SNB tweets to ponder

It’s funny how faculty who work at universities with large endowments can’t understand the decisions of the Swiss National Bank…

That one is from me.  In this kind of status-driven, bureaucratic environment, the incentive is to extend your cushion, not run it down and have to print up new money to replenish it, thereby receiving egg on your face and appearing dependent and outside the rules of the game.  You’ll do better understanding the SNB by reading Pierre Bourdieu on social capital than portfolio theory or the literature on optimal seigniorage.

I will note that university endowments are somewhat of a puzzle too (pdf) — for instance why don’t schools spend them down more, as a kind of crude political business cycle theory might suggest?

(On the other hand, just try dropping your items into a Swiss recycling bin on a Sunday.)

There is at least one big difference here: the SNB doesn’t want a balance sheet which is as large as possible, because that means both assets and liabilities.  Colleges and universities are far more likely to wish to maximize their endowments, which do not (one hopes) come with offsetting liabilities.  The “endowment” of a central bank has more to do with political chits, favors, and public impressions, backed by extreme solvency but not too big a target either.

Paul Krugman makes some good and interesting points about the comparison with Hong Kong; in my view influence capital in Hong Kong has been (ultimately) determined externally for a very long time, first Britain now China.  That gives the territory some special feasibility properties for a wide variety of issues.  Krugman is falling into a kind of sophisticated “public choice” mistake that is more frequently committed by libertarians.

In none of these cases am I suggesting that the current incentives are optimal from a social point of view.  And here is an earlier post on central banks and capital.  It is not that a partially privately-owned, cantonally owned SNB is maximizing raw seigniorage, a view which has come in for some rebuttal as of late.  Rather the partial private ownership helps account for what kind of legitimacy needs to be produced and what kinds of rules that legitimacy requires.

C’mon people, read your Gramsci!


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