[ExI] Monopolies in banking

dan_ust at yahoo.com dan_ust at yahoo.com
Wed Jun 24 13:17:44 UTC 2009

--- On Tue, 6/23/09, Rafal Smigrodzki <rafal.smigrodzki at gmail.com> wrote:
On Mon, Jun 22, 2009 at 2:01 PM, <dan_ust at yahoo.com> wrote:
>> The problem would be: how to do that in a way that
>> mostly (since nothing is perfect) works.  I think there is
>> no clear measure here that would work.  GDP would mean that
>> most inflation and heavy government spending would look like
>> great performance.  So, if the central banker merely
>> inflated and lent lots of the government (e.g., bought up
>> government debt), she or he might look like she's improving
>> the economy and be rewarded accordingly.
> ### If he doesn't mind being rewarded in funny money, yes,
> but anybody
> with a long-term outlook who wanted true wealth (goods,
> services)
> rather than maximum number of arbitrary units of currency,
> would
> maximize economic growth, not measures of money supply. The
> accent
> here is on "long-term".

How long is that?  Even now, with fiat currencies -- that, theoretically, have no upper limit on the amount of inflating -- people accept them.  I'm sure, e.g., Bernanke and his predecessors are paid in dollars.  And they don't seem too disatisfied with this.  That's partly because they probably will avoid hyperinflation, but they also get the money earlier -- as do the major debtors like the government.  Recall, inflation is partly a temporal issue: those who get the inflated credit or currency first are able to exchange this for real goods before most of the price rises take place.  Thus, like counterfeiters, they're able to get real goods for newly created money.  The folks who get the money and credit later on generally get less real goods and services.  Thus, at root, inflation is a form of indirect wealth transfer.
>> I doubt any mechanism to discipline the monopolist here
>> would work
>> -- certainly not as good as not having a monopoly by
>> allowing free
>> entry into the money and banking market.
> ### Sure, I have no quarrel with this reasoning and the
> rest of your
> response.  My post was only meant to point out some of
> the problems
> with knee-jerk support of "democracy", and not to provide
> the best solution I could think of.

I agree about 'knee-jerk support of "democracy",' but the problem with modern central banks is NOT democratic control -- as in the voters selecting the head of central banks or the legislators selecting ditto.  The problem is they are a monopoly -- no matter if they were controlled by the voters (whatever that means; at best, it would mean a majority of the voters, which would likely still be a minority of the people in any real world country today), by the legislature, by the executive, or were actually independent.  (Those who believe democratic control here is now in place because, say, the US president is elected and then appoints the Fed Chair, forget that almost no voter is voting for president based on his likely Fed Chair pick.  Voting for presidents and other high national offices usually doesn't come down to selecting each micro choice.  In markets, yes, people can choose to buy, say, an iPhone, a gas-guzzling SUV, and eat only vegan food
 -- mixing and matching as they please.  In politics, we'd all vote for the Apple party and be stuck with whatever choices were coupled with that.)

There's also a real problem here with formal or nominal independence and real or material independence.  The former is easy to attain.  Simply write up the documents and hold a press conference.  The various people can promise to all be independent of each other.  But the reality is often that formal/nomimal independence is just a mask for material/real collusion or coordination.  For all the pretense of independence of central banks, it's strange how they tend to follow the trends in politics and NOT usually ignore or go against major public policy initiatives.  (Of course, fans of central banking could argue that if they don't accomodate the government or the current ruling faction, then there will be reforms to remove whatever independence central banks do have.)




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