Inequality, inequity, and the “simpleton’s god of free markets

Editor’s note — The following is a piece from a conversation between Per Kurwoski and Angus Cunningham. For background on Per Kurwoski and his perspective, watch his video “Basel’s Monstrous Regulatory Mistake.

In your latest comment on an iMFdirect post, Per, you used the word “inequality”.

Yet I wonder if sometimes we use this word in financial-economic contexts when actually we would be clearer in conveying what we want and need to convey if we used the word “inequity”. It is both wasteful and inequitable that money is so easily available under the policies of the US and UK central banking authorities of quantitative easing because QE’s beneficiaries are people and/or organizations who, then having spare slugs of money to park, choosing to put QE’s largesse into speculation in energy, agricultural products, housing/land, and rare metals. There, they are causing price inflation that is painful to low-income people trying to buy the household essentials of food and fuel. See, for example, my overlay on an analysis that appeared recently on the SFO Federal Reserve bank’s website:

http://www.authentixcoaches.com/images/QE_Effect_on_Commodity_Prices_1104053.jpg

The purpose of QE was to prevent deflation and the job losses that would result from a deflationary spiral. Yet if QE has repaired the balance sheets of a flock of casino gamblers, it has done nothing yet to shore up the desperately thin reserves of people who are entirely innocent of the consequences of the folly, incompetence, and/or dishonesty of the callously insensitive frolic that is now known as the Great Recession, or the Crisis. This is, I believe, because the central bank authorities have not been acknowledging the inequity of giving banks unequal access to the largesse of central banks’ policies, QE or otherwise.

Basel III exacerbates this, as you have rightly said many times in many places and nowhere more consistently and cogently than in this forum. But until financial thinkers factor in the psychological concept of “birds of a feather flock together” and acknowledge how extremely dysfunctional and inequitable this psychological trait of ordinary human beings cavorting on manic, speculatively irresponsible rolls in the financial sector, financial markets and the tools that the good people at the IMF advocate for regulating them, will continue to produce misery.

Fortunately some intelligent departures from the current orthodoxy of devotion to the “free-market god of financial/economic simpletons” can deliver us from such evil. For example, capital controls, which Brazil has called for and to which Mr. Strauss-Kahn has given conditional public blessing, are an obvious direction for the Fed and Bank of England to consider, along with a means to discriminate between speculation and investment such as is described at the following URL:

http://www.authentixcoaches.com/ACdsFCF-1.html

Action on this front of inequity caused by unconsidered inequality will be required by creative and courageous people. Judging by past experience, only people outside the financial-political elite, perhaps those related to the field of venture capital, appear currently to have the gumption to challenge the god of free markets in a practically effective way that will lead to a reduction of both inequality and inequity.

Angus

Angus Cunningham

Principal, Authentix Coaches