If you are so smart, why aren’t you rich? MITI version

If you are so smart, why aren’t you rich? This is the American question – asked of MIT’s Paul Cootner by a money market manager in the 1960s.

Why do investment advisors sell and often give away their sage advice? If their insights were any good, they could trade on the share market before others caught on and make a killing!

Deirdre McCloskey wrote a book about the limits of economic expertise. For a summary, see http://www.deirdremccloskey.com/docs/pdf/Article_168.pdf.

I will give a personal example based on the skills of bureaucracies in picking winners. The test of my hypothesis is based on the transferability of human capital across jobs.

My graduate school professors in Japan included many retired bureaucrats from the Ministry of Finance and MITI. These agencies were heralded by Joe Stiglitz and others for picking winners and guiding Japanese companies to choose the right technologies and what to export.

The skills that my graduate school professors learned at picking winners over their careers with the Ministry of Finance and MITI in the high-growth years in the 1970s would now be available to them in their retirements to trade on their own account.

My graduate school professors should quickly become very rich after retiring because of the skills they learned in picking winners while at the Ministry of Finance and MITI, which should cross over into their private share portfolios. The rich lists world-wide should be full of retired industry and finance ministry bureaucrats.

Instead, my graduate school professors took the train and bus to work and their families lived off their salaries in standard sized Japanese government apartments. All looked forward to their annual bonus of 5.15 months salary.

If governments are any good at picking winners, people should be willing to pay big time to get jobs at ministries of finance and ministries of international trade and industry to get access to their unique and highly secret skills they learn therein on how to pick winners. I am still waiting for that tell-all book by an insider on these skills. Why is there no Picking Winners for Dummies on Amazon kindle as yet?

P.S. McCloskey argued that the advising industry lives off 19th century case law on directors’ and trustees’ duties. If you take advice – from an accountant, a lawyer or an economist – and the business or investment still fails, it can’t be your fault. You took advice.

P.P.S. Cootner’s reply was “If you’re so rich, why aren’t you smart?” The answer to this was Wall Street investment brokers didn’t have to be smart to get rich; they can make money off fees and brokerage commissions even when their investment advice stank. Didn’t you watch The Wolf of Wall Street?

4 Comments (+add yours?)

  1. Paul Walker
    Mar 15, 2014 @ 05:44:30

    A discussion of the role of government in growth in East Asia is provided by Powell, B. “State Development Planning: Did It Create an East Asian Miracle.” Review of Austrian Economics 18, no. 3 (2005): 305–323 and its not supportive of the idea.



    • Jim Rose
      Mar 15, 2014 @ 12:20:46

      Thanks Paul, I am not sure that Ben contradicts me. I agree that the East Asian Miracle was based on capitalism.

      External threats, the dramatic break-ups of established interest groups, and low taxes were the enablers of market-led rapid development in Japan, Singapore, South Korea, Hong Kong SAR, and Taiwan. Post-war trade liberalisation and tariff cuts gave these countries much greater access to major export markets. This allowed export production to expand with few limits. Institutional reforms and imported new technologies increased employment and incomes through exporting. This allowed the losers from the economic changes to be compensated either directly or with new employment opportunities in the export industries (Parente and Prescott 1999, 2005; Olson 1982, 1984; Acemoglu and Robinson 2005).

      Mark Ramseyer in Ramseyer, J. Mark & Yoshiro Miwa. “Capitalist Politicians, Socialist Bureaucrats? Legends of Government Planning from Japan,” Antitrust Bulletin (2003) argued that MITI simply did not matter that much. Japanese voters did not want interventionist bureaucrats, and consistently rejected communist and socialist candidates that offered interventionist approaches. The voters chose a centrist, decidedly non-interventionist party. Reflecting these exigencies, the LDP seldom gave their bureaucrats the authority to alter market investment and production decisions and Japanese courts strictly restricted bureaucratic discretion. Japanese politicians and bureaucrats encouraged stories that disguised ordinary pork-barrel policies as growth-enhancing interventions.

      Ramseyer’s books on public choice and pre- and postwar Japanese politics are great and will be the subject of another post.

      David Weinstein in “Growth, Economies of Scale, and Targeting in Japan (1955-1990),” with Richard Beason. Review of Economics and Statistics 1996 argued that MITI and the government development banks, where I taught English, picked losers – gave support to low-growth industries.



  2. Jim Rose
    Oct 03, 2014 @ 14:00:06

    Reblogged this on Utopia – you are standing in it! and commented:

    corporate welfare is all the rage in NZ today.



  3. Trackback: Piled Higher And Deeper | The Arts Mechanical

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