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Panel Detail:
Tuesday, April 28, 2009
12:15 PM - 2:15 PM
Lunch Panel
A Discussion With Nobel Laureates in Economics: Whither Capitalism?
Speakers:
Gary Becker,
Nobel Laureate, 1992; University Professor of Economics and Sociology, University of Chicago
Roger Myerson,
Nobel Laureate, 2007; Glen A. Lloyd Distinguished Service Professor in Economics, University of Chicago
Myron Scholes,
Nobel Laureate, 1997; Chairman, Platinum Grove Asset Management
Moderator:
Michael Milken, Chairman, Milken Institute
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Nobel Prize-winning economist Roger Myerson enjoys a light moment during Tuesday's lunch session with moderator Mike Milken and fellow Nobel laureate Gary Becker.
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It's become a Global Conference tradition for Michael Milken to moderate a discussion with Nobel laureates in economics, and this year was no exception.
In thinking about how to address the economic crisis, Gary Becker says he would use the first principle of medicine: do no harm. He pointed out that although the U.S. economy is currently facing a number of issues, it is fundamentally powerful and should not be dramatically altered by excess government intervention. Instead, specific changes should be made to attack the weaknesses of the system in the form of regulation that would be more automatic and rule-based rather than discretionary.
His fellow Nobel laureate Myron Scholes added that regulation often has unintended consequences. He proposed that while financial institutions may be regulated, their functions cannot be regulated and that these functions will continue even if financial institutions are regulated to the point of destruction. Tying economic fluctuations to his namesake option pricing model, Scholes explained that volatility increases the value of options and is conducive to learning.
But restoring global confidence in the U.S. financial system is a key step toward economic recovery, according to Nobel Prize-winning economist Roger Myerson. "The rules of the game matter," explained the game theorist, attributing the historic success of Wall Street in part to the political and legal framework in the United States. He foresees economic growth resuming “when some kind of credible financial reform package is articulated and passed through Congress."
On the question of whether capitalism will survive, Myerson was quick to point out that a capitalist system provides mechanisms that solve complex problems in efficient ways. Going one step further, he claimed that a well-functioning financial system "requires respected and wealthy captains of industry." When moderator Michael Milken revealed that in a recent survey, only 53 percent of Americans believed capitalism is superior to socialism, Becker questioned the accuracy of the statistic, arguing that the American public most often votes in the direction of free markets. Citing recent changes in India and China, he stated "capitalism is by far a much more successful at eliminating poverty."
Discussing a longer-term problem facing the United States, the panel proposed solutions for issues in K-12 education. "If indeed one of the secrets to the success of the United States was the fact every decade from 1880 to 1960 the average person in the United States added one year of schooling, why have we not found an effective solution to this issue?" asked Milken. Resistance to change seemed to be the culprit.
Applying free market principles to the education system, the panel agreed that schools should compete in a system that rewards performance, thereby allowing market forces to determine which teaching methods are most effective. According to Becker, human capital makes up about 75 percent of all economic value and therefore a small increase in human capital could more than offset losses in financial capital.
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