Financial Regulators Snub A Nobel Prize Economist

No, it’s not Paul Krugman – though that would have been a good guess.

Salon reports that this particular economist has apparently been blacklisted by government regulators because his candor, integrity, and outsideriness scares the bejeezus out of the entire financial industry.

If the government were creating a new panel to advise on financial regulation, it would make sense to include a Nobel Laureate considered one of the most influential living economists. Yet Joseph Stiglitz has been barred from such a panel, telling Bloomberg he was out because “they may not have felt comfortable with somebody who was not in one way or another owned by the industry.”

The fight to keep Stiglitz off the panel is indicative of a much deeper problem — how the financial industry manipulates the regulatory system. The financial industry does not want Stiglitz on the panel for a simple reason: he has committed the crime of advocating for a modest financial transaction tax. Stiglitz argues that while financial markets normally serve the important function of capital intermediation, some forms of trading, like high-frequency trading, make markets less stable and amount to making money by moving money around. To reduce the incentives for such trading while raising revenue, he has put forward the possibility of a tax on some forms of short-term trading. Such a proposal has gained traction within academia and is already being implemented in Europe. (And it actually used to exist in various forms in the United States.) …

Domestic financial regulators need to include advocates for financial sector regulation like Professor Stiglitz. There is some bright news, like the recent appointment of a fomer community banker to the Federal Reserve. But this is only a first step: Congress should listen to Stiglitz and pass some form of a financial transactions tax. A pilot project could take place in New York by simply lifting the 100% reimbursement rate on a tax already on the books. In Congress, Representatives Harkin and DeFazio have already proposed a bill that would have generated $350 billion between January 2013 and 2021. But changes to the industry won’t happen until the government pursues stricter lobbying regulations and appoints strong financial sector regulators.

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