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  April 25, 2011

23 Things They Don't Tell You About Capitalism Pt.8

Ha-Joon Chang: Financial markets need to become less--not more--efficient
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23 Things They Don't Tell You About Capitalism Pt.8PAUL JAY: Welcome to The Real News Network. I'm Paul Jay. A drumroll, please. We're at the final segment of 23 Things They Don't Tell You About Capitalism with Ha-Joon Chang. Thanks for joining us again.

HA-JOON CHANG: Thank you.

JAY: Alright. So we're winding it up. Thing 22: Financial markets need to become less--not more--efficient. So that's not what we're being told.

CHANG: That's right. Yeah. Well, you know, in the last two, three decades, all over the world but especially in the US and Britain, where I live, this idea has spread that finance is the new engine of growth, and the best way to let the financial market work is to deregulate it. And, you know, a huge amount of wealth has been built on that platform only to completely collapse in the autumn of 2008. Now, after the financial crisis, some people have come out arguing [incompr.] we should have regulated this better, so let's make it more efficient by making it more transparent, and, I mean, get rid of insider dealing and so on. But there's fundamentally really nothing wrong with the market. It's just that information was not flowing and there were insider dealings. Actually, this is a completely wrong way of looking at it, because the problem with the financial market of today is not that it is inefficient, but it's too efficient, but efficient for the wrong things, efficient in creating speculative gains, efficient in moving money around basically for the sake of making profit rather than, you know, channeling it to long-term productive investment. So [incompr.] the purpose for which these things are used, that is the problem, and not its kind of slowness or lack of transparency. And so, actually, if you have too much transparency, we are overwhelmed by the information. You know, it's not because there was no information that people made all these shady dealings and speculative investments and so on. It's exactly because the incentives were [incompr.] that--I mean, those things are paid much, much better than investing and patiently kind of training your workers and developing your technologies.

JAY: So it's not so much about efficiency at all; it's about is the finance sector actually going to have some useful social purposes.

CHANG: Exactly. Efficiency for whose sake? You know. I mean, yes, very efficient if you're a big banker or big hedge fund manager.

JAY: Yeah. We don't want banks to more efficiently plunder the rest of the economy even more. Right. Okay. Number 23, the end of 23 things: Good economic policy does not require good economists. What do you mean by that?

CHANG: Well, yes, that may be very popular among my colleagues. You know, I bought my union card with that chapter, so to speak. Well, you know, that is this belief, especially in developing countries, that in order to run better economic policies, you need PhDs from Harvard, PhDs in economics from MIT and Oxford, and so on. But, actually, when you look at, for example, the so-called miracle economies of East Asia, these were all run by non-economists.

JAY: In China, the leadership of the [crosstalk] all engineers.

CHANG: Yeah. No, exactly. I mean, in China and Taiwan, not just the political leaders but also these guys who run the ministry of finance, ministry of industry, and so on, they are all engineers and scientists. In Japan these were mostly lawyers. In Korea, I mean, we had more economists than Japan did in proportional terms, but the lawyers were also very predominant. So, actually, these examples make you think. I mean, how come these people who have no professional background in economics could actually engineer an economic miracle, whereas the United States, with economics PhDs coming through its nose, I mean [crosstalk]

JAY: Yeah, we're so surprised when the thing crashed, 'cause it didn't fit all their theories.

CHANG: That's right. Yeah. So, basically, we have to understand that the kind of economics that has dominated the world in the last 20, 30 years, free market economics, is very, actually, bad for the economy. It's that--you know, John Kenneth Galbraith once quipped that the economics is only good for creating employment for economists. But basically the kind of economics that we have been told as the only truth, only right kind of economics is actually very bad for economic development and good economic performance.

JAY: Alright. So, just to wind things up quickly, after writing the book, what are the three or four things you think are needed for a healthier economy?

CHANG: Oh, first of all, we have to get rid of this market fundamentalist ideology, I mean, this belief that even when half your banks have gone bankrupt, even when all your car companies have gone bankrupt, you still believe that private sector is always better than the government. You know, I mean, that kind of ideology first have to go. Secondly, we need more aware citizens. I mean, actually, that is exactly the reason why I wrote this book. You know, as I say in the book, 95 percent of economics is actually common sense--of course, deliberately made [incompr.] by professional economists. And even the remaining 5 percent people can understand its basic logic, if not all the technical details. Despite that, people are scared of economics. Economists have basically figured out a way to scare other people off. So when the economic issues come up, people become very kind of defensive and this is not for me, it's too technical. But we have to know these things to blow these people's cover.

JAY: And if people don't know these things, they have no idea what public policy is actually in their own interests.

CHANG: Exactly. But, you know, when you think about it, people make all kinds of judgments on really big issues without any professional qualification. I mean, you know, I had my view on Iraq War, but, you know, do I have a PhD in international relations? No. You know. I mean, I don't have a PhD in epidemiology, but I still demand that our restaurants should have a hygiene standard. So, actually, you need to see it that way. I mean, people need to learn some basic economics. When I say basic, I don't mean necessarily dumbed down; I mean the fundamental logics and some basic facts, like despite taking 2.5 times more of the national income, the American rich have failed to produce more investment and growth and so on. Only when they know those things, they can become what I call in the book active economic citizens. So we need to encourage people to acquire this knowledge, have a debate, have a informed discussion, so that they can become genuine economic citizens.

JAY: Well, we're going to do a lot more of that on The Real News. Thanks very much for joining us, Ha-Joon.

CHANG: Thank you.

JAY: And thank you for joining us for 23 Things They Don't Tell You About Capitalism on The Real News Network.

End of Transcript

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