[ExI] Monopolies in banking

[Rafal Smigrodzki]

On Wed, Jul 1, 2009 at 4:18 PM, Dan<dan_ust at yahoo.com> wrote:
>
> I reckon you and I could keep fiddling with the numbers here.  There is one other problem, however, what if this monetary czar fails?  What happens then?  With competing free market banks, if they fail, they lose money -- in the extreme case, the bank goes under possibly tarnishing the reputation of the bank's management for good.  If the monetary czar under your scheme faces no serious penalties, then you can see she would have an incentive to gamble -- on the off chance that she wins big during his ten years.

### Well, we could make her post a bond before assuming the job and
forfeit part of it if there is negative growth of the economy.

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>
> Also, think about cental bankers now.  If Greenspan had been given ten years to run things, that would've set him in 1997 (he started in 1987, no?) for 1/1000000th share of GNP.  During that time it's arguable that he did lots of things that were bad for the economy.

### Sure, but if you want to maximize the value of your 1/1000000th
share of the economy in 1997, you'd better make sure it keeps growing
smoothly as soon as you are on the job. It is the cumulative growth,
like compound interest, that really makes a big difference over time.

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> Also, GNP might not be the best measure of wealth.  I'd be deeply suspcious of any measure that counts government spending as a net positive addition (this is why, e.g., the US's GNP went up severely during WW2 and fell in 1946, making it look like the economy had collapsed when, in fact, 1946 was a great year -- though government spending went over a waterfall) to wealth, but GNP not only does that, it also is, like GDP, insensitive to capital consumption.

### Agreed. One could use other measures.

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>
> This might seem a nitpick, but if your central banker merely has to hit a certain target to make her numbers, then she has an incentive to merely hit that target and only do so when required.  Granted, I doubt she (or real world central bankers) are looking to tank the economy a day after she's paid, but the incentive is there to merely grow that number -- and not necessarily to have a healthy, prosperous economy.*

### If you want to get paid every year, you will try to assure
continuous smooth growth. I am not talking about just giving the
banker a windfall every ten years, but rather a continuously variable
source of income directly yoked to the long-term growth of the
economy.

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>
> However, the chief problem is monopoly; the solution is to get rid of the monopoly.  Until that happens, other changes seem, to me, like rearranging the deck chairs on the Titanic after it hit the iceberg.

### Amen, my brother.

Rafal