And the most invidious form of government is …

I forgot to include this little tidbit from the Wall Street Journal in my last post, but I think it greatly illustrates the point I made about how many of the incoming batch of Republican congressmen are not truly interested in helping the overall recovery, but about promoting a narrow ideology based on one theory of economics.

As the WSJ article points out, the “central bank for central bankers” recommends greater regulatory controls as a means to increase long-term economic output by about 1.9% versus what would be achieved without such controls. Specifically, they would require banks to maintain higher capital reserves. Admittedly, this doesn’t have anything to do with derivatives or proprietary trading, but there is a very strong general argument for regulation of potentially dangerous practices pervading the article: reducing the risk of crises.

[T]here’s a massive potential benefit in avoiding banking crises and all the human suffering they entail. When panic and credit troubles lead people to cut back on spending and companies to lay off workers, much of the lost economic activity is never recovered. Among various studies, the median estimate of the total loss is more than three fifths of an entire year’s economic output. One central banker, Andy Haldane of the Bank of England, estimates that the costs of the most recent financial crisis could amount to 3.5 years of economic output.

As I noted (following in the footsteps of countless individuals more knowledgable and engaged than myself), the practices which Republicans currently want to re-deregulate are the very same ones which sparked the crisis which may end up costing us 3 1/2 years of growth. If they really are interested in recovery, then shouldn’t they be trying to prevent the banks from playing fast-and-loose with our money and leading us into the next Great Recession?

Also posted on Fragmatic Idealism

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