Dashed hopes of growth? What hopes? September 20, 2012
Posted by WorldbyStorm in Economy, Irish Politics.trackback
Reading Dan O’Brien in the Irish Times is sometimes like looking into a parallel universe where the rules underlying of the economy are pulled apart but not put back together, or at least not in a likely configuration. He’s form on this too. From booster of the Celtic Tiger at its most fragile to cheerleader for the orthodoxy one has to be at the very least… hesitant… about his proscriptions.
And today we are treated to a further example of same.
Check this out…
NEW FIGURES show no slowdown in job losses. The number of people at work in the April-June period fell by nearly 14,000, the biggest three-month fall in a year, according to the Central Statistics Office. The figures appear to dash hopes that employment growth is at hand.
They show there were 1,783,400 people employed on a seasonally adjusted basis in the second quarter, meaning there are 357,000 fewer people at work since employment peaked in 2007.
Now why should this be a surprise? Alan McQuaid late of Bloxham summed it up perfectly over the past three years in relation to house price figures as they sank yet further down. I quote from last April:
But analysts warned against too much optimism over the figures. ”Although these latest banking figures are encouraging to some degree, particularly in relation to the deposits side, the underlying message from the data is still one of overall weakness and difficulties in the sector,” said Bloxham’s chief economist Alan McQuaid. ”The bottom line is that Ireland remains a long way from where it wants/needs to be as regards credit demand/availability to get the domestic economy moving again. The reality is that until the banking sector crisis is fully resolved and things improve on the labour market front then the supply/demand for credit will stay subdued in our view, severely hampering the overall recovery prospects for the economy as a whole in the process.”
Where is the stability coming from in a system that is designed by state economic policy (or lack of same) to be deflationary, to continually pull expenditures out of it – whether in the form of wages for public sector workers, curtailed or removed social expenditures, lack of capital investment and so on.
Mind you, enter the populist!
Responding to yesterday’s figures, Fianna Fáil’s employment spokesman Dara Calleary said the Government’s jobs strategy was not working. The same energy that was going into resolving banking and debt issues should be brought to bear on jobs and growth, he said.
Oh yeah, and how about this for a bit of magical thinking.
Mark Fielding of the Irish Small Medium Enterprises Association said: “Small businesses . . . will not create new jobs while they continue to suffer increasing state-enforced costs, lack of bank credit and competition from both the black economy and the social welfare system.”
This system has been built in no small part around the needs of business – the current narrative is only the most accentuated form of that. The crash was precipitated and exacerbated to an almost unbelievable degree by a private sector that ensured that regulation was whittled away. And yet that’s not enough..?
So you think the crash was caused by “deregulation”? Where is your cause-and-effect analysis? Try fake interest rates for the banks and the government, courtesy of the ECB. Some serious deflation is exactly what the country needs to get back on track.
I don’t think the crash was exclusively caused by deregulation – it was one amongst a number of factors. What I said was that it was precipitated by the private sector and linking into the ‘state-enforced costs’ comment by Fielding I mentioned deregulation.
Multiple factors; fair enough.
Ways that governments (specifically the EU/ECB) caused and exacerbated the business cycle (with the help of other Western central banks):
+ Artificially low interest rates, leading to an excessive expansion of credit by the entire banking system and a distortion of each economy’s capital structure.
+ The creation of a Europe-wide banking system under the Euro, implying a central bailout in the event of crisis and thereby making it even easier for banks in the system to expand.
+ Pooled European sovereignty with the implication again of a central bailout in the event of a national bankruptcy, leading to unjustifiedly cheap and exorbitant borrowing by national governments.
+ Deposit insurance for banking customers, deleting the incentives for customers to put their money in a safe place.
+ Excessive governmental regulation of the banking system, creating a huge dearth of competition – if you don’t believe me, just look at the legal/regulatory hurdles blocking the creation of new banks in each jurisdiction.
+ Monetary policy in most countries which is deliberately designed to produce an increase in consumer prices: attacking savers and encouraging excessive risk-taking in the search for a positive real rate of return.
+ Responding to the onset of crisis by pursuing more extreme versions of all of the above policies, i.e. attempting to solve the crisis by doing even more of the same things which caused it in the first place.
Since it is the topic of the post, GM, you might want to fill us in on what you mean by ‘excessive regulation’.
My suspicion is that this will boil down to you saying any regulation is to much and, perhaps, even the very existence of a government and central bank is regulation and ‘distorts the market’.
Bank regulation is too vast to explain in detail. Read this for a flavour: http://www.howbankingworks.ie/index.php/banking-industry/how-to-start-a-bank-in-ireland
Realistically speaking, it’s impossible to start a new bank from scratch. The State has prevented any new Irish bank from being created in decades. Yet people still blame capitalism and the free market when there are problems in the banking system!
The state has prevented any new Irish bank from being created in decades.
Support for this statement. And the link you provide does not answer the question: what is it that you qualify as excessive?
All you need to do to contradict me is show any new Irish bank which was created in modern times, which was granted a new license from the regulator (not a passport license for a foreign bank), and which successfully competed against the incumbents. There are none. Maybe there were a few who tried, but I don’t know of any. It would not surprise me if nobody even attempted to do it. The regulations are such that you need to already be a very large, rich institution before you can afford the sort of compliance departments which would be able to deal with them. It’s not a free market, but the free market is always blamed.
I don’t think any arguments for central control or monopolies over the banking system are justified.
Jesus Christ man, you were asked to prove your statement that the state has prevented a new Irish bank from being formed. And your proof is that none have been formed and that, ‘it would not surprise me if nobody even attempted to do it.’ That’s not proof, that’s just more blind assertion.
It’s like me saying that the state has actively tried to discourage the Zoaroastrian religion in Ireland, the proof being the disgraceful lack of fire temples in our main cities.
Not quite, Eamonn. As you are probably aware, finding evidence for something that doesn’t exist is hard to do. I can’t find evidence for anyone having attempted to set up a new bank in Ireland for decades. In almost any other industry, that would be extremely unusual. But no other industry faces the unbelievably severe regulation which banks do. Check the link I gave for an introduction to it.
This exchange almost makes GM’s tedious participation in the comments section worthwhile. What a fucking idiot.
There’s probably a more prosaic explanation for why no new bank has been established here in recent decades. Although one which will not minister to a Randian’s ‘big bad state stopping entrepreneurs’ mindset.
Over the past few decades, as a few seconds thought on the subject would probably reveal, dozens of foreign banks have opened branches and operations here (you’ve probably seen the IFSC GM, no?).
In a context where there are already a handful of solidly established indigenous banks and where other new entrants to ‘the market’ are popping up like mushrooms why bother going to the effort of starting a bank from scratch when you could buy a portion of an already existing bank or team up with a foreign bank looking to enter the Irish ‘market’.
Again, I don’t care if people are rude. That’s what I expect.
CMK: they are mostly doing funds administration in the IFSC. They don’t have retail customer deposits.
When AIB/Anglo/BoI ran into trouble, there could have been ten or fifty small banks or alternative institutions to take their market share. Even if alternatives didn’t exist before the crash, they could have been created after the other ones failed. But nothing happened. Even as people started buying gold coins and hiding cash under the mattress to avoid losing their money in a bank run, no new banks were formed. The socialists would lead us to believe that this is a market failure and has nothing to do with compulsory bank regulations which make even getting a license akin to running the gauntlet.
“The State has prevented any new Irish bank from being created in decades. ”
“Yet people still blame capitalism and the free market when there are problems in the banking system!”
The first statement could be true, though I strongly doubt it given what I know about the level of actual regulation in the financial sector in Ireland (and go look at the differing powers of the financial regulators in the ROI and UK for an object lesson in how lightly regulated this state actually is as against even the fairly deregulated UK context). But even if it were it would have no relation to the second statement. Problems in the banking systems could be entirely detached from the ease or otherwise of opening a bank in this state.
The wonderful irony is that by supporting government intervention and control over the banking system, the supposedly progressive and revolutionary socialists become dim-witted supporters of the status quo.
GM:
There hasn’t been a single irish car manufacturer set up in Ireland for a good 40 years. Yet, there was huge profitability in the selling of Irish cars during the 1990s and the early 00s.
Do you suggest this is because the Irish government regulate car manufacturers too heavily?
@RosencrantzisDead: Car manufacturing has never been profitable in Ireland. Regulation of it would make no difference because it is unlikely to exist anyway. Banking has been profitable for hundreds of years.
Long weekend, when boredom takes a grip . . .
Domestically, Ireland sold a lot of cars, GM. BMW at one stage thought Ireland was becoming one its major export markets.
Naturally, the point is that some businesses may be deterred from entering a particular part or type of an industry because it isn’t as profitable as other parts.
You see Ireland has a handful of major banks but it has a multiplicity of different financial institutions which serve different aspects of the market. The website, and you, make the mistake of conflating bank with ‘all financial institutions’. From that perspective, Ireland looks much more competitive.
The website you link to does point out that Irish customers are quite financially conservative and seldom switch banks once they have begun with one. That will deter someone from setting up a bank, but perhaps they might set up a housing loan operation or apply for a moneylender’s licence. Equally, lost of deposits and low-level loans are dealt with by credit unions: voluntary organisations which have been established here for years and which popped up with great frequency during the past 40 years.
I know that none of you lovely people are likely to be convinced that governmental control of the banking system is what corrupted it. That’s fine. I’ve been buying gold and silver for years and minimising my exposure to it. I’ll hopefully be prepared and ready to prosper when the system resets. With luck, none of you will get obliterated in the wipeout
Ireland looks much more competitive
Should read Ireland looks much less competitive. The point being that the definition of the market in this instance is rather narrow.
‘I’ve been buying gold and silver for years blah be de blah blah wipeout blah blah obliteration blah de blah systems fall the lights go out and the walls come tumbling down blah blah it blah blah run for the hills I once saw half a TV doc on Milton Friedman over my shoulder while I was defrosting my dinner or was it Dean Friedman you can thank your lucky stars you’ve limited your exposure blah blah.’
At least Bartley isn’t nuts.
@RosencrantzisDead
Re: credit institutions, I had some experience with a building society account; it wasn’t very useful. I think you made some good points but if an institution is not allowed to have the functionality of the major banks, it’s not going to seriously compete with them.
But they do compete with them as you acknowledge.
You mention building societies and that jogged my memory: First Active became a bank sometime in the 1990s. There is an example of a bank set up in modern times.
I am equally skeptical that the regulations for banks are as onerous as is made out. The requirement to have experience, for example, is the same requirement imposed on wannabe publicans who seek a licence. It did not, on its own, prevent the opening of new pubs.
@ RID
Wikipedia and other sources tell me that First Active took deposits with a license they got from Guernsey. It’s not clear to me that they actually got an Irish banking license.
Irish Banking Federation says it was First National up until it de-mutualised and became a bank in 1998.
http://www.ibf.ie/Libraries/Guides_Forms/bsnames_1.sflb.ashx
@ RiD, it doesn’t say that they became a bank. Demutualising and becoming a PLC is a change in ownership structure, not functionality. Irish Life and Permanent is on the same list.
(Irish Life and Permanent also being a PLC, and not a bank)
They did become a bank, GM. It’s on the wikipedia page you said you read.
They had a banking operation in the Channel Islands, that’s all.
Fine.
We are, however, no closer to establishing that banking regulation in Ireland is ‘excessive’. I am more of the view that banking in Ireland was unpopular because there were already a plurality of institutions feeding different aspects of the market. This made Ireland a rather less interesting market to enter into.
My suspicion is also that a huge amount of profitability came from interactions with the ‘shadow banking system’. Thus a new bank would actually need a substantial amount of capital and access to skilled people to allow it to compete with the others and participate in this system. It is this, rather than any ‘excessive’ regulation that prevented new entrants.
Also, the idea that we should have any old fool involving themselves in finance for the sake of competition is undercut when one considers the case of Quinn Insurance.
If we accept that a Central Bank which uses fiat money is going to ‘print’ too much and engender malinvestment, then surely this is an excellent reason for having a heavily regulated banking regime…
I agree that Ireland would probably not be the most interesting market in the world, regardless of the regulatory system. The entire population is twice that of Greater Manchester.
And it is agreed that banks are not very cheap to establish.
These are not reasons to outlaw competition, however.
When the banking system in Ireland fell to pieces, we had a couple of “too big to fail” banks which allegedly had to be bailed out.
If licenses weren’t so hard to get, there would have been other banks and the ones which failed could have been allowed to do so.
And if you think that the government should be allowed to decide who is competent to work in banking, never forget that Fred Goodwin received a knighthood.
To elaborate: I am confident that other banks would have come into existence because there was obviously a huge loss of faith in the major ones. Foreign depositors effectively withdrew all their funds while the government guaranteed everybody’s deposits to prevent runs on the banks.
Fewer licenses means consumers are trapped in a small number of huge banks (effectively BOI/AIB) which they cannot escape from in a crisis. It is the regulatory system itself which creates danger and instability.
GM, we are arguing about whether regulation is ‘excessive’. Your piece about outlawing competition is a non-sequitur.
To recap, you cite the lack of homegrown, Irish banks as proof that regulation is excessive. There would be more banks if it were not for the damned government and such like. I have replied that there may be another way to explain this state of affairs than just excessive regulation. You seem to have acknowledged this – does this mean you agree?
You also make a statement about the government choosing bankers. I agree with you there, but I also remember that men like Goodwin bought the government so they wouldn’t prevent them being picked. The alternative on offer is getting rid of the government part and letting Fred Goodwin pick himself.
The radical alternative I propose is letting customers pick winners and losers.
Strictly speaking, I cannot prove that the lack of more banks is a direct consequence of regulation – analysing a particular economic situation isn’t like maths or physics. I can only offer certain arguments and evidence for you to consider.
Logically, though, I can prove that regulation is always a deterrent to competition. You might say that competition would be harmful for this reason or that reason, but you can’t deny that making it easier to get a bank license or getting rid of the licensing system altogether would, holding everything else equal, result in more banks – or at least would not result in fewer banks. It must also be taken into account that the incumbents in a strictly licensed system are aware that there is only a very weak threat or no threat at all of newcomers.
I agree that there probably wouldn’t be very many banks in Ireland anyway, but I would put it to you very simply that if Bank of Ireland and AIB went broke in a less regulated system, there would very likely have been other banks seeking to take their customers.
(clarification: other banks besides those which currently hold Irish licenses)
As an aside: If, even in the absence of the licensing system, there would not be any other banks, then we can conclude that the licensing system is having no effect and that it would be harmless to get rid of it.
Even if you go the von Mises route of basing yuor support for every argument on some sort of a priori axiom, it does not help your argument about whther regualtion is ‘excessive’. Austrians acknowledge that, in a free marketplace, a monopoly or dominant position can emerge. They see no problem with this, as long as other businesses can enter the market. We still have to assess if the regulations you cite are ‘excessive’ barriers to entry.
The argument that: regulation keeps people out, there is regulation, therefore someone must be kept out does not necessarily follow. Or at least, it does not necessarily mean that this is the case in reality.
The idea the consumers can choose who their bankers are is simplistic. It also fails to acknowledge that consumers require a large amount of regulation in order to ensure that they can make informed transactional decisions.
“Logically, though, I can prove that regulation is always a deterrent to competition.” One could also logically prove that unregulated competition inevitably leads to oligarchy, if not outright monopoly. After all, in an entirely unregulated business environment, what is to stop the biggest competitors simply absorbing, or wiping out, the rest, and then forming a cartel? Businessmen don’t care about ideology; they just want more money, and competition is, for them, wasteful and expensive. Competition does not lead to multiple choice for the consumer: instead, it leads to a handful of huge players dominating the market, with a few tiny independents either catering to niche markets or struggling to survive, aware that the slightest downturn could wipe them out. For example: ‘Five companies – Warner Music, EMI Group, Universal Music Group, Bertelsmann Music Group and Sony – have taken over vertical and horizontal control of almost every aspect of the [music] industry. They control virtually every known label, 80 per cent of all titles produced in the US and comparable percentages elsewhere, most of the major distribution companies and much of copyrighted music.’ Or: ‘By 2005, just four companies [in the US] (Tyson, Cargill, Swift & Co., and National Beef Packing) were slaughtering 83.5 percent of cows. That number has inched up from 81 percent in 2000. In hogs and chicken, the big are getting bigger even faster. In 2001, the top four companies (Smithfield, Tyson, Swift & Co., and Cargill) killed 59 percent of hogs. By 2005, that number had risen to 64 percent. For chickens, just two companies — Tyson and Pilgrim’s Pride — kill 47 percent of birds. The top four companies control 58.5 percent of the market, up from 50 percent in 2000. As these few companies engulf market share, they gain increasing power to dictate terms to growers. In meat processing, the companies wield a second weapon: captive herds. Smithfield, for example, is not only the nation’s dominant hog processor. In addition to slaughtering 27 million hogs per year, the behemoth also raises 1.2 million hogs of its own — more than any other operation by a factor of three. It also controls a huge portion of the hogs it slaughters indirectly, through contracts with large-scale growers.’ Or see here for the illusion of choice: http://www.huffingtonpost.com/2012/04/27/consumer-brands-owned-ten-companies-graphic_n_1458812.html
Or how about this letter, from the Irish Times recently: “Sir, – I am somewhat dumbfounded that there has been little or no public outcry regarding the recently announced takeover of Argosy Libraries by Eason and Son (“Competition Authority moves after Eason’s acquires rival”, Business+Commercial Property, September 5th). This move will remove any domestic competition for Easons in wholesale bookselling in Ireland. This in turn will put extra pressure on independent bookshops in that a lot of them will only have one source of supply for their books. In short, they will be at the mercy of an organisation that has their own retail division that constantly undercuts the very same independent bookshops they are selling to! Irish publishers, particularly the smaller ones, will suffer because of this move. Indeed many of them will just die. I would have thought that your own literary editors would have had something to say about this, but so far I have seen nothing. – Yours, etc,’
Hello, RID.
Agreed, it does not necessarily follow. I have acknowledged I cannot prove particular facts about the economy definitively.
I know a thing or two about the Austrian school and maybe I should explain a point you’ve raised.
The Austrian view is that economic theorems (laws of supply and demand, etc.) follow a deductive logic which should be impossible to deny. The application of these theorems to a particular time and place, however, can never definitively prove that Cause X was responsible for Effect Y. This is because economics is a social science concerning human actors who attempt to predict and plan for the future, a future which itself is necessarily uncertain. The naive application of a supposedly “scientific” method to economics cannot possibly work according to this point of view (which I share).
Getting back on topic, I can’t prove that without the legislation there would be more banks competing for business. In a similar vein, if the minimum wage was raised to €100/hour, and official unemployment jumped to 99%, I also wouldn’t be able to prove that the minimum wage had caused the unemployment. I would only be able to say that all else being held equal, according to my economic theorems, the minimum wage produces a surplus of labour and that without the minimum wage there would probably be less unemployment.
But let’s suppose for a moment that the legislation doesn’t have any effect on the number of banks, it merely manipulates the behaviour of existing banks. By what mechanism does this protect the consumer?
The great flaw with nearly any government attempt to regulate the economy is that it presumes to know what the economy should look like. You say that vast amounts of regulation help consumers to make informed decisions. Again, the regulation is completely unnecessary, even on your own terms. If you think that the State somehow has better information then consumers with respect to which banks they should choose, then it doesn’t actually need to enforce its view. It could merely choose to share the special information it has with everyone else. If some people still choose the banks which the government doesn’t want them to use, then maybe the government is wrong and not the people.
Again, never forget that the government itself exists with democratic approval and that if the people are so stupid as to not know which banks to use, it hardly follows that they will know which political policies to choose to best regulate the banks. In any case, it’s more likely that the bankers themselves will capture the regulators and turn the entire system into a cartel – which is pretty much exactly what happens everywhere.
Jonathan, I doubt that you know how many firms should exist in any industry. Even defining a particular industry is not easy, since so many goods are good substitutes for other ones.
There is such a thing as economies of scale and if I can refer to what RID said, it’s true that I am not concerned if a firm gains pricing power due to its dominant market share. As technology improves, as consumer tastes evolve, and as trade flows converge and diverge from each other, the dominant firm must continue to offer the best deal to consumers. The economies of scale which large firms enjoy are good for consumers since they enable the large firms to produce vast quantities of goods for sale. Of course, there should always be at least the threat of competition.
With respect to your claim that the free market would produce cartels, this is possible but again not a true indictment of the market economy. Cartels are in effect an intermediate stage between firms competing with each other and merging outright. If I’m not opposed to firms merging, I will hardly be opposed to the formation of cartels.
What may reassure you is the realisation is that whenever a cartel is formed, holding back supply and raising prices, it produces an incentive for firms within the cartel to cheat and to gain abnormal profits by increasing their own supply of goods to the market just as their rivals have held back. It also creates opportunities for rivals outside the cartel and newcomers to make abnormal profits by increasing their supply. In a free market, therefore, cartels are inherently unstable agreements which will break apart whenever producers within or outside the agreement decide to act upon the profit opportunity it provides. If no such opportunity is provided, then maybe the syndicate is producing a level of supply which is appropriate to the demand curve it faces from consumers.
Unfortunately, GM, this debate has lead to the place I thought it would: nowhere.
I understand the Austrian view. A long-winded post which rehashes what I said is unnecessary. You are always going to face difficulties when you cling to that school’s pre-scientific views of knowledge and social science. Your point that you cannot prove that there is ‘excessive’ regulation is a concession to me, I think. It also vindicates what I said initially – that you would simply assert that all regulation is excessive.
We even discounted the entry of other European banks into the Irish market as an example of why regulation was not excessive. This was handicapping; if we confined the car industry in Ireland to only Irish manufactured vehicles, we could conclude that the market was uncompetitive and had low activity.
Your objections over consumer regulation ignore both the reality of consumer regulation in the credit industry and its purpose. The primary thing regulation does is impose disclosure requirements and force institutions to use plain english rather than jargon. It doesn’t direct consumers to a bank – it forces banks/credit institutions to each pitch their product at a comparable level, so the consumer can make a choice. You cannot level a criticism at regulation if you do not realise this very basic fact.
@ RID
I know I’m outside the pale as far as mainstream thinking is concerned. I don’t worry about that, I instead worry about protecting myself from the chaos and economic ruin which mainstream thinking inevitably leads to.
We don’t need to re-invent the wheel every time somebody asks a question about economics. There are certain statements which should be undeniable to anyone who understands logic (again, I need only mention the laws of supply and demand and one should be able to understand what I mean).
As for the particular case study of the Irish banking system, you are arguing in the face of a complete collapse of the major institutions and the total absence of competition from newcomers. Foreign banks offer some options for businesses and for savings accounts, yes, but the vast majority of ordinary people doing everyday things continue to be forced to use one of a very small number of institutions who went bankrupt in a manner which caused huge worry, and which continue to cause huge worry to this day.
Your point regarding regulation is unfortunately a waste of time. If people prefer institutions to use plain English rather than jargon, they will demonstrate that preference by which institutions they choose to do business with and there is absolutely no need for the State to do anything. This is yet another example of somebody claiming to know better than customers and businesses how those customers and businesses should behave.
I know enough about the statist mindset to know that there is basically nothing I can do to fix it, although I do enjoy arguing against it. What will happen is that Irish and other Western economies will continue to decay and living standards will reach even further depths of desperation. The infrastructure of the State will break down completely and we will have to start again and learn everything from scratch.
Your point regarding regulation is unfortunately a waste of time. If people prefer institutions to use plain English rather than jargon, they will demonstrate that preference by which institutions they choose to do business with and there is absolutely no need for the State to do anything. This is yet another example of somebody claiming to know better than customers and businesses how those customers and businesses should behave.
Please. This is juvenile beyond belief.
The rest of us live in the real world where so-called ‘entrepeneurs’ tend to value cartel behaviour (and profiteering) over competition. The regulation you claim to detest so much is the only shield that an average citizen has to avoid the worst of being cheated by such powerful actors.
@ EWI
I showed already that cartels are inherently unstable, and said that in cases where they are stable they may indeed be justified and should be considered as legitimate half-way points between firms competing with each and merging outright. Maybe you can explain why you disagree
I do really find it ironic that supposedly progressive people support the regulatory system. You can’t see that by putting up huge barriers to entry and compliance costs, you are in reality protecting and defending the status quo. You can’t see that modern banking systems are cartels of insiders and the already powerful, and that it is the central banks and the regulators themselves who have created this situation. I don’t think the irony will be lost on posterity.
I showed already that cartels are inherently unstable, and said that in cases where they are stable they may indeed be justified and should be considered as legitimate half-way points between firms competing with each and merging outright. Maybe you can explain why you disagree
You’ve showed nothing. Your claimed ‘instability’ in cartels is a timeframe that renders it false hope for the individual citizen. And on the one hand you claim the fantasy of perfect markets delivering utopia, yet apparently have no problem with mergers and cartels – both of which only work for capitalists in screwing over customers, workers and suppliers.
I do really find it ironic that supposedly progressive people support the regulatory system. You can’t see that by putting up huge barriers to entry and compliance costs, you are in reality protecting and defending the status quo.
I find it ironic in supposed free-marketeers supporting corporations which accomplish the very same thing, both inherently and by deliberate action (as happens again and again and again).
You can’t see that modern banking systems are cartels of insiders and the already powerful, and that it is the central banks and the regulators themselves who have created this situation. I don’t think the irony will be lost on posterity.
Regulatory capture is a different topic, but if you could be half-arsed to look in a book other than Atlas Shrugged you might learn that the origin of central banks is in restraining the power of bankers. That you have been convinced of the very opposite doesn’t speak well of your powers of observation, and suggest that you are an easily led individual (as the silly hoarding of gold proves, which has enriched someone other than you, I’m afraid to say).
I showed already that cartels are inherently unstable, and said that in cases where they are stable they may indeed be justified and should be considered as legitimate half-way points between firms competing with each and merging outright. Maybe you can explain why you disagree
You’ve showed nothing. Your claimed ‘instability’ in cartels is a timeframe that renders it false hope for the individual citizen. And on the one hand you claim the fantasy of perfect markets delivering utopia, yet apparently have no problem with mergers and cartels – both of which only work for capitalists in screwing over customers, workers and suppliers.
The timeframe for cartels to fall apart is uncertain. It depends on the confidence of outsiders that they can defeat the cartel by providing further supply to the market in a profitable way. It’s not necessarily an easy problem to solve and there is unfortunately no reason to believe that an altruistic government will be able to figure it out. More likely that the government will come in under the influence of lobbyists and fix things in favour of the groups which are already the richest and most powerful (i.e. the reality of banking and many other industries today).
I don’t claim that markets are perfect or lead to any sort of utopia. Markets are very inefficient. Where we differ is that I think governments make them even more inefficient than they already are.
With respect to the history of central banking, I can only presume that you are an expert in the circumstances surrounding the origins of the Federal Reserve. Perhaps you would find this link interesting:
http://en.wikipedia.org/wiki/Jekyll_Island_Club#Role_in_the_history_of_the_Federal_Reserve
For your information, precious metals are the best performing asset class in the world over the last 10 years. I am not unhappy with the nominal return I’ve made.
@GM
This should end and end soon.
You claim that I am arguing in the face of a massive recession. In fact, I am not. It is you who argued that this massive recession was caused by ‘excessive regulation’ not I. The OP maintained the deregulation was a cause of the crisis. This, as I am sure you recall, was what prompted you to initially post. And it is this that I asked you to support.
In fact, the existence of a recession does not- per se – support you. I can equally claim that you argue in the face of a recession where a lack of regulation caused major banks to collapse. As to a lack of choice, ask a ‘RaboDirect ‘employee if they have been busy lately…
Of course, this will not fulfil your criteria because Rabo is not a homegrown, Irish bank. But this is arbitrary criteria that you employed (and I indulged) and under which you still could not maintain your thesis.
I would be keen to hear how the Irish banking crisis supports your theories. As far as I can see, it does not.
As to consumer protection: you believe that consumers, with no financial experience, limited financial literacy, and a proven tendency towards credulity, will be able to act as a group and enforce a ‘plain english’ standard, then you should email me at mark.zuckerberg@facebook.com because you might want to purchase one of my sister’s unicorns. New foals! Pure white with wings! Fresh from the ranch! The blind faith that a market functions in that way is nothing short of ridiculous. These regulations are not that old so one can easily compare the previous 200 years, which did not prompt a plain language movement, with nowadays.
The only thing that supports your arguments is your insistence on their veracity. There is nothing more. I have already provided an equally plausible explanation for a state of affairs. You have not dealt with that but rather retreated to axioms. How do you know your axioms are correct? Smell?
“You claim that I am arguing in the face of a massive recession. In fact, I am not. It is you who argued that this massive recession was caused by ‘excessive regulation’ not I. The OP maintained the deregulation was a cause of the crisis. This, as I am sure you recall, was what prompted you to initially post. And it is this that I asked you to support.”
If you refer to my initial post of causes and things which exacerbated the economic crisis, you’ll see a list of things which I mentioned, of which regulation was one of them. I see various different forms of financial regulation as creating the environment in which a boom and bust cycle can be created, and in exacerbating the consequences of the process.
The actual boom and bust cycle is caused most directly by an unjustified expansion of credit and the manipulation of interest rates (two things which go hand in hand). It is exaggerated and exacerbated by various other forms of intervention and by regulation.
The point which I have been making during most of this thread is that in the aftermath of the boom and bust cycle, excessive regulation prevented an overhaul of the banking sector through the transfer of bank customers from irresponsible and financially crippled institutions to newer and/or less irresponsible institutions.
Specifically, I have claimed that in the absence of excessive licensing requirements, it is quite likely that new institutions would have emerged to take ordinary retail bank business away from Bank of Ireland and AIB. These banks were completely insolvent, leading the government to issue a blanket guarantee of their liabilities to prevent a disordely collapse. It became common practice for people to spread their money and their business among several of the banks so that they would not be devastated if only one of them failed. There was a clear demand for alternative institutions, but it was not met. Irish people were forced to continue using the same old banks.
Your position, apart from the fact that you disagree with me, seems to be that, even in the absence of a strict bank licensing regime, absolutely no new banks would have emerged to take customers away from BOI/AIB. Or maybe you think they would have, but that this would not be desirable.
In other words, you are certain that the structure of the Irish banking system is just fine in the sense that we don’t need any more banks – or at least none which don’t pass the rather long and arbitrary list of requirements to set one up. Whatever you might say about a lack of evidence for my own views, the position you seem to be defending looks completely untenable on its face.
“In fact, the existence of a recession does not- per se – support you. I can equally claim that you argue in the face of a recession where a lack of regulation caused major banks to collapse. As to a lack of choice, ask a ‘RaboDirect ‘employee if they have been busy lately…
Of course, this will not fulfil your criteria because Rabo is not a homegrown, Irish bank. But this is arbitrary criteria that you employed (and I indulged) and under which you still could not maintain your thesis.”
The reason RaboDirect is no good for your argument is because it’s an online savings and investments bank with no branches. It has a license to carry out certain activities but not to compete for mainstream retail bank business. If you don’t understand why it doesn’t help your argument then you don’t understand this debate.
And yes, you certainly could claim that a lack of regulation caused major banks to collapse. Feel free to make that argument. Most people simply make that claim and then avoid trying to back it up.
“As to consumer protection: you believe that consumers, with no financial experience, limited financial literacy, and a proven tendency towards credulity, will be able to act as a group and enforce a ‘plain english’ standard, then you should email me at mark.zuckerberg@facebook.com because you might want to purchase one of my sister’s unicorns. New foals! Pure white with wings! Fresh from the ranch! The blind faith that a market functions in that way is nothing short of ridiculous. These regulations are not that old so one can easily compare the previous 200 years, which did not prompt a plain language movement, with nowadays.”
There is no need to enforce a plain English standard. Some people don’t need plain English, some do. Again, you presume to know too much about how financial business should operate.
“The only thing that supports your arguments is your insistence on their veracity. There is nothing more. I have already provided an equally plausible explanation for a state of affairs. You have not dealt with that but rather retreated to axioms. How do you know your axioms are correct? Smell?”
I use logic and I refer to empirical evidence when necessary. If you are honest with yourself, you will admit that you also deploy logic and maybe we can both agree that all logic rests on certain axioms. I am comfortable with the amount of time and effort which I have put into figuring out which circumstances require logic and which require empirics. Maybe you should think carefully about how it is that you ended up with the particular opinions which you hold.
I use logic and I refer to empirical evidence when necessary. If you are honest with yourself, you will admit that you also deploy logic and maybe we can both agree that all logic rests on certain axioms. I am comfortable with the amount of time and effort which I have put into figuring out which circumstances require logic and which require empirics. Maybe you should think carefully about how it is that you ended up with the particular opinions which you hold.
That’s a pretty bizarre understanding of logic, which seems to share more with Spock than with Aristotle.
Now in fairness to Spock he did say the following:
You Earth people glorified organized violence for forty centuries. But you imprison those who employ it privately.
So clearly a libertarian…No, wait…er…
We are still on this merry-go-round. You stated:
“Excessive governmental regulation of the banking system, creating a huge dearth of competition – if you don’t believe me, just look at the legal/regulatory hurdles blocking the creation of new banks in each jurisdiction.” [Emphasis mine]
I asked you to support this statement and to explain what you classify as ‘excessive’. You have yet to provide a straight answer to either of these questions. You cite some regulations and state that they must be excessive because there have been ‘no new’ banks. I state that there are other, equally plausible, reasons why there are ‘no new’ banks and I raised the fact that the Irish market was quite developed if one does not impose an arbitrarily narrow definition.
If the banks were being pursued by the Competition Authority, you would be out complaining that every institution that takes deposits should be counted as part of the relevant market. This would at least be consistent with arguments put forward by Austrians in the past.
“I use logic and refer to empirical evidence where necessary.”
It is one thing to use logic; it is another thing entirely to claim that certain statements are true by virtue of their meaning alone (i.e. analytical statements). This has not been a philosophically respectable position for some time now. Yet it is this that you rest your entire argument on. Aside from presenting us with a few banking regulations, you have not cited any empirical evidence in support of your argument.
In other words, you are certain that the structure of the Irish banking system is just fine in the sense that we don’t need any more banks – or at least none which don’t pass the rather long and arbitrary list of requirements to set one up. Whatever you might say about a lack of evidence for my own views, the position you seem to be defending looks completely untenable on its face.
I never, at any point, said anything close to what you are attributing to me here. If you do not wish to argue with me, you are free to stop posting. But putting words in my mouth and then arguing with this strawman is not going to work.
I did say -as an aside- that regulation is surely preferable to letting any swindler into the market. I strongly doubt that a market filled with charlatans is going to improve consumer confidence in financial institutions. Of course, here we still need to establish that these regulations do actually keep people out, which is the line you are touting and still,/b> not backing up.
The need for consumer protection because there exist empirical studies showing that information asymmetries leads to distorted markets and that consumers often make systematically bad decisions even when information asymmetries are accounted for. Of course, one could logically deduce the need for it too: a consumer will not know as much as a sales person and will inevitably lack the knowledge to parse complex contracts and financial information. The sales person has no interest in deterring a consumer from the product by telling them what the downsides will be. Thus, a consumer may end up purchasing a product which they know very little about. This is especially true because credit is a credence good.
” Again, you presume to know too much about how financial business should operate.”
One does not need to be a paedophile to know that children should be protected from them. Equally, one does not need to be a government TD to know they are a feckless shower of bastards. What one does need are some facts and these, unlike yourself, I have.
“I asked you to support this statement and to explain what you classify as ‘excessive’. You have yet to provide a straight answer to either of these questions. You cite some regulations and state that they must be excessive because there have been ‘no new’ banks. I state that there are other, equally plausible, reasons why there are ‘no new’ banks and I raised the fact that the Irish market was quite developed if one does not impose an arbitrarily narrow definition.”
Ok, so you are particularly concerned with the word “excessive”. I said earlier: “I don’t think any arguments for central control or monopolies over the banking system are justified.” So I don’t believe any parts of the system should be centrally controlled or regulated except to the extent that such control or regulation is performed by market participants with no ability to coerce people to give them business.
At this point I have explained several times that the fact that the market for ordinary retail bank accounts consisted entirely of bankrupt institutions which had lost the faith of everyone (with fears of banks runs and a disorderly meltdown provoking the government to issue a blanket guarantee of all bank liabilties), and that even still no new banks emerged to take ordinary retail business from the failed institutions, is sufficient evidence on its own to suggest beyond the doubt of any reasonable person that the requirements to get a banking licence are of an extraordinary, indefensible nature.
By the way, the market may have appeared to have been well developed before the crash. After the crash, it was clearly nothing more than a crater that was incapable of continuing to serve customers in any way without new entrants or else massive intervention and a takeover by government. The latter options were chosen and now the same old failed institutions continue to dominate the economy.
“If the banks were being pursued by the Competition Authority, you would be out complaining that every institution that takes deposits should be counted as part of the relevant market. This would at least be consistent with arguments put forward by Austrians in the past.”
You will have to explain this to me. I don’t know what you are getting at.
“It is one thing to use logic; it is another thing entirely to claim that certain statements are true by virtue of their meaning alone (i.e. analytical statements). This has not been a philosophically respectable position for some time now. Yet it is this that you rest your entire argument on. Aside from presenting us with a few banking regulations, you have not cited any empirical evidence in support of your argument.”
Again, I’m not attempting to be philosophically respectable.
To be philosophically respectable means to hang out with the mainstream academic and political consensus which has ruined the West and which will soon lead to a new form of global irrelevance which we will not enjoy adjusting to.
“I never, at any point, said anything close to what you are attributing to me here. If you do not wish to argue with me, you are free to stop posting. But putting words in my mouth and then arguing with this strawman is not going to work.
I did say -as an aside- that regulation is surely preferable to letting any swindler into the market. I strongly doubt that a market filled with charlatans is going to improve consumer confidence in financial institutions. Of course, here we still need to establish that these regulations do actually keep people out, which is the line you are touting and still,/b> not backing up.”
You haven’t said very much at all, except it is clear that you disagree with me. And yet my central claim here has only been that new banks would have sprung up after the crisis if regulations were lighter, and that this would have been a good thing. You are deeply opposed to what I’m saying, and then when I try to figure out what your own opinion might actually be, you are again unhappy. If you think that new banks would have appeared in the absence of legislation and that this would have been a good thing, then you agree with me. If you don’t think that any new banks would have appeared anyway or you think that it would have been a bad thing, then you do you in fact disagree with me, and you do therefore think at least in some sense that we don’t need any new banks. I don’t doubt your sincerity but I do think you are trying to wriggle out of having any positive point of view here. It seems like you are mostly arguing with me for the sake of it, because you don’t like what I’m saying, not because you have many really serious ideas of your own about these topics.
“The need for consumer protection because there exist empirical studies showing that information asymmetries leads to distorted markets and that consumers often make systematically bad decisions even when information asymmetries are accounted for. Of course, one could logically deduce the need for it too: a consumer will not know as much as a sales person and will inevitably lack the knowledge to parse complex contracts and financial information. The sales person has no interest in deterring a consumer from the product by telling them what the downsides will be. Thus, a consumer may end up purchasing a product which they know very little about. This is especially true because credit is a credence good.”
The mainstream literature thinks there are “inefficiencies” everywhere without realising that true “efficiency” exists exactly nowhere. Information itself and expertise are themselves traded in the financial marketplace, as are reputations and loyalties. The mainstream econometric literature, with its naive attempts to apply game theory and mathematics to the real world, cannot account for this. You have to take a step back and think about how things actually might work in the real world. Clearly, there are risks involved in the sale of any financial product. There are good reasons for ordinary people to use institutions which they trust and products they understand. This is how markets work: firms compete to gain the trust of customers and to sell them attractive products which the customers actually want. If you are a firm which treats your customers badly, your reputation will probably get trashed sooner or later. And so the institutions which succeed in the long-run are those which can build up a long-term reputation for trustworthiness, at least in the minds of some people.
Unfortunately, we have broken banking systems in the West and the loss of confidence had led to calls for increased regulation to try to replace the role of inspiring trust which reputation used to and ought to fill. I’m sorry that it will be no substitute.
“One does not need to be a paedophile to know that children should be protected from them. Equally, one does not need to be a government TD to know they are a feckless shower of bastards. What one does need are some facts and these, unlike yourself, I have.”
Thank you for that insight.
“If the banks were being pursued by the Competition Authority, you would be out complaining that every institution that takes deposits should be counted as part of the relevant market. This would at least be consistent with arguments put forward by Austrians in the past.”
Ok, I get this now.
I happily agree that there a decent number of choices for savings accounts. I don’t see such a severe lack of competition in that sphere. For receiving salaries, paying household bills and withdrawing cash, however, it’s a different story.
The only person doing any wriggling is you, GM.
Your approach now is to demand to know what my position is. This is a clumsy attempt at sleight-of-hand. I asked you at the very start:
“Since it is the topic of the post, GM, you might want to fill us in on what you mean by ‘excessive regulation’.
My suspicion is that this will boil down to you saying any regulation is to much and, perhaps, even the very existence of a government and central bank is regulation and ‘distorts the market’.”
It is only now that you admit that all regulation is ‘excessive’ in your eyes. Much time could have been saved had you answered that question in the first place. This entire thread has been me trying to get you to explain what you mean and your repeated attempt to evade doing so.
Pointing out that someone’s position is vague and/or unsupported by evidence is not unfair; it is an important part of any debate. You make sweeping claims based on highly dubious foundations (if you can even characterise them as foundations at all). You admit you cannot prove them but claim that they are necessarily true. Anyone who denies this is being unreasonable. Why on earth would anyone debate you when your position is an endless series of question-begging?
I used to enjoy being on the Left (this is nearly 10 years ago now). I enjoyed criticising and complaining without offering any serious solutions. Then I realised that offering serious solutions meant understanding how things really worked, and I had to change my method of analysis and argumentation. Pretty soon I wasn’t on the Left any more.
I’m finished with this thread for now.
I’ve been buying gold and silver for years and minimising my exposure to it.
You’re a gold-bug. Good to know, I was wondering what kind of libertarian we were dealing with here.
Well, yes. In a system without a government monopoly, nobody would accept worthless paper or computer digits as money. When the government monopoly suffers total meltdown, far beyond that which it has already suffered, those of us with real money will survive.
In many ways, I enjoy reading comments from people like Eamonn. Although it’s a shame that there are millions of people still in denial about what is happening. I hope I’ll be watching from a safe place when the ATMs don’t pay you out and when the prices of bread and petrol are many multiples of what they are now.
That’s GM’s self-image at 1.26.
When the government monopoly suffers total meltdown, far beyond that which it has already suffered, those of us with real money will survive.
You won’t though, because other people will be beating you over the head and stealing it.
Anyway, while we’re on the subject – I take it GM has read that Hayek pamphlet on why we should have competing currecies, privately issued?
@ ejh
In a wipeout scenario, the most likely thief of my gold is the government. There are ways to prepare and prevent that from happening, but I don’t think they’d interest you
GM in some ways you’re a good sport but do you really buy up silver and gold? I mean I’m prone to catastrophism, but… firstly it’s bloody expensive to do so and secondly I simply don’t think if things got as bad as that that the sort of societal security where you could easily and safely convert them into usable money (or even exchange them for goods and services) would be extant.
How is the most likely thief of your gold the government? Surely it’s the army of peons like myself who’ve failed to make adequate provision. I suspect your ways to ‘prepare and prevent’ that involve lads in black jackets who do a lot of weight training and have big guns. However they’ll be no match for my positronic death ray.
Actually the great thing about the goldbugs is they’ve been preparing for the wipeout for more than two hundred years.
@ WbS,
We are witnessing the collapse of the largest Western monetary systems. The Fed is now committed to producing an unlimited supply of dollars until it sees the outcomes it wants. The ECB’s most recent “OMT” declaration tells us that they are willing to purchase unlimited quantities of government debt (something which the European Stability Mechanism will also be willing and able to do in due course). The Bank of England is expected to continue fresh rounds of quantitative easing for the foreseeable future. And all of this is with interest rates at record lows. Gold and silver ownership have a part to play in the preparation for what’s coming.
@ ejh:
Given the many wars, revolutions, genocides, hyperinflations and debasements which have occurred over the last 200 years, particularly in the 20th century, I’d say that we’ve been proven right. It’s not necessary to go back as far as Weimar Germany to see hyperinflation; over 12 months in 1993, the CPI in Russia increased by nearly 900%. If you trust the ECB more than you would the Central Bank of Russia, and you think the Euro will prove to be a much sounder currency than the Rouble, then I fear you will be disappointed.
And I thought millenarianism only really reared its head in years ending ’00′.
I hope I’ll be watching from a safe place
Dear god, he’s got a cabin in the woods and an arsenal as well.
Some serious deflation is exactly what the country needs to get back on track.
Thing about the old Catholic theologians, they at least produced some skilled debaters.
Cloning Bartley was a very bad idea.
Its a more virulent strain.
Excellent, both of you, EC and maddurdu.
Will Mark Fieldings’ ilk once again threaten to withold taxes until we get rid of competition from the social welfare system?
Domestic demand, wages and consumption have to be decreased to enable the billions in interest to be transferred to international finance capital. In this respect Ireland is no different from any other country where the IMF has intervened. The economic policy of the F.G/Labour/IMF/EU coalition is succeeding.