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I have posted some brief comments on Eamonn Butler’s excellent new Primer:
For more, see The Filter^: Austrian Economics – A Primer. When discussing the “fraudulent” nature of fractional-reserve banking, the crux of the issue seems to be how the law distinguishes between banks and other businesses. I think all sides accept that accounting requirements are different for banks than for other businesses, however accounting principles are different for different types of business. I simply don’t have enough knowledge of auditing law to pass judgement on whether banks are treated differently because of legal privilege, or simply because they have unique attributes that auditors attempt to interpret accounting law in light of. (Note: and neither do the auditors I have asked about this!) The argument against fractional reserves relies on the assertion that “normal” businesses are unable to operate in the same way as banks, and are forced to maintain “100% reserves” at all times. Here is an example that I’d be interested in feedback on. Consider the following bet: “The FTSE 100 will rise by 5% or more within the next week” I am willing to bet £1,000 that it *will*, and you are willing to bet £1,000 that it will *not*
Is it possible to answer those questions from the information given? If so, how do your answers to those questions change based on the following information:
Which of the above scenarios would make you answer “yes” to either question 1 or 2? It strikes me that A and B do, and D does not. So the real issue is scenario C. If you told me that scenario C is illegal I’d be very surprised – how often do you make an agreement to make a future payment and have the finances available throughout? If C is illegal this suggests that if I bet £1m at odds of 150-1 that Everton will win the Premier League, the bookies is required by law to increase their cash reserves by £151,000,000 today and to maintain this for the duration of the season. Do they? Here’s how I think the analogy ties into the fractional reserve debate:
Which of those events (1-5) are illegal? Which should be illegal? In an op ed for Business Review Europe, I challenge the conventional wisdom on the importance of the SME sector. The unintended consequence of low interest rates and “access to finance” is the creation of “Ponzi” companies, and forced savings on the part of well-run businesses. When credit dries up, those mistakes are revealed.
For more: No sympathy for Ponzi SMEs – Business Review Europe. I provide an Austrian-school critique of Paul Krugman’s latest views. The money quote:
via The Filter^. I will be live blogging the budget from 12:30pm onwards for Reuters – you can join the debate here. As part of the build up see my op-ed “From one uncertainty to another“, and I have also been quoted by freshbusinessthinking.com. Cross posted at The Filter^ I will be live-blogging the budget for Reuters, and as part of the build up I have a short article on the role of uncertainty For more: From one uncertainty to another | Analysis & Opinion The Filter^: Is government spending an irrelevent component of economic activity?. Many Austrian-school economists seek to subtract government spending from GDP to get a more useful measure of economic activity. In this article I express doubts about doing so. There’s two ways to view the financial meltdown that occurred in 2008. The first is that it was a rare and unfortunate blip that can be remedied with calm and enlightened improvements in the regulatory framework. The second is that it exposed a serious flaw in the entire monetary system, and is likely to be repeated unless a radical transition takes place. It’s no surprise that politicians, bankers and regulators – the architects of the banking industry – favour the first idea. This is why their response has skirted around the edges instead of dealing with the core. Even supposedly extreme measures such as nationalising banks are in fact attempts to preserve the status quo.
For those of us who favour the second idea, 2008 provided a golden opportunity to join the public debate and present a credible alternative. Perhaps we missed it. But if indeed another crisis is coming, this article attempts to outline a 14-point plan that could be implemented quickly and genuinely reform the institutions that create financial instability. The key aspects of this proposal have been made previously, notably by economists Kevin Dowd and Richard Salsman. It could be implemented in three phases: Over 2 days the aim is to ensure that all operating banks are solvent
Over 2 weeks the aim is to monitor the emergence of free banking
Over 2 months the aim is the end of central banking
You can download a copy of the plan in pamphlet form here. On my blog I ask the following:
IEA Blog » Blog Archive » What Austrian business cycle theory does and does not claim as true. Over at the IEA blog I start answering Martin Wolf’s question about whether or not Austrian economics explains the financial crisis better than other schools. |
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