UPDATE: Lots of people showing up from the quite bad New York Times article about this, which Jonathan Chait has already dealt with, and leaving comments that don't add to the conversation. So note that (i) I will prune comments that I think add to misinformation, and (ii) please think about what Professor Xxxx Xxxxxxxxx is saying.

For my part, I marvel at nine things I am still struck by--and marvel at--nine things about University of Chicago Law Professor Xxxx Xxxxxxxxx:

Xxxxxxxxx's eagerness to engage in class war against those richer than he is: his anger at the "super rich [who] don’t pay taxes... hide in the Cayman Islands or use fancy investment vehicles to shelter their income..." who include his own more senior colleagues at the University of Chicago Law and Business Schools. Xxxxxxxxx's eagerness to engage in culture war against Barack Obama: "I’m the president’s neighbor in Chicago, but we’ve never met. I wish we could, because I would introduce him to my family and our lifestyle, one he believes is capable of financing the vast expansion of government he is planning.... [L]ike many Americans, we are just getting by despite seeming to be rich. We aren’t.... [T]he president plans on raising my taxes. After all, we can afford it, and the world we are now living in has that familiar Marxian tone of those who need take and those who can afford it pay..." Xxxxxxxxx's ignorance about American government policy. He talks about "the vast expansion of government [Barack Obama] is planning..." But if you look at the laws that Barack Obama has lobbied for and gotten Congress to pass, in the long run they don't expand but shrink the government relative to what it would otherwise be. Quantitatively, the biggest legislative initiative by Obama so far has been very large long-run cuts in Medicare spending. Henderson is either so ignorant that he does not know this, or so mendacious that he doesn't want his readers to know this. I bet on ignorance. Xxxxxxxxx's lack of standing to complain about the fact that taxes are going up. He was a big supporter of George W. Bush, whose two major initiatives were to expand federal spending via his wars of choice and the unfunded Medicare Part D. As the late Milton Friedman liked to say, to spend is to tax: once you spend you must then tax, and you can tax smart or you can tax stupid, but tax you must. Once again, I don't know whether Henderson knows that to spend is to tax and is simply mendacious in trying to keep his readers from thinking about the consequences of the Bush policies he supported, or whether he is so ignorant that he doesn't know that to spend in the past. Here I bet on mendacity. Xxxxxxxxx as an unreliable narrator. On the one hand, he says that his income exceeds the $250K/year threshold "but not by that much"; on the other hand, he says that his taxes will go up "significantly" and that his current annual tax bill is "nearly $100K". Those are grossly inconsistent. If his household income is near $250K/year, his taxes are not now $100K/year and they will not go up significantly. If his taxes are now $100K a year and will go up significantly if the about-to-expire lower top marginal rate is not reenacted, then his income is way more than $250K/year. Xxxxxxxxx's insistence that the things he spends money on--a 4700 sq ft house in Hyde Park with a lawn big enough to need a gardener, private schools, house cleaners, etc.--aren't things that only rich people buy. Xxxxxxxxx's insistence that he is "just getting by" with a household income that I compute (if his claims about the taxes he pays are accurate) at about nine times American median household income. Xxxxxxxxx's insistence that he "can't afford" to pay higher taxes--even though he has no problem with raising taxes on those richer than him, and had no problem supporting a president (Bush) whose policies created the necessity for general tax increases because, after all, to spend is to tax. I genuinely do not understand why Xxxxxxxxx has his job.

Let me explain that last at greater length.

J.W. Verret wrote:

Todd Henderson will be missed: I am saddened that our co-blogger Xxxx Xxxxxxxxx is putting up his blogging hat. He leaves us with an academic reputation that is unsurpassed, unfortunately I can’t say that the reputation of everyone involved has held up very well in light of the very personal nature of attacks.... I do think, however, that this is a good opportunity to focus the world on the wide range of scholarly work from Professor Henderson.... Here are a few papers of his on ssrn worth reading (this certainly won’t be the last time we link to his work at TOTM): In "Insider Trading and CEO Pay," Prof. Xxxxxxxxx examines the effectiveness of insider trading as a compensation device using a study of 10b5-1 trading plans. His findings are in line with Henry Manne’s original thesis from nearly 40 years ago that insider trading didn’t diminish firm market value on net and may serve a useful purpose as an executive compensation device to motivate managers to maximize the value of the firm...

To which my first reaction is simply: Huh?!

And my second reaction is: No! No! No! Ten-thousand times no! That is simply wrong.

Giving firm managers the freedom to use information they privately have as a result of their jobs to decide when to buy and sell shares of stock does not motivate managers to manage the firm in the interest of shareholders.

If managers free to engage in insider trading know that the next piece of news to be released will cause the stock price to rise, they will buy. If they know that the next piece of news to be released will cause the stock price to fall, they will sell and then buy back later. They don't care whether the news is good or bad--either way they will profit, and either way they will profit equally.

What the ability to engage in insider trading does is that it gives managers an incentive to make the price of the stock vary--they don't care which way. Thus it cannot "serve a useful purpose as an executive compensation device" and cannot "motivate managers to maximize the value of the firm" to shareholders.

Insider trading makes executives' portfolios' long not the company but long the volatility of the company. And shareholders don't want executives making decisions that make the value of companies they own more volatile: stock market investments are risky enough as it is without giving executives reasons to boost the volatility pot.

This claim that freedom to engage in insider trading aligns executives' interests with those of shareholders is so basically wrong, so obviously erroneous, so simply stupid that--well, words fail me.

So here is the original post:

Enough people have linked to this that it is a significant loss for the conversation to delete it, so I am reposting it here from Google's webcache: