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In which I continue to seek part time employment as the ruler of the world.

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Wednesday June 30 2010

Yes, my friend Kevin Dowd has a new book out, about the financial mess the world is in just now, and it was launched earlier this evening at, as you have perhaps already guessed, the Institute of Economic Affairs:

imageimageimageimage

On the left, the IEA’s new boss Mark Littlewood.  Middle left is Kevin Dowd’s co-author Martin Hutchinson.  Then there’s Kevin, looking happy, perhaps because being photographed at least twice.  And finally there’s Kevin looking a bit angry.

My preliminary guess, based on what I heard the authors say this evening rather than on having read their book (which I have not done yet), is that it will be a good blow by blow account of the catastrophe, but that the What Is To Be Done? bits at the end may cause me to dissent.  I suspect the authors of being too keen on saying how to run this particular nationalised industry differently and better, but not keen enough to say that the root of the problem is that it is nationalised.

They identify lots of bad ideas that have been swilling about in the world of high finance.  But bad ideas are to be found swilling about everywhere.  Why is it that these bad ideas did such damage in this particular industry?  Other industries have been making rapid progress of a sort that shows no sign of stopping, despite there being plenty of bad ideas around about how they should operate too.  So, why the difference?

The above prejudices may be quite wrong.  As I say, I’ve not read the book yet.

Thanks for the comments Brian and also for turning up (and the splendid photos too!).

Three broad points in response. First, the ideas spilling around in finance are particularly dangerous, especially in a context of dubious economic theories (Keynesian economics) that give a spurious ‘justification’ (I can’t bring myself to use the word without speech marks) for government meddling. This is the main theme of the book.

Second, we try to trace the roots and background of the crisis and give it a long historical perspective, as well as address the crisis itself, where we are going (answer: to hell in a handbasket) and what we should be doing. (I may have inadvertently misled you on this so let me correct any misimpression.)

The first best solution is: free banking/financial laissez-faire (abolition of deposit insurance, financial reg, capital reg, central banking, etc), a sound standard (e.g., gold standard), and extended personal liability (repeal of the limited liability statutes, etc), the most limited government possible and no government involvement in the financial/monetary system.

If we can’t get that, the ‘second best’ (really, hundredth best, or whatever) partial solution is to address specific problems ailing the financial and monetary system. This ‘second best’ stuff is messy and of course arbitrary, but we suggest, if we HAVE to live with ‘second [sic] best’:

* A hard money central bank - a reformed Fed - with a very tight mandate and no ‘accommodative’ monetary policy.
* As much extended liability as possible for senior corporate officers, directors, etc.
* Dovetailing reforms to the banking system to roll back incentives to take too many risks at other people (ie, our) expense: repudiation of too big to fail, a Tobin tax to discourage what is clearly excessive trading. taxes on very large banks so they are not a systemic danger, plus various reforms to drive out dangerous products, create more transparency, get rid of as much financial reg and deposit insurance as we can, and, of course, get the government out as soon as is possible.
* Tax and fiscal reforms, etc.
All these (and some other) reforms are designed to push the system back to economic rationality and restore the integrity of the capitalist system before the financiers and politicians destroy what is left of it - which WILL otherwise happen. Others suggest a different menu but the key, at a minimum, is to push the system in the right direction. 

Of course, the first best is far and away first best.

All the best

Kevin

Posted by Kevin Dowd on 03 July 2010
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