expecting the judiciary to regulate society and administer justice, democracy is effectively dead. The law is formed in the legislatures, and that is where the ultimate accountability should be.

    1. DownSouth

      Yea right.

      We should just do away with an independent judiciary, making it a slave to the popular will:

      • In 1948, about 90% of American Adults opposed interracial marriage when the Supreme Court of California legalized it, and California became the first state that allowed loving, committed interracial couples to marry.

      • In 1967, about 72% were opposed to interracial marriage. This was the year when the U.S. Supreme Court was legalized interracial marriage everywhere in the U.S.

      As far as your comments regarding crime, the criminal justice system and the public, your highly distorted views are, quite lamentably, all but ubiquitous amongst affluent white people. They are exactly the reason why we need an independent judiciary and not lynch mobs to decide criminal cases:

      The public relies on news for its knowledge of crime. We suggest that a “misinformation synergy” occurs in crime news that profoundly misinforms the public. The synergy results from the simultaneous and consistent presentation of three significant distortions in print and broadcast news. It is not just that African Americans are overrepresented as criminals and underrepresented as victims, or that young people are overrepresented as criminals, or that violent crime itself is given undue coverage. It is that all three occur together, combining forces to produce a terribly unfair and inaccurate overall image of crime in America. Add to that a majority of readers and viewers who rarely have any personal experience with crime by Black youth, and a White adult population who must rely on the media to tell them that story and we have the perfect recipe for a misinformed public and misguided power structure.

      I certainly don’t know what the solution is. However, the simplistic solution you propose is both poorly informed and dangerous to any society that wishes to uphold the principles of justice, fairness and equality under the law.

      1. Blissex

        «They are exactly the reason why we need an independent judiciary and not lynch mobs to decide criminal cases:»

        But the traditional justification for elected judges is the same as for jury service: it is not that in this way justice is more just, but it is more popularly supported.

        A justice system that runs counter to popular belief is not going to work, and it is just a joke. Even if the popular belief is odious, and the justice system is based on elevated principles.

        Democracy is a system that is not designed to obtain optimal, enlightened outcomes, it is one designed to minimize social conflict and to ensure that voters suffer the consequences of their own decisions. As the voters of the Confederation discovered. Same for a “democratic” justice system with juries and elected judges.

        Countries where the judiciary is professional and independent have either very widely shared values, or else a tradition where “justice” is often widely ridiculed as being out of touch and thus disrespected. There is of course a good middle but it is not easy to find.

        1. DownSouth

          “A justice system that runs counter to popular belief is not going to work, and it is just a joke. Even if the popular belief is odious, and the justice system is based on elevated principles.”

          I gave two historical examples above that prove this to not always be the case.

          I think the issue is more complicated and nuanced than you make it out to be.

          “Democracy is a system that is not designed to obtain optimal, enlightened outcomes, it is one designed to minimize social conflict and to ensure that voters suffer the consequences of their own decisions…

          Countries where the judiciary is professional and independent have either very widely shared values, or else a tradition where “justice” is often widely ridiculed as being out of touch and thus disrespected.

          Gosh, I wish you’d try telling that to James Madison or Thomas Jefferson. They were certainly aware of the “democratic riddle.” As Lance Banning writes in “Madison, the Statute, and Republican Convictions”:

          Madison was deeply dedicated to the Revolutionary principle that governments derive their just authority from popular consent and must remain responsive to people’s will. He was dedicated too, to “justice,” by which he meant equality before the law and scrupulous respect by government for natural law and natural rights. However obvious it seems to us that the desire to reconcile these two commitments is the fundmental paradox of every liberal democracy, early revolutionary thinkers did not necessarily anticipate a conflict.

          However, the solution Madison proposed is about as antithetical to yours as could possibly be. The proper remedy to the democratic riddle was, he said, to “enlarge the sphere” of republican government

          and thereby divide the community into so great a number of interests and parties that, in the first place, a majority will not be likely at the same moment to have a common interest separate from that of the whole or of the minority, and in the second place, that in case they should have such an interest, they may not be apt to unite in pursuit of it.

          1. DownSouth

            And does it need to be pointed out that the separation of powers into the executive, legislative and judicial is part and parcel of the desire to “divide the community into so great a number of interests and parties”?

        2. run75441

          “Democracy is a system that is not designed to obtain optimal, enlightened outcomes, it is one designed to minimize social conflict and to ensure that voters suffer the consequences of their own decisions.”

          And if you are of the minority who suffers the will of the majority? The one who suffers most is the minority. As one detroit federal judge stated . . . to a prominent attorney who testified against Alito in Congress . . . he would not over rule the state. It is easier to bury the individual.

      2. Peripheral Visionary

        I really should have dispensed with any response the second the dog-eared racism card came out (really? is that all people can do these days, scream “bigot” anytime anybody disagrees with their views?), but setting aside the shameless demagoguery, there are a couple of points worth addressing.

        The judiciary has always been ultimately accountable to the “public will”, whether directly by election, or indirectly, by its accountability to elected officials. If the public wills it, any and every judiciary official can be removed, if through no other route than voting into office elected officials who promise to remove sitting judges. That also includes the Supreme Court; that no sitting Supreme Court Justice has not been removed does not mean that it cannot happen.

        It certainly can be argued that the one degree of removal provides benefits by way of dampening the impact of short-term popular opinion, but the ultimate direction of accountability is still intact. The only way to establish a fully “independent” judiciary is to have unelected officials appoint judges that cannot be removed. That may be something, but democracy it is not.

        And with respect to “lynch mobs [deciding] criminal cases”, is that how you describe the jury system? Since the foundation of modern democracy (and even in ancient democracies), the function of deciding the most critical cases has been, and continues to be, placed upon the general public, in spite of a lack of specialized knowledge in law. As Blissex points out, the fundamental consideration is not expertise, but the support of the people. A system that relies wholly on expertise rather than the support of the people may be something, but again, democracy it is not.

  12. Blissex

    «what is needed most of all is greater responsibility and accountability on the part of legislatures.»

    But wait, aren’t they accountable to voters? Or are voters completely disempowered? No, they aren’t.

    The real issue to me seems not that the judicial or the legislative powers are corrupt, but that voters are corrupt. What so many voters want is not for securities fraud by insiders to end, but to become insiders themselves and benefit from it; while the stock market goes up, boosted by obvious, colossal accounting fraud, those who point it out are booed as traitors.

    What many voters want is a cut of the loot, not to cut off the the looters. They want their 401k and house valuations to go up forever, so they can retire in the style they deserve as WINNERS. They are obviously deluded, but the best fraud is one in which the mark believes to be in on the fraud too. “F*ck you! I am fully vested” is the law of the land.

    My usual quotes from one of the corrupters-in-chief, Grover Norquist:

    «The growth of the investor class–those 70 per cent of voters who own stock and are more opposed to taxes and regulations on business as a result — is strengthening the conservative movement. More gun owners, fewer labor union
    members, more homeschoolers, more property owners and a dwindling number of FDR-era Democrats all strengthen the conservative movement versus the Democrats.

    «The 1930s rhetoric was bash business — only a handful of bankers thought that meant them. Now if you say we’re going to smash the big corporations, 60-plus percent of voters say “That’s my retirement you’re messing with. I don’t appreciate that”. And the Democrats have spent 50 years explaining that Republicans will pollute the earth and kill baby seals to get market caps higher. And in 2002, voters said, “We’re sorry about the seals and everything but we really got to get the stock market up.»

    And this another corrupter-in-chief, Newt Gingrich, being both a bit too realistic and celebrating the corruption of voters, and you can replace “speed limit” with “accounting fraud” here:

    «In Germany on the Autobahn there is no speed limit. If tomorrow the Bundestag adopted a 100km, or 62-mph speed limit, virtually every German would obey it. Until, that is, the next election when they would wipe out the current politicians and they would elect the “No Speed-Limit”

    Now this is a significant insight that American reformers have neglected for 30 years, and is the great mistake of the Great Society and everything that followed it.

    And I don’t want to offend anybody, but let me suggest to you that the American cultural response to the challenge of speed limits has been dramatically different than [sic] the German one. For most Americans speed limit is a benchmark of opportunity. This is not a light insight.

    If you have a society where almost every middle class person routinely fudges the law, that’s telling us something. We have laws that matter-murder, rape, and we have laws that don’t matter. Speed limits are an example. Why would you think that a regulatory, process-oriented bureaucratic model would work?»

    1. liberal

      “The real issue to me seems not that the judicial or the legislative powers are corrupt, but that voters are corrupt.”

      Heh. I’m so tired of reading the standard liberal/left nonsense about how the poor, poor masses would see things clearly if only the mass media wasn’t bought and paid for by TPTB.

      Good to see you posting again, BTW.

    2. DownSouth

      Jonathan Schell, in The Unconquerable World, develops the idea of the “mass minority.”

      A mass minority—-in the case of the Bolsheviks and the Nazis representing about 20 or 25 percent of the population—-can come to power if it is highly motivated and well organized and if the majority is asleep at the wheel.

      When you say “voters are corrupt” you paint with entirely too broad a brush.

      To begin with, not all voters are created equal. Certainly, many are “corrupt” as you charge. However, others are not. Most are just discouraged and see no reason to vote, or are just not paying attention.

      Your analysis fails to take into account that the party system is designed specifically for the purpose of limiting the choices available to the people.

      It also fails to take into account that it’s going to take more than mere voting to right the ship of state. People need to become more engaged, but unfortunately our system not only fails to provide an avenue to do this, but perpetuates the false illusion that going to the polls once every couple of years is sufficient.

      1. DownSouth

        And I believe this “voters are corrupt” meme plays right into the sort of defeatism that the theoclassicists promote.

        Isn’t the subtext the same as that evangelized by the theoclassicists, that “man’s capacity for justice” that “makes democracy possible” does not exist?

        1. i on the ball patriot

          It is the he electoral process that IS corrupt, as is the system of wealthy elite controlled propaganda that urges voters to go to the polls and vote.

          Voters ARE the problem in that they do not see the deception and therefore are duped into validating and legitimizing the same corrupt power that sent them to the polls and enslaves them.

          Deception is the strongest political force on the planet.

  13. Mickey Marzick in Akron, Ohio

    If a movement wanted to control the future in our particular form of constitutional, limited government with checks and balances and separation of powers the ideological capture of the judiciary would be the ultimate objective. Because with the concept of judicial review firmly entrenched any legislative action or executive decree can be deemed unconstitutional and therefore, unlawful, negating any attempt to remedy a “grievance” by law or executive order.

    To cement this grip on the judiciary, this movement then colonizes the elite universities and law schools with proponents of their views, knowing full well that future CEOs, lawyers, judges and graduates of these universities are likely to occupy positions of power across the societal spectrum with the same mindset. Couple this “feedstock” with the “faith based logic” and ‘true believer” syndrome witnessed this past weekend with some libertarians in their patent refusal to even consider historical/empirical evidence challenging their faith and the prospective pool available for elite recruitment into these ranks is deep. Even if many of them only function as “stormtroopers” willing to advance the cause…

    Game, set, match – the ideological hegemony of MARKET TOTALITARIANISM would appear complete.

    The problem is that it’s THEIR movement – not our’s. But their playbook is spot on whether we like it or not, which brings me to an interesting question: How would our’s differ, assuming we have a “movement”? From the bottom up as opposed to from the top down is one key difference – at least I would hope. But at some point the critical mass from below must assume the reigns of power – control – and GOVERN. Even more pressing perhaps is how we undo the two ideological pincers of this blitzkrieg without “participating” in the political process as some have proposed. Can we bypass this process and create parallel institutions that supplant the former? I would like to think so but the bullet train to Auschwitz in my rearview mirror reminds me that we forget about it at our peril.

    Convinced that it can’t happen here because we’re free may be the Noble Lie that meets us at the gate: Arbeit Macht Frei!

    1. DownSouth

      The financiers—-first among malefactors—-always conduct well-orchestrated campaigns to try to deflect blame onto others. During the 1920s and 1930s this occurred in the United States, and it occurred in Germany.

      Despite early successes of this drive to project the blame for the economic malaise onto the Jew, the Negro, the Roman Catholic, the socialist, foreigners or onto the disposed themselves (for instance, the stellar growth of the Ku Klux Klan in the 1920s or H.L. Menken’s ascendency to national prominence by heaping scorn upon the factory worker or sharecropper by calling them the “booboisie”), this effort by the “malefactors of great wealth” in the United States backfired. When the Great Depression hit, the masses got it right: they switched their anger on the true malefactors—-the wealthy financiers.

      But in Germany the masses got it wrong. They continued to focus their anger on scapegoats—-Jews, Gypsies, Bolsheviks, Negroes, or the dispossessed themselves.

      As recent news reports have shown, similar campaigns by the malefactors of great wealth, i.e. the Koch brothers, to project blame onto helpless scapegoats—-Mexicans, Muslims, gays, socialists, foreigners or the dispossessed themselves—-are currently underway. But the outcome is unknown. How this battle for the hearts and minds of a majority of Americans plays out will go a long way in determining whether we end up with a new New Deal, or with something resembling National Socialism.

  14. John Emerson

    For a long time I’ve been arguing to anyone willing to listen and plenty who weren’t that economics is too ill-formed, inconsistent, and incomplete to be regarded as a science. Instead, it should be regarded as an ideological battleground and a form of expert advocacy. Economists have a very limited and partial proto-scientific knowledge of society and its economic component, but it can’t be said that they know nothing. You often need an good economist on your side, if you can afford one, just as you need a good lawyer. And the applied, practical, lucrative aspect of economics is much more important than its scientific, theoretical side, which at worst is just camoflage and chaff.

  15. Benign Brodwicz

    Adam Smith nailed it in his “Theory of Moral Sentiments”: he simply said that people need to have morals, which the love of money can erode just about completely, if recent Wall Street behavior is any indication.

    I love your work, William Black, keep it up!

  16. The Infamous Oregon Lawhobbit

    After reading through the article – and Yves’ predecessor in interest – I’m not completely sure I understand.

    Is the thesis here that judges who are appointed by bought-and-paid-for politicians are somehow superior to judges who are elected and are thus arguably bought-and-paid-for by their campaign donors?

    It would seem to me that it would be a lot easier and cheaper to lobby 60 or so legislators to get “your” preferred judge on the bench rather than having to lobby a majority of voters.

    Maybe the poster who suggested “drafting” judges was onto something.

    1. liberal

      It’s an empirical question, not a theoretical one. My admittedly scant reading of the issue says appointed judges are less corrupt and more professional.

  17. Jardinero1

    Nothing any Austrian has ever wrote asserts that fraud is impossible. I find the assertions maddening to read because they are wholly incorrect.

    There are people who read Mises and Hayek and have some idea what Austrianism is about. And then there are people who read assertions of what Austrianism is about.

  18. MinnItMan

    Law and Econ was barely filtering down when I was in law school in the early 90s. I can only remember two explicit examples, Coase’s Theorem and Efficient [Contract] Breach Theory. Coase’s theorem, as I recall, ultimately is about who pays the cost of regulation (or more literally, “rules”), or maybe, how it gets paid. And efficient breach theory is a helpful rejoinder to those who assert that moral obligations are part of contract law. As for regulation, the biggest takeaway (and the biggest issue I now deal with) is whether the regulatory scheme allows for a [worthwhile] private right of action. (Note: although I was a Federlaist Society member, by my third year, I was more-or-less on to its corporate stoogery and disassociated).

    Prof. Black makes a good case against the “self-interest is our best regulator” dogma, but I would add that regulation frequently misallocates responsibility in glaringly obvious ways as well. For example, why does management get to pick its auditor? At least part of the real answer is that shareholder democracy is a joke, and serious “investors” solely focus on the buy/sell decision in evaluating management. Shareholder democracy is most important when shareholders can’t easily sell.

    While corporate debt can seem a virtue in the GH seal of approval sense, it is also indicative of greatly expanded risk for equity holders, even in the absense of fraud. Its tough for me to ever see how this could ever be an unambiguous positive.

    As for management having large equity stakes and its impact on management conduct, it definitely seems not to matter at best, and definitely makes being a corporate exec far more lucrative than it was 40 years ago.

    Finally, Prof. Black doesn’t address this at all, but it’s the thing that I see as rampant in “low finance,” and that is corrupt business practices: commercial bribery and, to a much lesser extent, attempts at price-fixing. How ingrained are kick-backs into the fabric of ordinary business? How much of ordinary rainmaking depends on “spiffing” gatekeepers? I happen to think it is rampant and goes a long way in explaining why corruption at the top is tolerated, expected and perhaps, applauded.

    1. Blissex

      «corrupt business practices: commercial bribery and, to a much lesser extent, attempts at price-fixing. How ingrained are kick-backs into the fabric of ordinary business? How much of ordinary rainmaking depends on “spiffing” gatekeepers? I happen to think it is rampant and goes a long way in explaining why corruption at the top is tolerated, expected and perhaps, applauded.»

      That’s where I say that many voters are corrupt, and they want to get their cut more than stop others getting their.

      But I disagree with your bottom-up logic: corruption as so many other things is a game of follow-the-leader, and the leaders have been fostering corruption in the lower orders (as my quotes from Norquist and Gingrich hint) in order to create a climate of generalized guilt, in which of course they profit most.

      If stock prices are higher because of corrupt accounting, the shareholder/CEO with $100m in shares makes a much bigger gain than the voter with $100k in shares, even if the latter is really happy to be given that crumb, and is willing to overlook his leader’s screwing him too; he is just happy that he is also making a lot more than the other voter with just $10k in shares, who is also happy to be making more than the non-voter with $0 in shares.

      The same for house prices: if Greenspan uses the usual refrain of building up private sector balance sheets by pumping up asset prices, the owner/CEO with the $10m palace estate that doubled in price in 10 years has made $9m more in low-tax capital gains than the voter with the $1m McMansion, which has made $900k more than the voter with the $100k bungalow, which has made $100k more than the non-voter who is renting from him.

  19. pjwrites

    We have an accountant in the family.

    When this crisis hit and everyone went after the bankers and the regulators and the hedge funds and the ponzi schemers and the mortgage frauds and the economists and the Fed and the President and the Congress, this family member said one thing:

    “They never go after the accountants. That’s where the real dirt is.”

  20. John Emerson

    To “liberal” at 11:25 am:

    Who cares what you’re sick of? I’m already sick of you and all I know about you is thirty or so words you wrote. But no one should care about that either.

    Blaming “the masses” is the standard copout of creepy intellectual losers who at least hope to salvage a feeling of personal superiority out of the disaster. Adorno was a champ at that.

    People aren’t smarter than their sources of information, and all the ambient information is right wing. Democracy has always depended on an active effort to get the word out, and the liberals and Democrats have failed in that effort, leaving the task of public information to commercial media. That’s the story.

    “Stupid” is the stupid liberal’s favorite word.

  21. MinnItMan

    I didn’t mean to say it’s bottom-up, and I almost immediately was going to add that disclaimer, but had to take a call. It’s an all-around-circle-jerk, IMO, and the example needs to be at the top to correct it.

    Without naming names, or getting too specific, the most egregious example of this I’ve seen is where a gatekeeper flat out told “my friend,” “I make $20k a month in salary. I make $70k a month from my vendors [like ‘my friend’].” The benefit to him of a superior, but clean, vendor was pretty slight. The benefit of being a corrupt vendor was pretty extreme. It’s inconceivable to me that this wasn’t considered be the “job” by his higher-ups. And there was no shortgage of people who would stop at nothing to get that job. Now, this does relate, in a way to what Prof. Black is saying. You would think that this would be pretty easy to expose, but the natural disinfectant agents – people who also wanted the job – only wanted it if the vendor “skim” came along with it. Or, at least that’s my take. Actually what was even more interesting, is that NO vendor EVER exposed it. The obvious disincentives are pretty huge. But, one possible consequence is that – assuming there’s at least a few honest people out there – the most extreme consequence for the gatekeepers is a polite “no thanks.”

    I do, however, disagree about the Gingrich quote. I usually hate analogies, but this one may actually work. The vendor from whom a bribery is solicited and doesn’t report it may be a lot like the person who is traveling 2mph over the limit when in fact that is the “safe” speed for the flow of traffic. Is this fudging or is it complicity in corruption? Regardless, it is definitely an aggrevating factor in derailing attempts to clean anything up.

  22. Jim the Skeptic

    Most of us are ethical, even moral, people. But all too often, the instant the we align ourselves with some larger grouping, we are prepared to act in unethical ways. Experiments in psychology have been done which confirm that conundrum. This applies to the legal profession and especially to judges.

    Not long ago a West Virginia coal mine operator lost a lawsuit. The response was to fund the campaign of an appeals judge to the tune of about 3 million dollars. That is not surprising. That newly minted appeals judge refused to recuse himself when the coal mine operators case came up. That was surprising in a profession that at least pays lip service to ethical behavior. Not surprising was that the coal mine operator won at that appeals level.

    But the outrageous surprise was when the US Supreme Court overturned the state court in a 5 to 4 opinion. Chief Justice John G. Roberts dissented and was joined by Justices Antonin G. Scalia, Clarence Thomas, and Samuel A. Alito.

    Here were four of the highest judges in the land who could not see that a 3 million dollar campaign contribution would probably bias the recipient to some degree. Their definition of ethical behavior was so lax that it would not prevent the West Virginia judge from sitting on the case of his contributor.

    These are not 4 convicts from the hood. These are four of the highest judges in the land. You could leave your wallet in their car and be assured that it would be returned with everything undisturbed.

    Apparently they have contrived a definition of ethical behavior that is completely divorced from it’s common meaning.

    Later the gang of 4 would discover that corporations have first amendment rights which protect their right to participate in our political processes and they found a fifth judge. Never mind that corporations are a legal fiction, created solely by an act of government. Never mind that they were not “endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness”. These corporations now have a right to trash our electoral processes with their graffiti.

    It was just another tortured contrived definition. They were shocked when the President commented on it in his state of the union speech! They are appointed for life, all we have is social pressure. Let them use commonly accepted definitions or confine themselves to home.

    1. attempter

      To be precise, all nine “justices” are corporatists who support corporate personhood. The 5 vs. 4 decisions like Citizens United tend to break down as judicial activist corporatists vs. more “passive” corporatists. The minority in that case only objected to the activism of decideing the case on much broader grounds than it needed to be.

      So the whole court’s an anti-constitutional rogue where it comes to the corporate tyranny.


  23. Doc Holiday

    Substantive evidence

    Definition: evidence offered to prove a factual issue rather than merely for impeachment

    ==> I see no proof of anything (anymore)

  24. Macheath

    The idea of elected judges is very very bizarre. Most nations will not even tax judges for fear that this may be a route to influence.

    As for the law and economics trend… first economists wanted to be scientists and now lawyers want to be economists… oh dear…

  25. PJM

    Congratulations, Mr. William K. Black, for your lovely, smart and accurate critic to some economic establishment ideology and to some priests of voodoo economics.

    In fact economics isnt science. They pretend to be men of science but almost all (ok! using Paretos law, 80%) are only priests of their religion or ideology. I studied economics but actually I didnt learned almost nothing at the school. Only voodo economics and ideology. It was pathetic learning one thing one year, because the lectures were keynesians and next yar the opposite, because lectures were monetarists and so on. It was so wasteful of time because what I wanted to learn to be able to work objectively without ideology and after some years studing I concluded that I learned nothing really useful.

    Today I read another great critic to some pundits. Like that one:

    “A key danger of being wedded to any particular ideology or market view is confirmation bias – the tendency to selectively focus on evidence supporting what one already believes or wants to be true. The resultant lack of objectivity is an enemy of forecast accuracy. That’s why we don’t belong to any particular “camp,” accusations notwithstanding. When our objective leading indexes change cyclical direction, we change our view about the economy’s direction, period. As a result, we find ourselves being alternately feted and reviled by liberals and conservatives, bulls and bears, while we stick to our knitting. ”

    Scientistic Fiction in http://www.businesscycle.com/news/press/1936/

    I notice everyone to read that lovely text concerning some sctientific pretenders. Because is true: a lot of voodoo economics comes from ilusionists and not form men of science. As the authors say at some point:

    “There are a number of valid ways to describe ECRI’s leading indexes, but “conventional” is not one of them. In fact, the implicit suggestion that the WLI cannot be relied upon because “historical correlations… can’t be counted on” is revealing, and completely off-base – because the construction of ECRI’s leading indexes isn’t rooted in historical correlations or regressions, or in the back-fitting of data. This seems incomprehensible to most conventional economists – monetarists, Keynesians, and everybody in between – because the pseudo-science of econometrics is the only analytical approach they’ve ever been taught. Very few of our critics (or admirers, for that matter) appreciate the fact that we don’t use models because they are singularly unsuited to business cycle analysis – even though we’ve said this six ways to Sunday. ”

    Very good indeed too.

    Today I read two more good texts. One is yours, Mr. Black. The other from the ECRI.

    Thanks for the text. Best regards.

  26. Hugh

    I am reminded of Cass Sunstein’s argument against the investigation of Bush era illegalities. He said that such investigations would be to criminalize policy differences. Obama notoriously decided that he was interested only in looking forward, not backward. It was a classic case of misdirection. He rationalized not digging into the past by suggesting that the future would be somehow be different. But what we are seeing is that the present and future are looking pretty much like the past. The issue is not criminalizing policy differences. The problem is our criminalized elites. For me, it keeps coming back to 1% owning 1/3 of the country and the top 10% owning 2/3 of it. Can any of us be surprised that they own our academics, judges, and politicians as well? That they own our law and political process? All the levers of power? That they own even a so-called populist protest movement like the Tea Party? They rule us, and they are criminals. Think about that.

  27. Jim

    Way back to Down South and his comment at 9:08 A.M.

    I read the Gillespie book “The Theological Origins of Modernity” based on your recommendation.

    His analysis seems to indicate that what I take to be your own brand of liberalism may be theologically inspired. The idea of religious toleration emerged from the Wars of Religon as a form of political theology.

    This political theology holds to the Reformation idea that there can be an inner faith to salvation rather than the conclusion that it was necessary to conquer a people into piety.

    Your liberalism(perhaps)and mine therefore seem to be radically Pelegarian (human beings as responsible for their own salvation) and it also seems to be sustained by a tacit divinization of humans as “infinite beings” who are “ends in themselves” with “unalienable rights.”

    Such Liberalism may be better served by recognizing its own roots in theology. Such a recognition may allow it to more successfully battle messianic human impulses which appear almost universal and reoccuring especially in our “secular” age.

    1. DownSouth


      There was a time when, if someone were to suggest that my economic and political beliefs are theologically based, it would have made me angry. But the more I read and study the more I have come to realize that they are theologicaly based. Economics and politics are way too complex for it to be any other way.

      On the pessimism-optimism continum, I’m more optimistic about society than Frank Knight, but not so much as the Marxists and other utopian central planners. Likewise, I’m much more pessimistic about the individual than Frank Knight, but not nearly so as Hobbes. There’s a tension between the individual and society, a balance that needs to be maintained.

  28. nowhereman

    This has to be one of the best discussion I’ve seen on any topic anywhere. Thank you ALL.

    1. johnC

      Agreed. Thank you Prof Black.

      I can’t help wondering if you haven’t missed a link in the chain from the S&L to today.

      Have you any familiarity with what happened at Lloyds of London? If not I suggest you read the piece by David McClintick in Time Magazine (Feb 21, 2000).

      When they dumped Glass-Steagal they did worse than let the investment bankers into the Temple: they let in the underwriters.

  29. Justicia


    You are to be commended for stimulating such a rich conversation. Hands down, this is one of the best, most thoughtful exhanges on the Internet.

    Thank You!

  30. Cynthia

    WikiLeaks should also become a whistle-blowing website for financial fraud. But instead trying to frame Julian Assange for sexual assault, as the war criminals at the Pentagon are trying to do, the financial fraudsters on Wall Street would’ve skipped over all of that sissy stuff and gone straight for his jugular.

  31. Bill Jones

    “When judges are elected, the need for these contributions inherently turns judges into politicians. ”

    Judges have always been politicians. The Infrequency of their appointments tends to hide, but does negate, that fact.

  32. 2020 Speculator

    This piece is defamatory rubbish. To lump the Olin Foundation with Austrian School economics is laughable.

    No one funded by Olin has EVER advocated a free market in money production.

    There is no connection. Rothard – a true Austrian – advocate HEAVY regulaton of the financial markets to the point of advocating 100% full reserve banking! How does this square with the law and economics deregulation crowd???

    Austrians have been completely purged from academia. The law and economics crowd NEVER refers to Mises or Rothbard.

    This is like a communist blaming speculators when food isn’t available. Deflecting blame to the Austrian is a cheap trick and doesn’t work when people can read the warnings real Austrians were giving about the dangers of deregulation. Just one example:


    1. Bill Black

      “Speculator” responded to my column on theoclassical law and economics with this claim:

      “Austrians have been completely purged from academia.  The law and economics crowd NEVER refers to Mises or Rothbard.”

      Speculator apparently missed the Wall Street Journal’s ode last week to George Mason University’s Peter Boettke for his role as a prominent Austrian economist.
      Professor Boettke posted this comment on an Austrian web site on August 30:

      “Thank you to many who have congratulated me on the Wall Street Journal profile.  The real story obviously isn’t about me, it is about the amazingly enthusiastic and talented students that I have had the honor to work with at GMU, and the amazingly supportive colleagues at GMU.  I have at last count chaired 22 PhD dissertations, 19 are now teaching or working in a research position at various universities and colleges.  If you count 2 additional students that are already in teaching positions, and have completed their dissertations but yet to defend, the count would be 24 PhD students with 21 of them in academia. That is just over the past 12 years.”

      Some “purge.”  Boettke’s post refers repeatedly to Mises, Hayek, and Rothbard.  What “Speculator” also misses is that many law and economics professors are not economists.  They are lawyers and they are often heavily influenced by Austrian perspectives.

      Other prominent Austrian economists who received support from Olin, include a scholar that spent much of his career at one my school’s sister institutions (University of Missouri – St. Louis):

      Lawrence H. White

      F. A. Hayek Professor of Economic History http://www.umsl.edu/~whitelh/hayek.html
      Department of Economics http://www.umsl.edu/divisions/artscience/economics/economics.html

      John M. Olin Foundation Faculty Research Fellow, 1988-90

      Thirty seconds of searching the net will show that law and economics scholars often discuss Austrian perspectives.  From the Ludwig von Mises Institute:

      “Apropos nothing, I’ve just added a few pieces to my site scanned from my paper files, on the topic of (Austrian) law and economics:

      *       Becker, Joseph, Procrustean Jurisprudence: An Austrian School Economic Critique of the Separation and Regulation of Liberties in the Twentieth Century United States http://www.stephankinsella.com/wp-content/uploads/texts/becker_procrustean-juris-austrian-law-econ.pdf
      *       Crespi, Gregory Scott, Exploring The Complicationist Gambit: An Austrian Approach To The Economic Analysis Of Law http://www.stephankinsella.com/wp-content/uploads/texts/crespi_complicationist-gambit-austrian-law.pdf
      *       Katz, Avery Wiener, Positivism And The Separation Of Law And Economics http://www.stephankinsella.com/wp-content/uploads/texts/katz_positivism-separation-law-economics.pdf
      *       Schwartzstein, Linda A., Austrian Economics and the Current Debate between Critical Legal Studies and Law and Economics http://www.stephankinsella.com/wp-content/uploads/texts/schwartztein-linda_austrian-law-economics-cls.pdf  (in: Symposium: The Future of Law And Economics), 1992
      *       Wonnell, Christopher T., Contract Law and the Austrian School of Economics http://www.stephankinsella.com/wp-content/uploads/texts/wonnell_contract-austrian.pdf

      Update: “Economic Analysis of Tort Law: Austrian and Kantian Perspectives”, by Edward Stringham & Mark White (available on Stringham’s publications page http://www.sjsu.edu/stringham/Pubs-stringham.html )

      Related posts:

      1.      The Austrian School in Brazil http://blog.mises.org/12384/the-austrian-school-in-brazil/
      2.      Foss & Klein: “Austrian Economics and the Transaction Cost Approach to the Firm” [Libertarian Papers] http://blog.mises.org/10815/foss-klein-austrian-economics-and-the-transaction-cost-approach-to-the-firm-libertarian-papers/
      3.      The Market for Austrian Economics http://blog.mises.org/7308/the-market-for-austrian-economics/
      4.      Mundane Austrian Economics http://blog.mises.org/8739/mundane-austrian-economics/
      5.      It’s Ostrom and Williamson http://blog.mises.org/10810/its-ostrom-and-williamson/


      1. tz

        You avoided the point. I’ve read most of Mises and Hayek, and don’t think mises.org has much to do with their thought.

        I have my problems with Rothbard when he ventures outside of economics, but even his economics isn’t taught. That is the point Speculator was making.

        Heretics often take the names and words of the orthodox.

        Speculator cited one (and I could cite many more) of – for lack of a better term – the orthodox Austrian school – that said “deregulation” was anything but what it was advertised. Nor do I consider the WSJ any arbiter of who is or is not of the Austrian school even if they quote Mises and Hayek no more than quoting the Old Testament makes one Jewish.

        You have not cited one orthodox Austrian work (in economics) of an established member of the school and explained how it is wrong or even that you disagree with it.

        You should be above this sort of thing. I used to respect you and what you said and prescribed because I thought you were fair and did your homework and studied everything carefully and didn’t take anything on surface value. I was apparently wrong.

        Semantic confusion is at the root of a lot of the fraud you complain about, yet “Austrian” is whomever you heard someone via hearsay claim it to be.

        Many of your links point to http://www.stephenkinsella.com who as far as I can tell has few ideas in common with Mises or Hayek but goes off on his own ideas involving anarchy and sticking the label “Austrian” on them much like a chinese toxic toy factory applies an “inspected” label. Or a ratings agency giving out an “AAA”. (I’ve also noted the opposite – some financial types are interventionist yet also claim to be Austrian).

        As much good as the internet does including sites like Wikipedia, nothing should be taken on the surface as authoritative without at least some investigation. But why should I have to tell you of all people that.

        I can create a site called “williamblacktheeconomist.com” and put all kinds of hateful and ugly things there and insure that when people google “william black” it comes up higher than anything you write and everyone would think you are an evil jerk. Would that make you an evil jerk? It would be associated on the internet with your name.

        But this leaves a problem. Too many people believe that the radical anarchy or even corruption proposed by some is really what the “Austrian school” teaches. I do not know how to clear up the confusion.

  33. Troy Ounce

    You are attacking a symptom, not the cause. The cause is your system which opens itself for abuse.

    “The Supreme Court’s Citizens United decision allows businesses to make unlimited political contributions to judges and politicians”.

    I have not read Citizens United, but if this is true, discussions are useless if the highest court allows to grease the hands of the judges.

    Austrian or not, it is immaterial. It is moral decay.

  34. Moby

    Corporations having the right to sign contracts makes sense. It was the 1886 Santa Clara Railroad case that extrapolated this legal “personhood” to mean that the 14th Amendment applies to these “people.” The extension of 1st Amendment rights is just a continuation of this logic.

  35. Nikki

    Isn’t the solution to have state and local judges appointed by the state’s governor and confirmed by its senate rather than elected? That’s how the US Supreme Court nominations work: appointed by the President and confirmed by the US Senate.

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