A couple of quick notes on "the level-playing field" in financial regulation. This is something that exemplifies beautifully the need for clear "theorisation" of economic reality - contrary to the garbage we get from professional economists. The wrestling and tussling around Basel III and derivatives regulation shows that higher capital and other banking standards will basically destroy European and then Asian banks, much to the advantage of the US counterparts. Here is Daniel Gros with the account, if anyone doubts it, of the dire state of European benking: http://lecercle.le...ules-to-default-by
But next comes the discussion on "level-playing fields" proper at the Economists' Forum (you can link on this page at Martin Wolf's Forum icon). Nietzsche was fond of "taking observations from the street" - and that "street" could easily be Wall Street or Threadneedle Street: Here he goes: this is taken from his "Human, All Too Human":
"25.…The older morality, namely Kant's, demands from the individual those actions that one desires from all men--a nice, naive idea, as if everyone without further ado would know which manner of action would benefit the whole of mankind, that is, which actions were desirable at all. It is a theory like that of free trade, which assumes that a general harmony would have to result of itself, according to innate laws of melioration." (HATH)
In other words, a theory like that of free trade, or the level-playing field, assumes a "general harmony"in the capitalist world market that would come into being "of itself, according to innate laws of melioration". And we know all too well that these "innate laws of melioration" simply do not exist - that in fact the capitalist world market is one of "competition", which means conflict and confrontation.
It is imperative, then, given the clear and present tendency of this "conflict and confrontation" to destroy the very "competition" on which the capitalist world market is founded, that "regulations" be put in place to ensure that this does not occur. So, everyone can now see what is the deadly fallacy in the analysis advanced by Amadi and Hellwig in the latest "Economists' Forum". For whilst we may all agree with them that "regulation" of financial services is absolutely insdispensable to avoid another meltdown of the capitalist financial system, we cannot accept their "relegation" of the speculative wave that caused this meltdown to "externalities" in the functioning of the capitalist "market". If anything, the Global Financial Crisis was caused by "internalities" - that is, by the very "functioning" of the capitalist world market according to its own internal logic and pursuit of "profit" or "value"!
To attribute the GFC to "externalities" that now require imperatively "regulation" is either an act of intellectual idiocy - or, what is worse, one of intellectual dishonesty!!
What we require of "experts" such as the authors of this piece is that they come clean... and "tell it like it is" so that we may draw the proper conclusions.
| June 8 5:58am | Permalink
PS: Just to highlight the glaring fallacy or "begging the question" or "petitio principii" in the argument, let me focus on these three central and successive paragraphs in the above article:"For the economy as a whole, the question is not whether banks are successful but where its resources are most usefully employed. Perhaps those sharp minds in investment banking might have become even more productive in innovative biotechnology?
The best uses of scarce resources are found through an undistorted market system. Without distortions, a firm’s success in the competition for inputs is prima facie evidence that its use of these resources is economically desirable.
However, with externalities such as health effects of pollution, job and income losses from the fallout of the financial crisis, or costs of government subsidies, market functioning is distorted. It is important to correct such distortions by suitable regulation. The elimination of distortions favouring banks will improve the functioning of the market system and enhance economic welfare."
You will notice in the first paragraph that the authors unequivocally and quite falsely confuse "usefulness" with "profitability". The aim of capitalist enterprise is not "usefulness" - it is "profit"!! The fact that the two do not coincide is something the authors ought to point out, and not seek to deceive us!
Similarly, the second paragraph speaks of "an undistorted market system". But when banks used projected income streams from subprime mortgages to launch the wave of "enterprise" that led to the GFC, they were doing so according to the very inherent investment principles, aims and goals of capitalist enterprise, of the "undistorted market", that is, maximising profits!! How, then, is "regulation" supposed to restore the market to being "undistorted"? Or is it not a fact that, instead, it is the "perfectly operating capitalist market" that creates and causes unavoidably these "distortions"??
To compound their dishonesty or utter stupidity, the authors then go on in the third paragraph to speak of "externalities" - as if speculation and financial crises were somehow miraculously "external" to the operation of the capitalist world market!! "Market functioning is distorted" - utter rubbish! "The eliminations of distortions" - nonsense!! "Enhance economic welfare" - you mean "profits"!! Total, absurd, polyunsaturated, unalloyed RUBBISH!!
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