When you hold back banks from financing the riskier future, the pace of disruption and of productivity growth, will both slow.

Sir, I would like to make two brief comments with respect to Tim Harford’s “Disruption sets a less frenetic pace of change” of April 15.

The first is that the ownership of houses as well as the state of the housing market, influences on mobility. When you own a home but your equity in it has disappeared all things get to be more complicated.

The second is that though he mentions Tyler Cowen’s new book The Complacent Class, [which] argues that America has become less adventurous in many ways… he still does not want to understand that the risk weighted capital requirements for banks, more perceived risk more capital – less risk less capital, de facto orders less adventures and much more complacency.

http://subprimeregulations.blogspot.com/2017/03/banks-regulators-and-sovereigns.html

@PerKurowski

God, help my descendants live out of reach of high priests of complacency, like Basel Committee’s bank regulators

Sir, Martin Wolf writes: “China can help give Mr Trump what he wants. The US president wants greenfield industrial investments in parts of his country damaged by deindustrialisation. This can never be reversed. But Mr Xi can surely find Chinese businesses happy to invest in the US. Mr Trump likes such announcements. Mr Xi should help him.” “An odd couple doomed to co-operation” March 22.

What? Is the future wellbeing of America now beholden to China? Would Wolf really like this opinion of his to be quoted during a Trump rally?

If I were to give a recommendation of how to promote any type of greenfield investments in America, I would start with, of course, by telling America to get rid of those disastrous risk weighted capital requirements for banks that orders complacency with what we have, and de facto blocks bank lending to whatever smells as risky unknown future.

That regulatory risk aversion, which so odiously discriminates access to bank credit in favor of “the safe”, like the sovereign, the AAArisktocracy and residential housing; and so disfavoring the lending to risky SMEs and entrepreneurs… has no place in any country that wants to build future… much less in one that prides itself of being the Home of the Brave.

But there is much more to it.

On March 10, in “British business is starting to look more Italian” Martin Wolf drowned us in growth projections statistics that most probably are not based on an acceleration of any of those profound economic changes the world is going through. Sir, I wrote you a letter commenting on that.

On March 14, Wolf discussed the horrors of bilateralism and the blessings of multilateralism, trade agreements and globalization, reminding us of oldies like the Marshall Plan, “The folly of bilateralism in global trade”.

Today it is China and America, with Wolf referencing the “reform and opening up” proposed in 1978 by Mao Zedong’s successor, Deng Xiaoping.

Sir, about a month ago I had the chance to visit a wonderful small regional museum in Sweden, the Blekinge Museum. It lies very close to my recently deceased mother’s family house, in which I spent a lot of time in my youth. It was a shocking and a humbling experience. It was not a museum of very old times gone by; it was a museum of so much of my (1950), (and Wolfs) times gone by.

Images of heavy horses pulling carriages full of hay, Olivetti accounting machines, telephone exchanges with hundred of cables, old bicycles, wrinkled by rough seas rowing boats, and hundred similar items that I have lived with, but that mostly no longer exists, and are much less used, shouted out… “Per, what on earth do you know about tomorrow… what does anyone know?”

Coming out of the museum, more than ever, I felt like praying “God make us daring”; or at least God make my children, grandchildren and their descendants daring, so that they are not among the so many to be left behind… doomed (by automation and robots) to end up like the heavy horses of my time. God let them live free of that complacency Tyler Cowen writes about in “The Complacent Class”… faraway from the high priests of complacency.

And as for me, and as for Martin Wolf, as economists, as citizens, as parents and grandparents, if we only look back, and do not do our utmost to imagine what lies around the corners of tomorrow then, like old soldiers (and heavy horses) we might perhaps better fade away.

Does all what we older have lived not mean anything for the young? Of course it should signify a lot… but much more in terms of wisdom, than in terms of knowledge.

@PerKurowski

Moving is most often aversion to the risk of staying. More important, is the willingness to take risks upon arrival.

Sir, Gillian Tett, referring to “Little House on the Prairie” and Tyler Cowen’s “The Complacent Class”, discusses that decline in the “mobility [which] was considered synonymous with the American dream”, “How America’s pioneering spirit disappeared” March 17.

Tett quotes Cowen with “What I find striking about contemporary America is how much we are slowing things down . . . and how much we are investing in stability”; and she concludes recommending: “the next time the Trump team talks about making America great again, maybe somebody should ask how to make America mobile again”

But are those who fled famine, religious or political persecutions, or simply the lack of jobs, all risk-takers? No! What was really important for making America great was that fresh opportunities, like land and bank credit, awaited those who, upon their arrival, were willing to put in the job and take the risks needed.

Sir, let me, for the umpteenth time, quote from John Kenneth Galbraith’s “Money: Whence it came where it went” 1975. “For the new parts of the country [USA’s West]… there was the right to create banks at will and therewith the notes and deposits that resulted from their loans…[if] the bank failed…someone was left holding the worthless notes… but some borrowers from this bank were now in business...[jobs created]”

So, if we are to talk about some diminishing risk-taking affecting the economy, and that blocks the pioneering spirit, then what most clearly stands out is the risk-weighted capital requirement for banks imposed by bank regulators.

Ms. Tett, can you imagine families arriving to a land governed by such like a Financial Stability Board, whose function is to keep banks from failing and do not care one iota about petty little things like banks allocating credit efficiently to the real economy? Would the Ingalls have thrived in such a land?

But Sir, I know, you don’t want to talk about this.

@PerKurowski

US, and the Western World, is becoming “the home of the risk-adverse”.

Sir, I, as most humans, am extremely risk-adverse, and that is why I have always appreciated the role of designated risk-takers that the banks perform for the society. We cowards were used to worry our bankers were too cowards to, with their lending of the umbrella while the sun shines and taking it away when it rains. But then came the bank regulators and with their capital requirements that discriminate fiercely based on perceived risks made it all so much worse. 

Martin Wolf comments on the “Great Stagnation” by Tyler Cowen of George Mason University, December 21. What they both fail to identify is that requiring banks to have a lot of capital when the perceived risks are high, and allowing them to hold minuscule capital when the perceived risks are low, stacks the returns on bank equity against what is perceived as risky. And that has nothing whatsoever to do with what made “the Home of the brave” big. The US is now, as is most of the Western World, becoming the Home of the risk-adverse. 

Not taking risks is about the most dangerous things a society can do… as the only thing that can result from that is the overcrowding of the ex-ante safe-havens