12 October 2008

Locking us into monoculture; as in agriculture so in banking

As in agriculture, so in banking. Government wades in to rescue something abstract: a sector, a system. In doing so it amplifies the trend towards aggregation and monoculture. More, it locks us into that oligopolistic monoculture, and makes us still more vulnerable to the highly improbable - the 'black swans' of Nassim Taleb. In time, government finds it almost impossible to withdraw from the sector, which now has its highly paid teams of lobbyists whose sole function is to keep the subsidies or subsidy equivalents going.

If government had a clearer idea about what should be its proper focus, this disastrous sequence of events would never get started. Government is not an investment company or a racing syndicate, whose goal is to pick winners, or maximise returns on taxpayer funds. Its role is not to target on abstract economic variables, financial indicators nor to rescue corporations nor even entire sectors. Government should instead be looking after the basic interests of ordinary people and all its activities should be subordinate to that over-arching goal. Or at least, that should be the starting point. Transferring billions of dollars from the poor to the rich is not only socially inequitable; it's bad for all of us, from the risk management point of view. We'll end up in banking, as in agriculture, with a highly specialised, highly concentrated finance industry, overly dependent on government favours, and we'll find it very difficult to get back to a sector whose size, structure and outputs are decided by the undistorted market, which is to say: ordinary people.

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