People with an engineering background who did PhDs on Banking related issues in the Eighties and Nineties tended to make three big mistakes
1) they thought Banks merely bundled discrete services which, the math said, could be unbundled and each assigned a mechanism to overcome moral hazard or incentive incompatibility. This meant that deregulation was fine so long as they themselves were the, wholly independent, regulators with discretionary charge over the repo rate and forex interventions.
Sadly, Banking is more like priest-craft- if not smoke and mirrors type thaumaturgy- rather than the sort of mathsy shite studied in Fintech. Unbundling and securitization and the entry of novel types of financial intermediary can endanger the entire financial system because Credit, that is Faith, is now serving not the one true God but a host of warring demi-gods.
The Central Banker should be more obedient than Aaron, the high priest, and bow down before Moses as he descends from Mt. Sinai carrying the commandments of the new Finance Act. Like the suave Archbishop at the court of a medieval King, the Governor of the RBI must have an emollient personality, an ability to keep channels of communication open with the FM, and a firm understanding that his role is to get money for the Government, not safeguard the interests of 'widows and orphans' or save the middle class from some putative Hitler by preventing inflation.
Even smart guys like Rajan- who, however, was a good communicator and 'added value' by inspiring confidence in financial markets- could make the mistake of trying to defy the Government even though in a poor country like India, the Governor of the RBI has no mandate to do so. Urjit Patel and Viral Acharya and were less diplomatic and paid the price by having to quit before completing their term. The lesson was obvious. India should stop bringing in foreign trained egg-heads who didn't understand India's political economy or their place in the grand scheme of things.
2) the Financial Engineers didn't understand the difference between appropriable control rights and ownership. Thus their mechanism design could be self-defeating or counter-productive. A complicating factor is the Supreme Court's predilection for striking down anything or everything on the grounds that it is ultra vires or that it violates the basic structure of their stupidity.
3) they didn't understand just how shitty Indian statistics and indices are or which of them are suitable as policy targets. All in all, these were decent and patriotic people who, however, lived in a fantasy land.
The contrary view is that they were cretins- one and all- even Raghuram Rajan. Was this always the case? Perhaps. What is certain is that he had delusions of grandeur. A mere fifteen years after moving to Capitalist America he thought he had found a way to 'Save Capitalism from the Capitalists' and co-authored a book with an Italian, which came out in 2003.
Wikipedia summarizes it thus.
The book is neither a defense of pure laissez-faire capitalism, nor is it an anti-capitalist polemic. Instead, the authors develop the following arguments in the book:
1) The free market is the form of economic organization most beneficial to human society and for improving the human condition.
That is a defense of laissez faire capitalism. Don't forget there can be free markets in all sorts of things including market regulation. Markets can vote for the best mechanism for their own functioning and reward the custodians of that mechanism appropriately. Where there are externalities, the market can create Institutions or Enterprises which internalize them. The State is one such enterprise. It has to compete with other States which might covet its territory or other resources.
As for 'the human condition', not fucking dying horribly would be what would improve it most. Why can't I jump out of the window while high on acid without suffering grave injury? No doubt, if scientists can make a breakthrough in organ regeneration, there will be a market for stuff which improves the human condition in this regard.
Free markets can flourish over the long run only when government plays a visible role in determining the rules that govern the market and supporting it with the proper infrastructure.
This isn't true. During the nineteenth century, Western navies or armies forced several countries to open up their economies and permit free markets- including repugnant ones, e.g. the opium trade- to flourish. The East India Company was not a government but it played a visible role in promoting free markets however horrible the outcome. The IMF and World Bank played a similar role as have consortiums of international creditors.
It is a different matter that Governments tended to either go extinct or find ways to take a commission or 'Manorial rent' from markets in their jurisdiction. Sometimes they determined 'the rules' but gave up if this meant a loss in tax revenue. As for 'proper infrastructure'- that shit costs money. Entrepreneurs may provide it, if they have plenty but so might foreign donors or the Church. It is not the case that a country with no effective central Government will wholly lack infrastructure or 'rules' for market transactions.
One may as well say 'Free markets can flourish in the long run only when people are nice. If they are naughty and keep stabbing each other, free markets will collapse. The same thing will happen if people start pretending they are cats. This is why it is important that we save Capitalism from Capitalists by enforcing strict rules against everybody pretending to be a cat while stabbing all and sundry.'
Government, however, is subject to influence by organized private interests
So are people. We must save organized private interests from themselves by insisting that they don't pretend they are cats in between stabbing people.
Incumbent private interests, therefore, may be able to leverage the power of governmental regulation to protect their own economic position at the expense of the public interest by repressing the same free market through which they originally achieved success.
They may also be able to pretend they are cats. We must save incumbent private interests from themselves by requesting them not to pretend they are cats because this would have the effect of repressing the same free, or unfree, markets through which they originally achieved success. This is because people who pretend to be cats seldom accumulate much wealth through entrepreneurship or arbitrage.
Thus, society must act to "save capitalism from the capitalists"—i.e. take appropriate steps to protect the free market from powerful private interests who would seek to impede the efficient function of free markets, entrench themselves, and thereby reduce the overall level of economic opportunity in society.
In this case there are countervailing 'powerful private interests'. Let them duke it out by all means. There can be a market for the power they covet. We may think of this as like the Edgeworth contract curve or 'core'. Different coalitions make different proffers and stakeholders vote with their money- unless money has already been spent such that they vote with actual votes. In this scenario, Capitalism is self-regulating because anti-Capitalism is itself a market phenomenon. However, this whole discussion is foolish. The fact is Societies have to defend themselves against external and internal threats. This means they must either seek to imitate, one way or another, what the more successful countries are doing or else fall behind in productivity and military and economic power. That road leads to enslavement by aliens or serfdom in a Spartan militaristic State like North Korea.
The authors offer the following recommendations: Reduce incumbent capitalists' incentives to oppose markets,
Why not reduce the incentive for incumbent Socialists or Woke nutters to fuck over the economy? There may be people who believe they are cats and who spend all their time purring and trying to catch mice. Why not concentrate on giving incentives to those who can cure them? Why reduce the incentive to say miaow of people who aren't pretending to be cats? What good will that do?
especially by limiting the concentration of ownership of productive assets.
If there are substantial scale and scope economies, all you have done is reduce your country's competitiveness. In any case, what is important is appropriable control rights, not ownership. Any way, the Common Law can develop a competition policy all by itself. Even if it doesn't, a monopsony can gain countervailing power over a monopoly such that the dead weight loss is minimized. There are many ways to skin a cat- unless the cat is actually a person who is in the habit of saying miaow, because skinning people can attract a charge of homicide.
Provide a social safety net for the economically distressed to help maintain broad political support for free markets.
Equally, such a safety net can provide broad political support for a Theocracy or Monarchy or Dictatorship. The trouble is such safety nets tend to disappear when people need them most.
Keep the borders of the economy open to support free trade
It is estimated that 750 million people would immigrate to the US if they were allowed to do so. This won't support free trade because Americans will no longer be able to export or import very much. Also their 'social safety net' would collapse- not to mention all the raping and looting which would occur.
and maintain a high level of competitive pressure on incumbent firms.
how do we maintain this? One way would be to tell incumbent firms that there are highly educated cats which are seeking to enter their market and steal all their customers. That will scare them straight.
I suppose you might say 'Vivek, enough with the cats. All that Rajan is saying is that policy makers should seek to increase elasticity of supply and demand perhaps by sponsoring research into close substitutes'. The problem here is that Rajan isn't saying any such thing. A production engineer- which is what Rajan was trained to be- might give us ideographic information of this sort for a particular market. Regret minimization, more particular during periods of increased Knightian Uncertainty, may militate for developing such capacities 'just in case'.
Educate the public regarding the benefits of free markets to build political support for free market policies,
Why not educate the public to discover the secrets of cold fusion? Better yet, why not educate them in the Maharishi's technique to achieve yogic levitation? Education costs time and money. Why educate people regarding the benefits of free markets or the great advantages to be had by not pretending to be a cat all the time?
True, if you have a charismatic orator, like Ronald Reagan, Wall street may hire the dude to go around giving stump speeches. But that is entertainment more than it is education.
or more specifically, oppose governmental interventions in the market designed to protect incumbents at the expense of overall economic opportunity.
Two decades later another Tambram, gained political traction by saying that 'wokeness' and 'DIE' were being used by 'incumbents' as a barrier to entry. In other words, the State's sponsorship of a liberal agenda raised compliance costs and strangled potential competitors. The problem with Vivek Ramaswamy's pitch, as with Rajan's, was that Americans don't really believe they need to be 'educated' into seeing that stupid self-serving shite is just stupid self-serving shite no matter what virtue it is meant to signal.
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