Columbia's administrators are fooling themselves - Incite at Columbia University

Originally published in the New York Times, Columbia Labor Lab co-director Suresh Naidu writes that Columbia's deal with the Trump administration won't stop government retaliation against the university.

In 1672, Charles II unilaterally suspended repayment of 1.2 million pounds to London’s private bankers. Having run up this debt, and unable to finance a flotilla of ships to fight the Dutch, Charles became neither the first nor the last absolute monarch to break his word. James II, his sibling successor, went further, claiming royal prerogative to bypass laws and purge Protestant judges, generals and functionaries. The solemn oaths he made at his coronation, to respect Parliament and the Church of England, wound up being worth not very much.

James ruled for less than four years, deserting after the Glorious Revolution began the era of parliamentary supremacy. Parliament would approve only those loans it would be willing to pay back with taxes, enabling deals with creditors now willing to lend. By restraining the monarch’s power, it enabled the crown to make deals it couldn’t otherwise get.

In economic history, we teach the 1688 creation of parliamentary supremacy as a solution to what economists call “commitment problems.” In the absence of a third party sufficiently strong to make sure all sides stick to their promises, the powerful can renege on the powerless. The powerless, seeing this, wisely choose to not contract with the powerful. Absolutist rulers are victims of their own lack of restraints; a sovereign who is too powerful cannot get inexpensive credit, because nothing stops the ruler from defaulting on any bond. President Trump, by smashing checks on his authority, has wound up undermining his own ability to make credible deals, including the one just reached with Columbia University, where I teach.

Continue reading at the New York Times.