Greed is not good – now what are we going to do about it?

If Reserve Bank of New Zealand governor Graeme Wheeler believes what he said to Brian Fallow at the Herald, that in the financial sector;

“The compensation levels are outrageous in many cases for the added value truly generated.”

The Occupy Wall St movement had a lot of powerful points to make. “But they didn’t have a strong enough framework about what to do about it. It sort of fell apart, which was a shame,” Wheeler said.

….what is he going to do about it? What can he do about it when the unfathomably popular Prime Minister is an ex currency speculator at some of the most rapacious and arguably criminal financial institutions in history (Bankers Trust and Merrill Lynch) and sees no reason for a mea culpa.

If Mark Carney, the governor of the Bank of England says;

“Many supposedly rugged markets were revealed to be cosseted: Major banks were too big to fail, operating in a privileged ‘heads I win, tails you lose’ bubble. There was widespread rigging of benchmarks [like Libor] for personal gain. And equity markets demonstrated a perverse sense of fairness, blatantly favouring the technologically empowered over the retail investor.

“We need to recognise the tension between pure free market capitalism, which reinforces the primacy of the individual at the expense of the system, and social capital which requires from individuals a broader sense of responsibility for the system.”

….what is he going to do about it? What can he do about it when Britain’s major political parties are so in bed with the City of London?

There comes a time when all those in positions of influence are faced with a personal ethical dilemma. To put what they think is right for society above their personal ambition and reputation.

Adair Turner, former head of Britain’s Financial Services Authority, has faced his previous beliefs and spoken out. Alan Bollard, former governor of New Zealand’s Reserve Bank and now Secretary General of APEC has not.

While Bollard has a new job and is promoting the TPP and the extension and imbedding of corporate financial power, Adair is challenging it with his calls to reign in banks by reducing their credit creating ability. He is also offering a viable alternative with his 2012 book Economics after the crisis – Objectives and means. Turner favours a multi pronged re-regulation of banks and a reformation of the economics profession and its flawed neo classical models and theories. More psychology and less convoluted mathematics. He even goes as far as suggesting publicly funded think tanks to enunciate contrarian views to status quo.

You would think there would be enough diversity within the economics departments of universities but most have become a mono culture of neo liberal orthodoxy in the last three decades and it’s not good for your career or reputation to be too divergent. A rare exception is British academic Mark Blyth who gives a brief but useful analogy.

Another is Australian Steve Keen whose job and department was disestablished a few years ago but who has now found a British university, Kingston in London, willing to let him expound his logical (if you consider the real world) but non mainstream  economic analysis. It is no accident that Keen and many other “renegade” academics lecture in political economy, the history of economics or behavioral economics, which are all more reflective of the way humans interact and respond in the real world, not according to an “ideal” mathematical model. Human psychology, political theory and history are all intrinsic to economics. It is a social science, or a moral science as Keynes called it, not a hard science with immutable laws.

Yet even here there is no consistency. Different people act in different ways – we aren’t clones raised under the same conditions. A criticism of behavioral economics in particular is that it is a mish mash of special cases so you end up with no useful theories or solutions at all. But orthodox economic models can only work if you reduce all society to one idealised participant, also totally useless as a guide for making policy.

There will inevitably be winners and losers under any economic regime. Personally I agree with those who believe the “winners” are too concentrated under the current status quo and reforms to the monetary system, especially around banks and the creation of credit, need to be made to distribute the opportunities and rewards more evenly. At the moment all the political parties are only tinkering with tax and welfare, with income and redistribution, but leaving the core monetary system untouched.  They continue to perpetuate the myth of endless and desirable “growth” and “prosperity” because that is how economics and politics have been allowed to be framed with no serious discussion of alternatives permitted.

We need people in positions of influence to raise their heads above the parapet and start to talk about alternatives even if it is unpopular with their peers or bad for their career. Adair Turner has started a discussion around monetary reform and public credit. Graeme Wheeler and Mark Carney have questioned the sustainability and fairness of the system of financial capitalism we are now operating under. They need to kick on and offer some alternatives even if they are unpopular with their political masters. Wheeler has shown promise with his willingness to try “prudential measures” like LVR restrictions outside the conventional toolbox but he and the others at the Reserve Bank need the courage to do more. Many will argue it is not their place or job to do this. Screw them. As Martin Luther King said;

The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.

 

 

 

 

 

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