George Akerlof, together with his wife, Janet Yellen, who later became a former governor of the Federal Reserve Board and then the chief economic advisor for President Clinton, analyzed a somewhat similar situation (Akerlof and Yellen 1993). They described a three-party game among potential criminals, the law, and the community. In their game, the community decides whether or not to cooperate with the police based on their fear of retaliation, hatred of gang activities, as well as their judgement of the fairness of police. Gang members can profit from crimes so long as they elude the law. If they fail, they suffer from punishment. Finally, in their game, the government wants to minimize both crime and spending on police. They consider three alternative outcomes. In one regime, punishment levels are severe. The community considers punishment to be unfair and refuses to cooperate with police. As a result, crime rates are high. In another regime, the government sets punishment levels low enough to be considered fair. Even so, some crime exists because consequences of punishment are not severe. In the third, norms of cooperation are so high that no crime exists. In their model, all three outcomes are possible. Once any of the three regimes comes into being, it can be stable.
Back to Wojtek's point now: few people in the community have any notion of economic crime until it hits them personally and they can identify the malefactor in question. Within the business community, people take pride in skirting the law.
I have a hard time imagining someone at the country club loudly proclaiming that he had a great weekend will molesting young children. I can imagine somebody bragging about how he just saved $2 million in taxes by fictitiously moving money into Bermuda. The case of the synthetic drugs has another dimension: globalization. Laws which might be effective in a local community become much more difficult to enforce where money and products easily can move across borders as in the case of the synthetic drugs.
On Sat, Oct 30, 2010 at 7:06 AM, Wojtek S <wsoko52 at gmail.com> wrote:
> [WS:] By this logic, the legal system and norms make no sense, because
> people will always find a way and commit crimes. Yet, criminal
> activity is rather rare - only a small number of people engage in it
> and only occasionally. In other words, most people are honest most of
> the time. It might be a mind boggling mystery to economists, but not
> to sociologists. It is so, because economics has a fundamentally
> flawed concept of human behavior that misses its most important aspect
> - social connections and networks.
>
> Plenty has been written about the importance of social networks in
> prevention of malfeasance in business and everyday life (references
> available upon request.) The bottom line is that delinquency is
> effectively controlled in most human societies through informal social
> controls. The fact that criminal gangs, which include many financial
> institutions and corporations, developed criminal subculture that
> justifies malfeasance instead of controlling it is further case in
> point. Banksters break the law (regulations) because they are a part
> of criminal culture - glorified by economic theory - that puts a
> premium on lawbreaking behavior.
>
> Wojtek
>
>
> On Fri, Oct 29, 2010 at 10:51 PM, michael perelman
> <michael.perelman3 at gmail.com> wrote:
>> A little more than a year ago, I posted a note using football as a metaphor
>> for the futility of effective regulation.
>>
>> http://michaelperelman.wordpress.com/2009/09/13/the-futility-of-financial-regulation-lessons-from-science-and-professional-football/
>>
>> Some people dismissed the football metaphor. The Wall Street Journal today
>> has a story about how people design new psychotropic drugs to get around
>> regulation. It may be that these new drugs are more dangerous than banned
>> drugs. In all likelihood, they can design these drugs faster than the
>> government can make regulations.
>>
>> How in the world can regulators get ahead of financial industry or tax
>> lawyers, even if the lobbyists were not writing the regulations or the tax
>> codes.
>>
>>
>> Whalen, Jeanne. 2010. "In Quest for 'Legal High,' Chemists Outfox Law." Wall
>> Street Journal (30 October).
>> http://online.wsj.com/article/SB10001424052748704763904575550200845267526.html?mod=WSJ_World_LeadStory
>>
>> --
>> Michael Perelman
>> Economics Department
>> California State University
>> Chico, CA
>> 95929
>>
>> 530 898 5321
>> fax 530 898 5901
>> http://michaelperelman.wordpress.com
>> ___________________________________
>> http://mailman.lbo-talk.org/mailman/listinfo/lbo-talk
>>
>
> ___________________________________
> http://mailman.lbo-talk.org/mailman/listinfo/lbo-talk
>
-- Michael Perelman Economics Department California State University Chico, CA 95929
530 898 5321 fax 530 898 5901 http://michaelperelman.wordpress.com