North Korean Incentive Structures for Economists

A saying goes that “acceptable unemployment is defined as the level at which the Government economist writing the report still has a job.” Certainly, it can be argued that in most countries, economists tend to be quite insulated from the consequences of the policies they propose. Apparently, this is not the case in North Korea. After a major currency reform last year failed completely, the high-level economist Pak Nam Gi, former finance director for the North Korean “Worker’s Party”, was convicted of treason for “ruining the national economy as the son of a big landlord who infiltrated the ranks of revolutionaries” and executed by firing squad.

The policy environment leading the execution of the North Korean economist, who was most likely a scapegoat, is hardly one that should be emulated. However, I can’t help but think about how the U.S. or Europe might have looked in the wake of the financial crisis if a more North Korean approach had been taken during the witch-hunt that followed it (and is still ongoing).  Could you charge Richard Fuld with treason for over-leveraging, or Eugene Fama for trying to make people think that capital markets are efficient?. Certainly one would expect the emergence of a slightly more risk-averse financial sector.

For a more realistic discussion about discretionary power being given to regulators, check out The Epicurean Dealmaker’s recent post about fire alarms, strong men, and big axes.

Thanks goes to loyal Evolution-Revolution reader and good friend Jan Petter Janssen, creator of Developing Trader, for the tip about Pak Nam Gi.