Friday, December 19, 2008

Macro-meddler Mark Carney

This story in yesterday’s Post had Bank of Canada governor Mark Carney putting "politicians, regulators and chief executives on notice ... that he plans to be a more forceful advocate in influencing public policy and market behaviour ...". In a lunch-time address to a Toronto audience last Wednesday, Carney outlined how he planned to expand his role as BoC governor into meddling with how the financial sector does business.

The story had ‘Peter Foster rebuttal’ written all over it:

...What he appears to be advocating is a brand of populist Keynesianism that suggests that banks are "hoarding" money, combined with the much less saleable notion that individuals are doing damage by being similarly prudent.

... Mr. Carney acknowledged the abject failure of central banks, ministries of finance and international financial institutions in predicting current problems, but drew analogies designed to indicate that valuable lessons had been learned.

... said Mr. Carney, "we must develop early-warning systems with precision and with teeth." So much better than aimless gummy gnawing.

... How? By being more macroprudent. Which means? "Put simply," said Mr. Carney, "a macroprudential approach focuses on the forest, not the trees."

... But could it be that the forest-not-the-trees approach is actually a big part of the problem? Could the very Keynesian conceit that policy wonks can work with stratospheric "aggregates" and get above those messy individuals and companies who actually create wealth be a dangerous delusion? Certainly history suggests so.

... the last thing we want is for governments to tell banks where to lend money.

... Keynesian wonks always speak as if they are delivering advice to benevolent despots and philosopher kings, not terminally-expedient and economically-challenged stimulators such as Danny Williams.

... Mr. Carney, typically, wants "more tools." Monetary policy, he admits, is a "blunt instrument," presumably because it has been unsuccessful in promoting imprudent lending and borrowing. So his new tool is … "advocacy!"

... The Bank’s latest Rube Goldberg-ian tool is a Financial Stress Indicator, FSI, which "is now showing record levels of stress." We would never have guessed.

... a forecasting tool, a bit like those wooden balls that spotted future murderers in the Tom Cruise movie Minority Report. This will presumably spot upcoming "thriftcrime."

... Call me a macro-denier, but I can’t help thinking that just as looking after the pennies means that the pounds look after themselves, so micro-prudence is the only genuine form of that modest virtue. But then Keynesianism perpetually seeks to turn common sense on its head.

See also Mr. Foster’s The ugly spectre of ‘new Keynsianism’.

Peter Foster for governor of the BoC!

3 comments:

Powell lucas said...

Keynsianism does far more harm than good. All this stimulus will not do a thing to get the economy moving as quickly as the supporters of this philosophy claim. There is a time lag of from one to two years before this torrent of money starts to have an effect. By that time, market forces will have started to reinvigorate the economy and all the additional stimulus just leads to inflation.
On the other hand, any defense of the big banks and financial institutions is even more misguided than Keynsian dogma. These pin striped criminals have sat smugly on their fat, useless backsides while the Canadian taxpayer bought up mortgages and reduced borrowing rates to historic lows so as to maintain liquidity. The response from these thugs has been to demand repayment of loans from people who are creditworthy and have dealt with these institutions for years. The auto dealers association, the manufacturers association, and a whole host of economists are decrying the fact that the banks have slammed the door on loans. From personal experience, I know people who are mortgage free with good incomes yet can't get a loan to purchase a new vehicle. If I know three people in this position, just multiply it by the total populace and we wouldn't need to bail out the auto makers if credit was available. The banks are sitting on the taxpayer bailout money while the spread between their borrowing costs and their lending rates increases. And they will continue to do so while they call in their higher interest loans. When they have recouped all the losses they took on their pyramid scheme to the point where the capos who direct this rip-off can retain their unconscionable bonuses and their stockholders are happy, they may condescend to loosen up borrowing at the higher spread. I think these hoodlums should have their counting houses nationalized or, at the very least, they can buy back all the mortgages the taxpayers took off their backs and return my money to me.

JR said...

I agree that all this bailout activity will come to no good in the longer haul. It'll likely make the recession longer and deeper and all of us poorer.

It would be a mistake to nationalize the banks though. If you think things are bad now it could only get much worse with more political meddling. Monopolies are bad news - government monopolies are far worse.

Anonymous said...

Inspiring story there. What happened after?

Good luck!

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