The original purpose of limited-liability protection was to encourage investment in – and risk-taking by – corporations, whose resulting innovations would benefit society. Yet by allowing shareholders to profit from the harms caused by corporations, limited liability has evolved into a source of systemic market failure.
NEW YORK – In a recent tweet, Olivier Blanchard, a former chief economist of the International Monetary Fund, wondered how we can “have so much political and geopolitical uncertainty and so little economic uncertainty.” Markets are supposed to measure and allocate risk, yet shares in companies that pollute, peddle addictive pain killers, and build unsafe airplanes are doing just fine. The same goes for corporations that openly enrich shareholders, directors, and officers at the expense of their employees, many of whom are struggling to make a living and protect their pension plans. Are markets wrong, or are the red flags about climate change, social tensions, and political discontent actually red herrings?
NEW YORK – In a recent tweet, Olivier Blanchard, a former chief economist of the International Monetary Fund, wondered how we can “have so much political and geopolitical uncertainty and so little economic uncertainty.” Markets are supposed to measure and allocate risk, yet shares in companies that pollute, peddle addictive pain killers, and build unsafe airplanes are doing just fine. The same goes for corporations that openly enrich shareholders, directors, and officers at the expense of their employees, many of whom are struggling to make a living and protect their pension plans. Are markets wrong, or are the red flags about climate change, social tensions, and political discontent actually red herrings?