Meanwhile, the real looters go scot-free
The looting and mayhem in Britain's worst riots in decades have people scratching their heads and asking how this could have happened.
The impact of watching this looting on TV is visceral. But the British looters don't hold a candle to the real looters of the millennium: the men - and a few women - in immaculately tailored suits who ran their financial institutions into the ground, then walked away scot-free with their billion-dollar bonuses, leaving governments and taxpayers holding the bag.
As the US economist Paul Romer defines it, economic looting occurs when 'firms have an incentive to go broke [i.e., bankrupt] for profit at society's expense instead of going for broke [to gamble on success]. Bankruptcy for profit will occur if poor accounting, lax regulation and low penalties for abuse give owners an incentive to pay themselves more than their firms are worth. It occurs most commonly when a government guarantees a firm's debt obligations.'
Today, the government budget infighting in Washington and the sovereign debt crisis in the euro zone are the direct consequences of the socialisation of private losses. The global-scale looting has caused dysfunctional governance in the US and elsewhere, and threatens to break up the European Union.
It is also directed at the world economy. Today, taxpayers and citizens the world over are paying a heavy price for the mistakes and looting committed by bankers, traders and financial engineers. Elaborate myths are being constructed in the most advanced economies to induce amnesia about the real cause of our current predicament.
Let's send in the police to go after the real looters.