One thing economists agree on is that incentives matter, then what's left are (mostly) disagreements

It’s very intellectually stimulating to read Professor Stiglitz’s book, or if you’re as lazy as me, playing his YouTube archive recording of the book launch at UChicago.

Professor Stiglitz’s most provocative point is almost saying the invisible hand doesn’t exist. Making this claim at the University of Chicago is dangerous… But basically, Kenneth Arrow (also a Chicago veteran) proved the conditions under which Adam Smith’s invisible hand claim holds — and showed how narrow those conditions are. Stiglitz’s argument is that then economists cherry-picked Arrow’s conclusion and ignored his caveats. They took a theorem with heavy asterisks and preached it as gospel.

So the consequence is, the financial sector exists to serve the real economy — allocate capital, manage risk, run payments cheaply. Instead, it captured 40% of all corporate profits while failing at every one of those jobs.

And even the supposedly sharpest population aren’t in their clearest mind: about credit default swaps. The setup is beautiful:

CDS outstanding had ballooned to trillions. When asked why firms didn’t net out their opposing bets — A owes B, B owes A — the answer was: “None of these firms are ever going to go bankrupt.” But the entire CDS market was a bet on firms going bankrupt. They were selling insurance against bank failure while insisting bank failure was impossible.

Stiglitz referred to it as

[CDS swap logic] takes a kind of cognitive dissonance that I find is quite impressive…

He could have just yelled MORONS.

The following moment shows how sharp UChicago kids are then — timed at the Q&A, the question is also very nasty: