Forcing savers to help borrowers?
Posted November 24, 2008on:
Over at the Standard they discuss one of Lord Keynes’s “real ideas” – namely an international organisation that tries to push savers to spend, by buying the things borrowers save. When I put it this way the idea sounds ridiculous – which it is.
This unusual view comes from a belief that a trade deficit or surplus is a “imbalance” that needs to be “solved” by a benevolent organisation. This is of course rubbish, nations, like individuals, should be able to run trade balances or surpluses based on the preferences of the individuals involved.
Now I haven’t heard this idea before, and if Keynes did come up with it I think it has more to do with the elitist world view of the Cambridge school combined with some foggy mercantilist sentiment than with the practical relevance of such a policy.
“Imbalances” that are caused by market failures are the ones we should solve – not arbitrary imbalances that we have assumed exist because we want to regulate.
Ultimately, there has been a disjoint between risk and return in some areas of society, a problem that has been able to occur because of large information asymmetries across the financial market. Transparency of information and wider education surround risk are the best ways to improve outcomes in the financial market – not arbitrary regulation based on a view that “all countries should run a trade balance”.