Stephan Kinsella and Steve Horwitz have both published a suggestion from Toby Baxendale, on a type of bank account that 100% reservers and fractional reservers might be able to agree on the legitimacy of:
This manager says this account is a timed deposit account in nature i.e. your money is locked away for at least a month, 3,6,9 18 months X number of years, but the bank will allow instant access , by exception for the liquidity that it keeps in reserve all the time. However, should there be too much call on liquidity, the bank reserves the right to point out that you the depositor are actually a de jure timed depositor / creditor to the bank for at least a month, 3,6,9 18 months X number of years and are going to he held to the time period you freely signed up to.
In addition to the option clause banks might also offer (and historically did offer) a “notice of withdrawal” clause, specifying that their customers were required to give 30 days notice prior to making a redemption claim. The fact that this clause existed (to protect the bank from a legal point of view if it were ever to suffer a liquidity crisis) does not mean it is always invoked, and banks could routinely not enforce this rule and satisfy immediate redemption requests.
(Note that I've received feedback on that paper suggesting that many US fractional reserve savings
accounts still do carry withdrawal clauses.) To repeat what I've said previously:
... in my theoretical working paper about sound money (and the corresponding policy proposal) I talk about how option clauses and notices of withdrawal are examples of contractual provisions that make anti-fractional reserve arguments mute. I intend for this to unite the two schools of thought, and show how 100% reserve arguments can be dealt with seriously. My concern is to find solutions that all Austrian school economists (and indeed all "good" economists) can get behind and support, rather than to further unnecessary antagonism.
I'm glad Toby shares that view, and encourage him to read (and cite) my paper!
When negligence on the part of private sector companies leads to deaths, we tend to see prosecutions. So surely the same should apply in the public sector? Consider the case of Hatfield, where senior executives were cleared, but note that they were charged.
Under existing law, a company can only be convicted of corporate manslaughter if a senior individual in that company is guilty of "gross negligence manslaughter".
Over three hundred people are killed each year as a result of corporate negligence, yet only three company directors have ever been successfully prosecuted for corporate manslaughter.
Here's Labour MP Peter Dismore:
Mr Dismore told the BBC: "It is only by putting the senior people in court that they will take safety seriously.
"They should have imprisonment and heavy fines and the courts must have the power to make companies put right the failings that caused the accident in the first place, again backed by very severe penalties if they don't."
If we think that climate is affected by human activity, why aren’t we doing more research on the optimal temperature of the earth?
the average interest rate on the federal debt was about 8 percent. The growth rate of nominal GDP was about 4.5 percent. The ratio of federal debt to GDP was approaching 75 percent. That meant that in a given year, the government was spending eight percent of 75 percent of GDP, which is 6 percent of GDP, just for interest on the debt.
So, simply cutting back spending on programs to equal revenue would leave a deficit of six percent of GDP. With GDP rising by only 4.5 percent, the debt/GDP ratio would rise. How could the government prevent this ratio from rising?
You might think that the answer was to have the deficit equal ―only 4.5 percent of GDP. But remember that the interest rate on this new addition to the debt would be eight percent, which means that the debt/GDP ratio would still rise. The only way to keep the debt/GDP ratio from rising, it turns out, was to get the deficit down to 2.625 percent of GDP
The Appendix shows the arithmetic - has anyone done this for the UK in 2010?
The number of manufacturing workers has fallen from 6.5m to 2.5m over this period [1980-2010]
But hang on a minute...
overall manufacturing output is around 70 per cent higher than it was in 1980
What explains this? Well, economic growth and productivity. Leung points out that we reach satiation for manufactured goods quicker than for services (e.g. as we get wealthier having another washing machine is less important than having another holiday). He claims that:
Just as agriculture falls as a share of the economy when nations progress from being underdeveloped to developed, so manufacturing's share of the eocnomy falls as a nation moves from being developed to being affluent
Ignoring the methodologial individualism concerns, it's a point well made. He points out that Britain is the sixth larget global manufacturer, with around the same level as France or the US (relative to GDP). But he goes on to suggest the downside risks of being dependent on manufacturing:
Well worth a read.
Last night I gave a talk at the Libertarian Alliance (I believe the video will shortly appear here). The proposal is: “2 Days, 2 Weeks, 2 Months" (also see my comments here). There was a good discussion afterwards, and I was rightly put to task for identifying deposit insurance as a key problem. Indeed when I talk about deposit insurance, I am implicitly referring to taxpayer funded deposit insurance. There is nothing wrong at all with private deposit insurance, and indeed note that the Financial Services Compensation Scheme is industry (not government) funded.
But this brings up a curious possibility - recollect that 100% reserve advocates often claim that banking and insurance are not comparable, because whilst the former abuses it's creditors that latter do not. So what if, instead of offering a 100% reserve account with a storage fee a bank offers a slightly less than 100% reserve account with a fee for deposit insurance? Wouldn't this satisfy the argument that such desposits need to be "safe"? And by definition this is an insurance, and not a banking product. I don't know the answer, but it's these sorts of innovation that make it very difficult to prescribe particular forms of banking.
Another interesting topic during the Q&A was the strategy for reforms. My plan is written to be a set of guidelines that could be followed when the next banking crisis hits. To be sure, we can't just sit back and think that if we have an alternative it will even be considered, let alone used. Hence the importance of the Carswell Bill, which seeks to solve the problems within banking from where we stand today. I did raise the possibility, however, that a public debate would reduce the chances of radical reform.
Think of the difference between how Estonia and the Czech Republic adopted the flat tax - my own work* suggests that when you have a Prime Minister who's only read one economics book in his life, uncertainty about the right policy solution, and a void of debate - radical solutions become possible. With a large civil society you run the risk that the economically ill informed media majority corrupt that debate and spread ignorance. We know that people's priors tend to favour regulation over freedom - whilst I am a public intellectual and seek to debate economics on as wide a platform as posible, I am a realist in the sense that giving ideas an airing doesn't automatically lead to greater acceptance.
* 2008 “The Spread of the Flat Tax in Eastern Europe: A Comparative Study” (with Paul Dragos Aligica) Eastern European Economics Vol. 46 No. 3 pp. 55-74 *
I've just seen that Lisa Buckingham has written about the "big four" accountancy firms. In the policy report that I submitted to the FRC in May 2006(.pdf), I said:
the notion of a “Big Four” is a mirage; and ... the audit market is
competitive (regardless of concentration or switching rates). Despite this the paper
suggests broad institutional reforms that could make the market function more
smoothly: permit cross-ownership; reduce the geographical basis of regulation;
relocate the burden of large-scale risk; and pursue measures to get company
information into the public realm.
Don't forget, it wasn't long since people thought the Premiership had a "big four". Look how that's turned out...
On the first day of class I asked the students to list 3 economists.
I kept the instructions deliberately vague, such that the answers would be "the first 3 to come to mind" rather than "who do you consider to be the most famous", or "who do you think the rest of the class will think are the most famous", or "what will impress the Professor the most..."
Given that many students (this is a one-year general management post-graduate course) have never studied economics before, but all come from good prior universities from across Europe, I thought the results would be mildly interesting. Here they are: