Dare I Defend Bonuses? Not really.

Paul Coller, an Oxford Economics Professor writes today:

But their return on all that smartness is primarily the result of the enormous rents on superior short-term information in the selection of financial assets. Although capturing those rents is privately profitable, it is socially useless. Quite obviously, the financial sector has not added a third of all corporate value to the real economy: even at their best, financial services merely facilitate real activity. The rents are transfers from the poor suckers who sell assets a little too cheaply, and buy assets that are a little overvalued...Those poor suckers are me and you, via our pension funds.

An economics professor should know better than to think capital efficiently allocates itself. In one of my prior jobs, we used to joke we were the grease that makes the machine of "capitalism" run smoothly. [Let me take a digression here to help you understand my way of thinking, because I hate to use that word. Powell's bookstore in Hyde Park, Illinois, had the finest collection of used academic books you could imagine when I was a grad student. Their staff received incredible training in all fields of academic endeavor. They're in the shadow of the University of Chicago. This also meant well educated staff. One night I'm listing to training while I browse. Trainee says: "This book goes in the economics section." Senior staff says: "No, you think it goes in economics because it says 'capitalism' in the title. In fact, that means it goes in the Marxism section."] Implying capital would efficiently allocate itself, or worse, that government bureaucrats could do it, implies insanity in the Oxford economics department.