Costs of democracy

29 10 2010

I’ve tried to avoid posting about this because it’s such a contentious issue, but this most recent letter in the Argus, and the comments it incited, is difficult to leave without response.

Now first off- the post itself- is about the accuracy, or lack thereof, in the original article posted by the paper, and the letter to that effect by one of the local Conservative Councillors (Dawn Barnett).  I have to say that I agree- the article isn’t particularly well balanced, nor does it seek to derive both sides of the argument.  What got to me though wasn’t the post, but the commentary- all about whether the actions of Smash EDO (both past and present) were justifiable.

For me, this completely misses the point, and aggravates me considerably.  I remember clearly seeing the news board outside my local Mulberry’s read: “Smash EDO policing bill to top £1m.”  Personally, instantly, I wanted to re-write that board to read: “Cost of right to protest £1m.”

Why not do it Mastercard?

Cost of policing: £1m, cost of free speech: priceless.

I hope people don’t misinterpret this post- for me the entire point is that the actions of Smash EDO are not the issue– what is fundamental is that a group is using its legal right to protest.  That legal right is fundamental to liberty and democracy, and as such is beyond price.

Certainly Smash EDO’s attitudes and the consequences of how they chose to protest can be criticised and debated, as can the choices and attitudes of the police.  I just think it’s unfortunate that people are portraying negatively something citizens of a democracy must have access to- even people we don’t agree with.


Too big to fail: is there a dangerous precedent in decreeing that a given company cannot grow beyond a certain point?

18 08 2010

I am a believer in liberalism: people should be free to act as they wish (as long as they aren’t harming anyone without informed consent).  Consequentially, I believe in capitalism- people should be free to spend their money as they wish, buy what they want and so on.

Thus banking must be allowed- if someone has money and wishes to lend it they should be allowed to do so.  They should be allowed to lend it at whatever rates they wish to whomever they wish- it’s their money.  Interestingly though, the problem of banking could be described in terms of just how “informed” the “consent” of the people at risk of being hurt is.

 The problem is not the banks, who are merely acting to achieve maximum profit, but the regulation of them- the government.  Whilst some might argue that being too stringent on them will drive them away, personally I believe that the net cost to our country will be higher if we let them stay unregulated.

 In theory- banks should be allowed to fail and people who chose to bank with e.g. an investment-cum-retail bank are taking a risk which probably rewarded them with e.g. cheaper loans/mortgages or higher interest on their savings.  I.e. people are rewarded for banking with a riskier bank, which is economically sensible.  People who aren’t willing to take the risk can earn less “reward.”

 If a large bank failed, and the government allowed this, that government would lose support from all those customers.  Thus at least one party will always support bail outs as this will get them strong support in such circumstances.  Therefore no party can support allowing large banks to fail.  Thus the only solutions are:

i)                    prevent banks from failing or
ii)                  make banks small enough to fail.

 If banks believe they will not be allowed to fail this creates moral hazard- they will act in a less risk-averse fashion than they would otherwise.  So one must try to enact a framework that makes banks highly unlikely to fail without the implication that failing banks will be supported.

 Separation of investment and retail banks would reduce the exposure of retail banks, falling into category (i).  It would also make retail banking more competitive, as “combination” banks would not have more money to play with vs their retail-only competitors and vice-versa with investment banking.  Even in this scenario however, a bank that is too-big-to-fail (TBTF) could make risky business loans or loan at unsustainable rates in the knowledge it would be bailed out.

 I think this means that- as long as the electorate will punish any government that does not save their choice of unsafe bank, banks cannot be allowed to grow so large and must be broken up.  In theory there should be no upper limit on the size of a company, however we live in a democracy not in a theoretical society and must act accordingly.  Perhaps the issue is not with democracy per se, but rather with our particular implementation of it.  I think the trick would be to explore ways of implementing democracy that do not e.g. imply by their nature that companies of a certain type must not grow beyond a certain size.