Saturday, January 16, 2010

Weekend links

Billy Blog has the post-Keynesians take on the Austrians here. The whole thing is a little inside baseball, so only read it if you care. The irony is, of course, that when Keynes displaced the Austrians, their description of economic reality was actually closer to the truth, as Austrianism understands gold standard economies pretty well, and the General Theory is a muddle. When Keynes was overtaken by the Monetarists, you essentially had the Austrians re-establish themselves, but under an even more confused and muddled barrage of mathematics, in a fiat monetary system that complies pretty well with the General Theory!

Finally, a word on Obama's bank tax.

Like Megan, I do not support it, although my reasoning is different. The private sector is not done deleveraging, and any action that drains private sector savings, be it quantitative easing or a bank tax, is bad as it will undermine aggregate demand when that is still very weak. If you hear the phrase "it will be good for taxpayers" then it will almost certainly be bad for taxpayers as the US needs higher deficits still right now, not lower ones.

Also, banks are still undercapitalized, especially if they recognize the market value of their assets. The Fed has waived capital requirements so this does not impact them operationally, but those requirements, I assume, will come back some day and an adequately capitalized banking sector is something that the economy needs. Banks are de-capitalizing themselves through absurdly large salaries and bonuses, which is bad, but taxing them has the same effect. The UK approach -- taxing the bonuses themselves -- is better in this regard.

As a tax payer, I don't want to get my bailout money back. I want to see that we got something for the money, namely a sanely managed financial system. I'm not seeing that yet.


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