Galbraith: why economists won't discuss fraud
August 8th, 2011
August 8th, 2011
On p28 of the UK edition of Treasure Islands, I write:
Almost no official estimates of the damage exist. The Brussels-based non-governmental organisation Eurodad has a book called Global Development Finance: Illicit flows Report 2009 which seeks to lay out, over a hundred pages, every comprehensive official estimate of global illicit international financial flows.
Every page is blank.
It’s a gimmick, but an important and telling gimmick. (Take a look at the picture: if you’re interested, the book’s cover looks like this). Now, for something I wrote yesterday on the TJN blog:
A startling quote from James K. Galbraith:
“[what] you cannot get – not at a meeting sponsored by the International Monetary Fund, not from the participants at the Institute for New Economic Thinking – is any serious discussion of contract law and fraud. I’ve tried, repeatedly. No one will deny, in response to the question, the role that fraud played in the financial debacle. How could they? But they won’t discuss it either.”
He explores why, looking at this in a Keynesian framework. It goes a long way towards explaining why economists have paid so little attention to tax havens.
And he has some frightening things to say, along the way:
“The corruption and collapse of the rule of law, in the financial sphere, is basically irreparable.“
“we are at the end of the illusion of a market place in the financial sphere.”
“what we’re dealing with here and what we need to recognize is not an interruption to a long process of economic growth, a recession or some shock to aggregate demand. It is an incurable disease at the heart of the system.”
Strong stuff. He has some policy prescriptions, and rounds it off with these stirring words:
“I will not pretend, as Keynes did, that nothing stands in the way but a few old gentlemen in frock coats who require only to be bowled over like nine pins and might enjoy it if they were.
We should take on this challenge simply as a matter of conscience. We are not contestants for power. It is for us a matter of professional responsibility and civic duty.
My friend Bill Black, who has some experience in this area, likes to say, in the words of William of Orange, that it is not necessary to hope in order to persevere.”
Back to fraud and illicit flows. It seems, we aren’t much further on in our quest for illicit financial flows. I mean the World Bank, for instance, are grudgingly admitting that they need to reference Raymond Baker’s seminal work on illicit financial flows running at $1-1.6 trillion per year, although they still seem to shy away from his latest estimates, which are much scarier. One of Baker’s purposes in producing these figures was to spur august bodies like the World Bank to study this stuff. It hasn’t even tried. Galbraith’s words about the unwillingness to study fraud can be applied equally to the study of illicit financial flows.
Even so, the conclusion that can be drawn from the World Bank’s cited figures, that repatriated stolen assets amount to (at most) just 1/1500th of total lost to developing countries, is nevertheless useful.
Reposted from the Treasure Islands Blog