Towards a better financial system
This is a guest post by H.R., a risk management quant:
First, let’s clear the ground for new ideas by questioning the myths that have justified the current system.
Myth 1: The wisdom of the free market is the answer to everything (if only we could get rid of market frictions like regulations and taxes).
- Behavioral finance has empirically demonstrated a wealth of cognitive biases that distort the market.
- An Indian perspective on the effects of the liberalization of their economy.
- When it comes to their own welfare, the 1% have abandoned the free market in favor of the predator nanny state.
Myth 2: The work of the 1% is indispensable.
- Empirically, pumping resources to the “job creators” does not seem to be very effective.
- Most of the 1% are not even “job creators”.
- And the marginal value of those that are is questionable.
Myth 3: The unemployed exist because they don’t have the right skills or attitude.
- Bill Mitchell argues that with the current lack of jobs, “skills training” and similar efforts may shuffle around who gets the jobs, but won’t solve the unemployment problem.
- Economist DeLong concedes that maybe Kalecki had a point about unemployment as a means of lowering wage earners bargaining power.
Myth 4: The government can never compete with the private sector.
US health care is ridiculously uncompetitive compared to other countries nationalized systems.
Myth 5: We have to choose efficiency over inequality.
Evidence against: Chris Dillow makes the argument that
- better managed government can’t simultaneously deliver us maximum efficiency and equality, and
- there are good arguments for choosing equality over efficiency.
Myth 6: We are constrained by budget deficits.
Some basic ideas from Modern Monetary Theory would disagree.
Next, we need to imagine the possibilities.
There will be government giveaways. Leave it up to the 1% and they will grab the giveaways for themselves. Let’s decide for ourselves what our priorities are and imagine a system that serves us all.
We can use the tools of
We can imagine the possibilities for a better system
If we aren’t happy with are national system, we can think about how to start local action.