The RBA and most conventional market economists see 2011 as the year in which our biggest challenge will be “managing prosperity”. The mining boom will keep the money flowing, and the economy will just have to cope with the structural change that results.
There’s no doubt that China’s demand for our minerals has generated enormous revenue for the country, by giving us the best terms of trade in the last half century, and turning our trade balance into surplus.
Tom Palley has written an excellent opinion piece for the Financial Times on why Obama is failing, and he requested that I reproduce it here. However, to read it, I’d prefer if you clicked on the link in the title of Tom’s piece below. That will take you to the Financial Times blog itself–the more hits that pieces like this are seen to get in the conventional media, the better (to encourage this, there are some links in the Financial Times piece that I haven’t reproduced in this repost).
If you have seen my submission to the Senate inquiry into competition in the banking sector, you would know that I’m less than impressed by its premise–that whatever the problems are, they can be solved by a hefty dose of competition.
It seems I’m not the only cynic. Three other notable bloggers
have established a parallel inquiry, which is offering a $1,000 prize for the best submission.
They have established the following blog:
http://sonofwallis.blogspot.com/
And they note that they have established their “Son of Wallis” inquiry because of:
Inquiry into competition within the Australian banking sector
Submission by Associate Professor Steve Keen, School of Economics & Finance, University of Western Sydney; www.debtdeflation.com/blogs
The Australian Senate’s Standing Committee on Economics has established an inquiry into competition in the banking sector, and I was invited by the Committee to make a submission. Click here for the PDF of my submission. The RBA’s submission is linked here. All submissions to the inquiry are available here.
You might be able to tell from the subject that this is not my usual debt-oriented post. Instead, it’s sheer frustration with malfunctioning computer technology. I don’t know whether the cause is the Dell Studio 17 itself, or Windows 7, but I have just endured over a dozen “Blue Screen of Death” crashes since about 1pm today (New York time–it’s currently 4pm), and this has taken the tally of crashes with this machine to well over a thousand since the first one occurred when I was making a live presentation to the U (short interruption here–the bugger crashed twice in the last 5 minutes and I am now editing this in safe mode!) UNEP (United Nations Environment Program), back in September of 2009.
I’ve given several talks on this general topic recently–at the ASSA (Academy of Social Sciences of Australia) annual symposium “Family fortunes in the aftermath of the global financial crisis”, The Gold Symposium, the Australian Investors’ Association “Bulls vs Bears” Symposium, and finally at the Local Future 2010 Conference on Sustainability: Energy, Economy & Environment in Grand Rapids, Michigan.
I was given one and a half hours to present at the Local Future event, which gave me the opportunity to present a comprehensive treatment of the dynamics of credit money and the “Global Financial Crisis” (to use the Australian moniker for it) or “Great Recession” (as economists in the US refer to it). At the other talks, I had to skip over substantial parts of my argument to fit within shorter time slots.
I’ve just completed second year of my subject Behavioural Finance at the University of Western Sydney. This is of course a non-traditional subject–meaning non-Efficient-Markets-Hypothesis–but even here I take a non-standard approach. While I have great respect for the work of Kahneman and Tversky on behavioural economics, I argue that much of the subsequent work is mis-directed, because of a crucial misinterpretation of the original work on expected utility by von Neumann and Morgenstern.
Much of the standard behavioural finance literature shows that individual behaviour violates the precepts of expected utility theory when faced with a choice between two hypothetical options, and then develops some modified utility function that fits the actual behaviour. The options are normally presented in this manner:
As usual, I’ll be putting an argument that is contrary to popular opinion on the need for more competition I the banking sector. So to clarify the issue, here’s a quick poll: who thinks that Australia doesn’t have enough debt?
Nobody? OK, now let’s discuss the “need” for more competition in the banking sector.
The raging debate is missing the point–Hockey and the Coalition are right to go after the banks, but they’ve made a mistake in suggesting that the sector’s ills would be cured by more competition. In fact, we allowed too much competition in the 1980s, and again in the 1990s. The outcome, both times, was too much debt—firstly for businesses, and then for households. That’s the sector’s real problem, and adding a third dose of competition won’t fix it.
The Economics E‑Journal
The Economics E‑Journal is a relatively new journal that implements several new approaches to academic publishing:
Competition is the Vitamin C of conventional economic theory: there’s no economic problem that can’t be solved by a dose of more competition.
As you might expect, I’m less than convinced by this “one cure fits all” approach to economic policy. Competition in banking led to a “race to the bottom” in lending standards–both to households in the last decade after the Wallis deregulations, and back in the 1980s, (when then Treasurer Paul Keating allowed 16 foreign banks to enter the market, who then duly lent bucketloads to such responsible businesses as Bond Corporation and Qintex). What we need now is less lending, not more, and we’re hardly going to get a reduction in supply out of an increase in competition.
