Stiglitz is doing violence to Adam Smith here, an author I suspect he has not re-read in a long time.
This quote from Stiglitz would more appropriately reference J.M. Keynes rather than Adam Smith. To wit, Keynes wrote in the General Theory:
> It is better that a man should tyrannize over his bank balance than over his fellow citizens.
Smith, on the other hand, was very clear in advising the government against the conspiracies of businessmen and against viewing rising profits as a sign of national wealth:
> "His employers constitute the third order, that of those who live by profit. it is the stock that is imployed for the sake of profit, which puts into motion the greater part of the useful labor of every society. The plans and projects of the employers of stock regulate and direct all the most important operations of labor, and profit is the end proposed by all those plans and projects. But the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension, of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin...
> "Their superiority over the country gentleman is, not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his. It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction, that their interest, and not his, was the interest of the public. The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always in the interest of the dealers...
> "The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order or men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."
Adam Smith, The Wealth of Nations, Chap. XI, Part III, "Rent of Land: Conclusion".
Isn't this the exact opposite of trust-building behavior? Trust defined as "a firm belief in the reliability, truth, ability, or strength of someone or something." So the author is arguing for more trust in our regulators and laws, because we can't trust the people we are regulating.
I don't think that you way to build trust with a person or group by creating stiff rules and penalties for cheating, you do that after they've proven they can't be trusted. I think a more convincing conclusion for the article would be something along of the lines of: we've learned our lesson that banks can't be trusted, so we need to impose heavier regulation.
If you make clear rules and get people to follow them, and people see that everyone else is following the rules, that makes following the rules normal and rule-breaking an unusual transgression, even without a panopticon.
It's tricky to pull off, but how else would you do it?
If you like fairytales, I can recommend "The emperor's new clothes" by H.C. Andersen.
Apparently large powerful entities aren't to be trusted, except for when they're called "government."
No, I don't believe that at all. The idea is that you give teachers incentive pay to reward high performers and to attract individuals who are better teachers, and to give the high performers a reason to stay in teaching rather than to defect to another field. Similarly, the idea is that you give the CEO incentive pay to incent him to be a CEO, to attract good CEOs, and to keep your good CEO rather than lose him to another company.
Maybe these ideas are flawed, but certainly the notion is not that by giving the CEO incentive pay he will toil for 7 days a week at 14 hours rather than just 6 days at 12 hours.
We also need term limits in congress, no more career politicians, or at least no consecutive terms--take 1 term off between terms. -- Personally I think President should be a 6 year term, sometimes 4 is too little, sometimes 8 is too much. A single 6 year term may make more sense. Senators would be the same a single 6 year term, and that's IT go get a REAL job, - Senators/Congressmen are essentially living on Welfare, we give them posh health plans, good wages, good benefits, and their voters pay all their bills via fund-raising. You should be only allowed one term in each national government position.
In other words, the institutional knowledge shifts from elected Congresscritters to unelected bureaucrats.
