Some conspiracies are real...

I wrote a while back in Bloomberg about the mystery of how so little has changed in economics and finance, despite the crisis. I mentioned there the great new book, “Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown,” by economic historian Philip Mirowski. It reads a little like a conspiracy theory, as he argues that defense of the academic status quo in economics and finance also serves an array of interests in business and finance for whom the “markets always work best” mantra paves the way to profit. Hence, the profession’s claim that nothing is seriously wrong with economic thinking has found ready allies, especially in conservative and libertarian-leaning think tanks and foundations.

 The picture above is of Polish economist Michael Kalecki, who died in 1970. Lars Syll points out that Kalecki had some very wise things to say -- and not all that different from Mirowski -- about the convenience of many "principles" of economics for industrial interests:

Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of ‘sound finance’ is to make the level of employment dependent on the state of confidence.

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Corporate psychopaths

Unmissable by way of Money Science, how the financial crisis emerged from an industry of business and finance that actively recruits social psychopaths due to their superior skills in morally unconstrained decision making. The original article is an essay by my fellow Bloomberg columnist William Cohan:

It took a relatively obscure former British academic to propagate a theory of the financial crisis that would confirm what many people suspected all along: The “corporate psychopaths” at the helm of our financial institutions are to blame.

Clive R. Boddy, most recently a professor at the Nottingham Business School at Nottingham Trent University, says psychopaths are the 1 percent of “people who, perhaps due to physical factors to do with abnormal brain connectivity and chemistry” lack a “conscience, have few emotions and display an inability to have any feelings, sympathy or empathy for other people.”

As a result, Boddy argues in a recent issue of the Journal of Business Ethics, such people are “extraordinarily cold, much more calculating and ruthless towards others than most people are and therefore a menace to the companies they work for and to society.”

Money science also links to this article by Brian Basham, also describing Boddy's work. Listen to this:

Cut to a pleasantly warm evening in Bahrain. My companion, a senior UK investment banker and I, are discussing the most successful banking types we know and what makes them tick. I argue that they often conform to the characteristics displayed by social psychopaths. To my surprise, my friend agrees.

He then makes an astonishing confession: "At one major investment bank for which I worked, we used psychometric testing to recruit social psychopaths because their characteristics exactly suited them to senior corporate finance roles."

Here was one of the biggest investment banks in the world seeking psychopaths as recruits.

The Money science article goes on to give a surprisingly long list of recent books and papers which have explored the role of psychopathology in finance and other corporations. All heart warming stuff, further evidence, I guess, that we really do live in highly civilized and well organized societies.

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