regulation

Virtues of the Public - Part 4 (Power of the Purse)

Introduction:

For earlier parts in the series, see here and here.

In the history of public policy, like in other disciplines, sometimes the most fascinating topics are the most ordinary, the most overlooked. The things we don’t really notice can be the most powerful influences in our lives, because they can function unseen. And that brings us to the topic for today’s post.

We grumble about taxes, we handle money every day, but we don’t really think about what the power of the public purse means.

 

Virtues of the Public - Part 2 (Absence of) Profit Motive

Note: this is a cross-post fromThe Realignment Project.

“A term like capitalism is incredibly slippery, because there’s such a range of different kinds of market economies. Essentially, what we’ve been debating over—certainly since the Great Depression—is what percentage of a society should be left in the hands of a deregulated market system. And absolutely there are people that are at the far other end of the spectrum that want to communalize all property and abolish private property, but in general the debate is not between capitalism and not capitalism, it’s between what parts of the economy are not suitable to being decided by the profit motive. And I guess that comes from being Canadian, in a way, because we have more parts of our society that we’ve made a social contract to say, ‘That’s not a good place to have the profit motive govern.’ Whereas in the United States, that idea is kind of absent from the discussion. So even something like firefighting—it seems hard for people make an argument that maybe the profit motive isn’t something we want in the firefighting sector, because you don’t want a market for fire. “
— Naomi Klein

Introduction:

As I discussed in part 1 of this series, “Public Virtues” will examine those areas in which the public sector has an economic advantage, and compare and contrast those where the private sector is supposed to have an advantage. And where better to start than the profit motive, the first principle of capitalism that’s been held up, not just as an explanation of why corporations get better and better at making widgets if people give them money, but why the public sector is inherently and unalterably inefficient, technologically stagnant, and uncompetitive. The profit motive, as everyone knows who’s lived in the capitalist world, basically holds that because people want to make a profit, they are pushed towards the maximization of their resources, and thus seeking to make profits, they make the system as a whole more efficient and productive.

However, most honest thinkers, i.e those not professionally involved in proving that capitalism is infallible, admit that the profit motive only spurs innovation and efficiency where it actually exists. Where it doesn’t, you wind up with market failures.  And where the market fails, that’s the natural place for the public sector. The debate, however is how often and where this happens.

Volcker Stands on Twin Peaks - New Report on Market Regulation

Submitted by on

Former Fed Chairman Paul Volcker and Jacob A. Frenkel (Group of 30) released a new report,

The Structure of Financial Supervison: Approaches and Challenges in a Global Marketplace

The attached paper recommends a restructuring on financial market supervision called Twin Peaks.

twin peaks red room dream sequence

Both Presidential campaigns have mentioned major structural and regulatory reforms of the financial systems. Volcker is advising Obama and please note, the other paper authors, many are from surviving financial institutions and yes, yet once again, Goldman Sachs is represented.

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