Crikey, Ross, where has this been for the past ten years:
Abbott wants to review the financial system, so he appoints a former boss of a big four bank, David Murray, who feels qualified to explain to economists where they’re going wrong.
…Can you imagine how many proposals Murray’s committee will receive aimed at making the financial system bigger and better – and all in return for just a little more help from taxpayers?
…The government’s terms of reference say ”the inquiry is charged with examining how the financial system could be positioned to best meet Australia’s evolving needs and support Australia’s economic growth”. Fine. But if it’s to be more than just an industry sales pitch, the inquiry needs rigorously to examine the industry’s convenient assumption that the bigger it gets the more it benefits the rest of us.
In a brief submission that deserves more attention than it’s likely to get, Professor Ron Bird and Dr Jack Gray, of the Paul Woolley centre at the University of Technology, Sydney, summarise the growing evidence that the developed economies’ much expanded financial systems have been a bad investment from the perspective of the wider economy. (Both are former fund managers.)
…The first warning that this growth might be making economies more risky came from Professor Raghuram Rajan, of the University of Chicago, at a central bankers’ conference in 2005. They told him not to worry. He has since argued that the financial system’s big rewards for risk-taking (with other people’s money) result in the economy proceeding from bubble to bubble.
…Bird and Grey conclude that the starting point of the Murray inquiry’s analysis should be to assess the financial system’s effectiveness and highlight where it is falling short and why.
This is the heart of the services economy you so champion, Ross. Without ever-increasing debt (and larger banks) there is no larger services economy because it is non-tradable (unless you want to expand the government sector). Time to rethink some of your larger ideas, Rosco!
