The Revival of State Banking in Europe

by Alexander Fink[1] and Andreas Hoffmann[2]

Since 2009, the role of government in banking has increased substantially in Europe. This is, first, a consequence of capital injections or bailouts of private banks (for instance Dexia in Belgium, Royal Bank of Scotland in the UK, Hypo Real Estate and Commerzbank in Germany, Fortis in the Benelux, ABN Amro in the Netherlands, or Allied Irish Bank in Ireland). Second, the ECB has taken on a more dominant role in financial markets. And third, low-interest rates and mounting EU regulation seem to discourage private bank lending. Whereas private banks de-leverage and roll back their portfolios in the absence of great opportunities, so-called development banks substantially gain market share. This is odd and worrisome at the same time.

Income Inequality Matters

by Roger Koppl

Income inequality matters. Let me say that again so you know I meant it: Income inequality matters. This statement may be surprising coming from a self-described “Austrian” economist and a “liberal” in the good old-fashioned pro-market sense. It shouldn’t be. It should be one of our issues. The surprise should be that we pro-market types have not spoken up more on this central issue, thereby letting it become associated almost exclusively with more or less “progressive” opinion.

This indifference to income distribution is all the more mysterious because pro-market thinkers generally support a theory of politics that tells us to watch out for ways the state can be used to create unjust privileges for some at the expense of others. We should expect the distribution of income to be skewed toward the politically powerful and away from the poor and politically weak. In a representative democracy “special interests” engage in “rent seeking” to get special favors. Those special favors enrich some at the expense of others. That’s what they are meant to do!

Euro Benefited Germany More than Others in Zone

by Andreas Hoffmann

The euro benefited Germany more than others in the zone. Germany exported and won, the others had to import German goods and lost  (link). This seems to be a consensus in the world of politics. The second consensus is that a bail-out package for the euro problem children or even euro bonds are necessary to safe this euro. And obviously without this euro, there would be no EU.

The combination of the two arguments is used to convince the German parliament and public of that the bail-out packages are necessary.

Big Players and the Rule of Law

by Roger Koppl

Greg Mankiw quotes a recent WSJ article:

“Like many others I made the mistake of buying what I believed was ‘value,'” Mr. Gwin says, adding that investors who bought at the time believed the loans were worth more than their market price. “We did not contemplate having our first liens invalidated by a sitting president,” he adds.

Mankiw is worried that Obama may be “trying to achieve a ‘fair’ outcome as he judges it, regardless of preexisting rules and agreements . . . . in which case politics may start to trump the rule of law.”

The Shape of Things to Come?

by Mario Rizzo

Where an auto bailout might lead. Here.

HT to Jeremy Sapienza.

A Microeconomist’s View of the Macroeconomy

by Mario Rizzo

 

The Social Science Research Council invited a number of economists to comment on the current financial and economic situation. I was happy to be asked and to contribute. Here it is. Above my post you will find the contributions of Robert Reich and other “prominent” economists.

 

The Flawed Logic of Bailouts

by Gene Callahan

I am periodically re-astonished at the brilliance of Frédéric Bastiat. His satire “The Candlemaker’s Petition” is perhaps the most brilliant send-up of protectionism ever penned. And, listening to the news on the radio today, I again was made aware of how important but, apparently, difficult to grasp, is Bastiat’s point about “what is seen and what is unseen.”

What brought that point of Bastiat’s to my mind is the recent media focus on the proposed bailout of the US automakers. It is certainly the case that, if the government provides the US automakers with oodles of greenbacks they would not otherwise have had, then the automakers are more likely to make it through this recession. That, in Bastiat’s formulation, is “what is seen.” However, “what is not seen” is all of the other businesses that will fail as a result of that bailout.

The Coming Slavery

by MARIO RIZZO

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It is said that when railways were first opened in Spain, peasants standing on the tracks were not [i]nfrequently run over; and that the blame fell on the engine-drivers for not stopping: rural experiences having yielded no conception of the momentum of a large mass moving at a high velocity.

 

The [above] incident is recalled to me on contemplating the ideas of the so-called “practical” politician, into whose mind there enters no thought of such a thing as political momentum, still less of a political momentum which, instead of diminishing or remaining constant, increases. The theory on which he daily proceeds is that the change caused by his measure will stop where he intends it to stop. He contemplates intently the things his act will achieve, but thinks little of the remoter issues of the movement his act sets up, and still less its collateral issues.

 

Herbert Spencer, “The Coming Slavery”

 

 

 

Quite a few years ago I gave a presidential address at a dinner meeting of the Society for the Development of Austrian Economics which was titled after Herbert Spencer’s 1884 article, “The Coming Slavery.” At that time I failed to understand the nature of an after-dinner talk and struck a too-somber tone for too long a time. Nevertheless, I have an enormous respect for Herbert Spencer and his analysis of the dynamics of government intervention in the economy and believe his observations are highly relevant to current events.

 

We are clearly on a slippery slope toward massive and ill-advised government interference in the market. Unlike many slippery slopes this one is not likely to take a long time.