Sir, Martin Wolf argues for “Radical cures for unusual economic ills” November 26.
And therein he identifies the illness as the “chronic demand deficiency syndrome”, meaning “the private sector has failed to spend enough to bring output close to its potential without inducements of ultra-aggressive monetary policies, large fiscal deficits, or both.
But “to bring output close to its potential”, is sort of a half-baked aspiration for an economy, as it always need to strive to expand its potential.
And usually that signifies also to expand the economy’s potential more than what other economies can expand theirs… unless of course you subscribe to a somewhat Piketty like thesis that we must stop doing so in order for other to have a chance to catch up.
And, expanding the potential of an economy, can only be the result of risk-taking; never of that risk aversion which has been introduced by bank regulators, by means of their portfolio invariant credit risk based capital (meaning equity) requirements for banks.
But, unfortunately, just like the geocentric experts of the past could not get their hands on the realities of a heliocentric world, Martin Wolf belongs to those who confuse the world of ex-ante perceived risks, with the world of ex-post realized dangers; and therefore cannot understand that real banking risks do not revolve around what is perceived “risky”, but always around what is perceived as “absolutely safe”.
Wolf, referring to Lord Turner’s recommendation of “nationalizing the creation of money now delegated to often irresponsible private banks”, considers that as a “probably more effective way… to create money in order to expand demand”.
What a laugh! The truly real irresponsible have been the bank regulators like Lord Turner who, with such immense hubris, thought themselves capable of being the good risk managers for the world.
And now Martin Wolf, seemingly getting a bit desperate also argues that “Unproductive savings should be discouraged” and so “tax savings instead”. So let me end here by just asking: who is going to decide what is unproductive saving and what is not… is it Martin Wolf and his bank regulating buddies? I pray, for the sake of my grandchildren, for that not to happen.
PS. Why is Lord Turner lately so often referred to only as Adair Turner? Is he ashamed of his title? If so, relieve him, and take it away.