The economists’ UK manifesto, seems to be over 90 percent long on government bureaucrats.

Sir I refer to Tim Harford’s “The economists’ manifesto” April 18.

Nick Stern: “green infrastructure bank…congestion charges…carbon tax”.

Jonathan Haskel: “government funding of science” with government borrowing taking advantage of the ultra-low interest rates.

Gemma Tetlow: “abolish national insurance entirely and replace it with higher rates of income tax”

John van Reenen: “an infrastructure bank to help finance projects by borrowing from capital markets and investing alongside private sector banks”

Kate Barker: “replace council tax with a land value tax”…taxing expensive homes more heavily and “charge capital gain’s tax on people’s principal residence”

Simon Wren-Lewis: “the Bank of England should print the money and hand it to the government on condition it be used for fiscal expansion.”

Diane Coyle: To limit executive pay packages.

Though Nick Stern mentions his proposal is “long on UK strengths such as entrepreneurship” I would hold the Economist’s manifesto package seems to be over 90 percent long on government bureaucrats.

My own recommendation, also as an economist, would be to create some lebensraum for UK entrepreneurs and SMEs, by firing current bank regulators.

Why?

Because banks are allowed to hold less equity against assets perceived as safe than against assets perceived as risky.

So banks can leverage more their equity, and the support they receive from society, with assets perceived as safe than with assets perceived as risky.

So banks can earn higher risk adjusted returns on equity with assets perceived as safe than with assets perceived as risky.

So banks will lend too much at too low rates to what is perceived as safe, like infallible sovereigns and members of the AAArisktocracy, and too little at too high relative rates to what is perceived as risky, like SMEs and entrepreneurs.

And so the indisputable fact about current bank regulation is that it distorts all common sense out of the allocation of bank credit to the real economy.

PS. I hear again about ultra-low interests... careful these rates are being subsidized.

@PerKurowski

Banks should make their profits by being real banks not simply by leveraging what is “absolutely safe”

Sir, Martin Wolf ends his “Britain’s economy should not go back to the future” April 12, writing “The country needs institutions, public and private, better capable of generating widely share growth.”

He is of course right, but what he refuses to acknowledge is how much lousy bank regulations which impose different capital requirements for different assets based on perceived risk has distorted their capacity to allocate economic resources efficiently.

Currently banks are making their profits not as they used to, by taking smart risks, but by leveraging enormously what is perceived as "absolutely infallible", something which as recently seen is also an extremely dangerous experiment. Therefore what is most urgently needed, not only in Britain is for bankers to become real bankers again.

Wolf also mentions some failures in the Thatcher legacy identified by Professor John Van Reenen of the London School of economics. These are “rising inequality, excessive financial deregulation and inadequate investment in both human and physical capital”, and these are all closely connected to the mentioned capital requirements.

If you favor the access to bank credit of those already much favored, the haves, the history, the old “The Infallible” you are discriminating against those already much discriminated against, the have-nots, the future, the young, “The Risky”. And that can of course only lead to rising inequality and inadequate investments. 

But to call this dangerous excessive regulatory prudence an excessive financial deregulation, that is pure nonsense. As I recently wrote to you, Margaret Thatcher would never have approved of these so sissy capital requirements for banks.

PS. Sir, just to let you know, I am not copying Martin Wolf with this, since he has told me not to send him anything more about these “capital requirements”… he already knows it all, so he thinks.