by Tyler Cowen
on November 8, 2010 at 12:48 pm
1. Should they privatize Pompeii?
2. Gateway books for Turkey.
3. The debate in Massachusetts over fee-for-service, and here.
4. Martin Wolf criticizes the gold standard.
5. Economist Paul Zak hugs all of his co-workers.
6. Are balanced arguments more persuasive?
7. Hoover Institution now has a blog.
8. Papers with humorous titles are cited less often.
I guess because I am not an economist, I am skeptical of the whole neuroeconomics thing.
#4) "Economists of the Austrian school wish to abolish fractional reserve banking. But we know that this is a natural consequence of market forces. It is wasteful to hold a 100 per cent reserve in a bank, if depositors do not need their money almost all of the time. Banks have a strong incentive to lend some of the money deposited with them, so expanding the aggregate supply of money and credit."
Do we know that this is a "natural consequence of market forces"? When you "deposit" money in a bank you are making a loan of epsilon term and constantly rolling it over. If the value of that loan drops below the deposit amount everyone immediate stops rolling over the loan and the bank goes belly up.
Further, by matching people willing to make risk free short term (1 instant) loans (almost everybody) with people who require long term finance you are bidding up the price of future money. When a bank must sell off its loans to meet its obligations to depositors it experiences the burying the corpse problem (the value of the loans drops). Because the price of the promises of money to come in the far future was bid up by people who actually want their money soon, the demand can not be replaced. The price of all future money collapses to the actual market price of future money (very high interest rates). Basically a system wide bank run is nothing more than the collapse of a market manipulation scheme in the market for future money. Is a market manipulation scheme a consequence of natural market forces. No more so than a ponzi scheme. Without a lender of last resort or some other means of propping this system up (suspending convertibility, FDIC, etc.) this system would not exist for very long, ESPECIALLY in a world with instantaneous electronic digital payments and the like.
You have to go back before the bank of England to see what an actual free market in finance would look like. Maturity matched lending. Long term interest rates would be high, but I'm not sure this would be a bad thing. Most of all would be stable. There wouldn't be systemic risk, just default risk factored into the price.
Re #8, I guess the joke's on them!
"#4: So basically we're screwed."
When even Martin Wolf feels compelled to address the gold standard silliness, to the extent it highlights how narrow a tube everyone is assessing global and national economic and fiscal issues – yes, we're screwed.
So, we know how to make capitation work this time?
Is a market manipulation scheme a consequence of natural market forces. No more so than a ponzi scheme.
Yes, both are a consequence of natural market forces. What else would they be? If government was not involved, would that change banking or ponzi schemes either one?
You have to go back before the bank of England to see what an actual free market in finance would look like.
Thirteenth century italian banks had a big effect on the english government. Even in an international context they found they could not refuse to make loans to governments, and past a certain point they could not collect.
The late thirteenth century is is the earliest I know about fractional-reserve banks being important in europe, not counting greeks and romans.
Why can't there be free-banking Austrians and non-free banking Austrians?
This really seems like a flagrant No True Scotsman fallacy. Friedrich fucking Hayek didn't want to abolish Fractional-reserve Banking. (He thought it had serious issues, but that the pros ultimately outweighed the cons.) And if Hayek is too moderate to be an Austrian, that's a bit contrary to popular usage.
You're right, it's a No True Scotsman fallacy. I like it, but you don't have to.
We could try the opposite approach and let anybody call himself an Austrian economist who wants to….
Josh: Do you use a credit card? Do you borrow money to buy a house? Then you are part of the problem.
Banks are middlemen in the money market. FRB is the only efficient way to match buyers & sellers. If you want a culprit, go after the central banks & govt regulation/insurance.
This is interesting, even if you think the guy is a crank. Start p. 64
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