September 10, 2016

Tim Harford explains why a kakocracy, like that of the Basel Committee on Banking Supervision, is likely to endure

Sir, Tim Harford writes about “Kakonomics – the economics of rottenness. There are corners of the economy where poor work is the norm, not the exception.”, “The hazards of a world where mediocrity rules” September 10.

Harford argues “a true kakonomy is collusive, a tacit agreement to be mediocre at someone else’s expense …Once a kakocracy has been established, it is likely to endure: recruiters will be careful not to hire anyone who might not only rock the boat but also repair the leaks and fix the outboard motor.” 

If as a regulator, at the huge cost of distorting the allocation of credit to the real economy, you introduced risk weighted capital requirements for banks to make these safe, one could assume you would be able to answer the following question: When and where did the last bank crisis resulting from excessive exposures to something believed ex ante as risky occur?

So, if the Basel Committee the Financial Stability Board and all those other involved with bank regulations like the Fed, BoE, ECB, IMF, FDIC and similar can’t answer that question, would it be wrong of me Sir to suspect they all constitute a regulatory kakocracy?

Sir, if you yourself have steadfastly refused to listen and voice my arguments on this issue, perhaps so as not wanted to be seen as rocking the boat, would it also be wrong of me to believe you could belong to that same kakocracy?

Is a bank regulation kakocracy dangerous? You bet!

PS. Of course I do not base my suspicions on just one unanswered question.

PS. How resilient is the bank regulation kakocracy? If it is as willing to go to any extreme measures to defend its kakonomics, as the current Venezuela Chavez/Maduro government does, then we’re in serious trouble.

@PerKurowski ©