Further to the glaring capture of the Fed and regulators by the large investment banks, yesterday I read a very important paper by professor Luigi Zingales documenting similar capture among finance and economic academics.
The paper is long and detailed, but immensely readable and well worth the time. Importantly, Zingales ends with 9 actionable reforms that can be implemented today in order to reduce the ties that have been subjugating truth, critical thought and accountability among the academics who are supposed to be independent thinkers:
“Awareness of the risk of capture is the first line of defense. It might not be sufficient protection, but it is certainly a necessary one. Without this awareness any other initiative is hopeless. Unfortunately, my experience talking with colleagues is that this sense of awareness is missing. There is a diffuse perception that we are different. While a simple application of economic principles, like I have done in this article, shows that we should be no different than regulators, we are unwilling to admit it. Until we are ready to do so, any other mechanism to prevent capture will be useless.
Most academic economists are very honest people, who chose their career because they were motivated by noble goals, like the quest for the truth and “making the world a better place”. Yet, the same can be said for the regulators. So why academic economists think that the regulators are generally captured, while they cannot stand even the thought that this might happen to one of them? This time we are different?”
You can read the whole important paper here, see: Preventing Economists’ Capture