<p>There are defnite benefits:</p>
<p>1.) engineers can cartelize their trade and skyrocket prices
2.) technological development flees the US due to skyrocketing costs
3.) this results in less wars, as a result, increasing population, trade, and demand for new products satisfied by engineers from peaceful countries like Germany and China.</p>
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4 years is also sufficient to produce competent physicians, pharmacists, and lawyers. Example: look at most of Europe and Australia, you can attend professional schools right after high-school, and yet their health-care is competitive with ours. Chiropractics even have to attend professional schools, so why not engineers? They are licensed professionals that are regulated by the state. Engineering has been declining for years now, and are viewed by companies as skilled laborers rather than educated professionals. By making engineering a professional degree, not only will demand for engineers skyrocket, but the best and brightest might be attracted to becoming engineers rather than financial analysts and investment bankers.</p>
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<li><p>For once, I actually agree with sakky - at least, for the most part. However, there is limited information suggesting that employers either do or do not possess an accurate knowledge of employee productivity in the status quo. I personally find sakky’s arguments more persuasive, but there is sufficient doubt that we can question whether changes are really necessary.</p></li>
<li><p>Regardless of the above, I have seen no persuasive argument for making engineering programs professional schools in the model of medical or law schools. Sakky advocates for the consideration of a “more stringent licensing requirement for engineers”. I concur that this idea is at least worthy of consideration. However, there are frameworks already existent in the status quo through which such a proposal could be implemented - most notably, the FE and PE examinations. A more radical alternative would involve the revision of engineering school curricula to include more rigorous standardized examinations.
Eh, that seems kind of contradictory. If bankers took risks based on the assumption that they would be bailed out by the government, the situation doesn’t really represent a failure of the free market.
You win this thread.
Define “professional school”.</p>
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<p>No, and I never said that it was. In fact, that’s my whole point: it was entirely rational for bankers to behave in the manner that they did by virtue of the incentives provided by the market, under the assumption that they would be bailed out. </p>
<p>That’s been my point all along: a true free market doesn’t exist and never will, however much some people might wish it would. Whether we like it or not, as long as financial services firms are allowed to spawn deep-rooted and interlocking cross-party tendrils that pervade the market in unseen and unpredictable ways, then governments will always bail them out in the fact of liquidity and solvency concerns. {One simply has to note the continuing crisis in Europe: Eurozone governments have been bailing out the sovereign debt of their periphery members precisely because they don’t dare to allow creditors of that debt to take haircuts. Yet who exactly are those creditors, if not large European banks?} The purely free market remedy - where no large and intertwined banks are ever bailed out - is a pipe dream, for governments will always bail them out. Nobody dares to have another Lehman on their hands. </p>
<p>The only free-market solution, such as it is, that may be workable is to reduce the size and cross-linkages amongst the financial services firms such that no one, or even no group, of failing firms will require a bailout. But that too requires regulation. Government would have to dictate which firms would be allowed to interact with whom, via certain sorts of securities and contracts but not others, and be allowed to grow to a certain size but not more. Firms would then be allowed to succeed or fail according to the market incentives placed before then, but under market strictures as defined by the government. </p>
<p>The bottom line is that we have two choices. We either allow financial services firms to do whatever they would like, which would necessarily mean that some of them will become develop large, interlocking obligations that would be backed by implicit government intervention. Or, we restrict the ability of those firms to develop such risky obligations, again, through government intervention. But either way, governments must necessarily intervene somehow. The only practical question on the table is then to determine which type of government intervention is more appropriate, and then how to provide it properly. But an entirely unregulated free market is not on the table and never will be.</p>
<p>That gets to the more general point that I’ve been making throughout this thread with TomServo regarding the practical limits of economic theory. However much economists might wax philosophic of a purely free market that maximizes economic efficiency, as a practical matter, that system will never exist. Politics matter. Voters in a democracy will always vote for some government policies that may not be economically efficient. Medicare may not be efficient - although arguments persist - but it remains one of the most popular government programs in US history. It’s not going anywhere. Similarly, leaders in a dictatorship will always choose some policies that may not be economically efficient. Perhaps the Gulf States should privatize their behemoth state oil companies as a matter of economic efficiency. But as a practical matter, it’s not going to happen anytime soon. Probably not in our lifetimes. </p>
<p>Similarly, uninternalized externalities will always exist. Informational problems will always exist. Natural monopolies or oligopolies will always exist. Organizations with inefficient internal operations will always exist. And, of course, the manipulation of consumer utility functions through marketing will always exist.</p>
<p>Hence, given that free markets will always be distorted, the only relevant question is to determine which policies may improve overall welfare and which do not. And that’s ultimately an empirical question that cannot be answered by theory alone, and never will be.</p>
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<p>Unfortunately, as a practical matter, this point is untenable. Courts and legal systems are organizations, comprised of flesh-and-blood, fallible people… Hence, they are subject to the same distortions as any other organization. </p>
<p>What that means is that legal systems can and will inevitably be subverted to the interests of companies and individuals who have the funding to do so. In fact, it is entirely economically rational for them to do exactly that whenever the ‘marginal revenue’ of twisting a legal system to work in its favor exceeds its ‘marginal cost’. An entire stream of economic literature regarding regulatory capture and public choice economics has been developed around, yes, George Stigler, who seems to be one of your guiding muses, that describes exactly this sort of behavior. </p>
<p>For example, companies could lobby for the appointment of business-friendly judges. They could fund political advertising that boosts those candidates who are likely to appoint those judges. They could fund such advertising in those districts where judges are directly elected. Retired judges who rendered favorable judgments could be hired for lucrative “consulting” sinecures that, despite the absence of an explicit quid-pro-quo, sends the clear signal to the judiciary that if you judge in our favor, you too could be provided the same cushy lifestyle. And of course, companies can engage in ‘regulatory shopping’ by decamping to a jurisdiction that offers the most ‘business-friendly’ legal regime. </p>
<p>What a morass we would have on our hands if that happened, right? Oh wait…all of that happens right now! </p>
<p>The fundamental contradiction of the libertarian school of economics as exemplified by Friedman and Hayek is that it posits the importance of a infallible and incorruptible legal system, backed by the force of government, that reliably enforces contracts, but has nary a word to say about how to realistically construct such a (fantastical) system. Indeed, much of their literature elaborates upon how government systems, including legal systems, can and will be corrupted.</p>
<p>@sakky: I don’t disagree with what you wrote in post #64. I still take issue with your earlier phrasing: “it is the fault of the free market that bankers took the risks that they did”. A better wording might be: it is the fault of the distorted semi-free market in the status quo that bankers took the risks that they did. Given that your arguments regarding the inevitability of such a system are strong, this is just semantics.</p>
<p>Fine, what I should have said was that: “it was the inevitability of (distorted) market incentives that spurred bankers to externalize the risks that they did.” </p>
<p>Which all harkens back to my initial concerns as expressed on this thread. To invoke econ-parlance, I believe that engineers produce large positive externalities to society by spurring technological development and resulting long-run economic growth, and that the most talented engineers generate the most such benefit. Where would we be as a society if Edison, Tesla, and Kilby had not developed the wondrous technologies that underpin modern day life? {If somebody wishes to debate that engineers do not actually provide such benefits to society, I am happy to oblige.} However, such benefits are provided only if they actually work as engineers, rather than the higher-paying consulting or especially finance jobs that tempt away so many engineers, especially the most talented ones emerging from the best schools such as MIT and Stanford. </p>
<p>It might be acceptable to lose that talent, and the accompanying positive externalities, to those other professions if indeed markets truly were free, as the higher pay might signify a strong price signal that the economy requires fewer engineers and more workers in those other professions. But that is not what is happening. Rather, finance pay packets are as high as they are because the finance industry is exploiting a clear market failure derived from imposing a risk externality upon the government through a bailout backstop. Consulting too operates by exploiting market failures, either through superior marketing in intimidating organizations into believing that they require their services (hence, manipulating the utility function of company executives), or by teaching those organizations how to find and exploit market failures themselves. For example, the entire premise behind the vaunted ‘Porter’s 5 Forces’ strategic framework is nothing more than the exploitation of market power to the benefit of the company.</p>
<p>Hence, given that market failures always exist - and that the very profitability and high wages of other industries are predicated on their existence - it is entirely appropriate to investigate whether social welfare could in fact be increased through engineering ‘cartelization’ (if that is the right word). I agree that such cartelization would reduce overall social welfare if markets were truly free. But they’re not, and never will be. Hence, whether any particular move to cartelize any particular market will actually decrease welfare is an empirical question and should be investigated accordingly, without any a-priori prejudices.</p>