Com­pe­ti­tion as a Panacea?

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Com­pe­ti­tion is the Vit­a­min C of con­ven­tional eco­nomic the­ory: there’s no eco­nomic prob­lem that can’t be solved by a dose of more com­pe­ti­tion.

As you might expect, I’m less than con­vinced by this “one cure fits all” approach to eco­nomic pol­icy. Com­pe­ti­tion in bank­ing led to a “race to the bot­tom” in lend­ing standards–both to house­holds in the last decade after the Wal­lis dereg­u­la­tions, and back in the 1980s, (when then Trea­surer Paul Keat­ing allowed 16 for­eign banks to enter the mar­ket, who then duly lent buck­et­loads to such respon­si­ble busi­nesses as Bond Cor­po­ra­tion and Qin­tex). What we need now is less lend­ing, not more, and we’re hardly going to get a reduc­tion in sup­ply out of an increase in com­pe­ti­tion.

I’ll be post­ing more on this shortly, but for starters, here is an inter­view “Bank Com­pe­ti­tion Will Only Make Things Worse”, recorded with Phil Dob­bie of BNet Aus­tralia.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • Aac

    mahaish wrote
    “lets face it, when the gfc struck, roll over risk and the asso­ci­ated insol­vency of our bank­ing sys­tem was at stake, and the gov­ern­ment whole sale fund­ing gau­ran­tee got us out of a pickle”

    You mean if the gov­ern­ment did noth­ing then the banks, due to their mis­takes, may have taken some losses instead of the tax payer. The end of world scare mon­ger­ing by money print­ers may yet come true as peo­ple real­ize whose pock­ets the printed money ends up in.

    We are taxed so that politi­cians and banksters can live in their bub­ble world; we are taxed again when they print money and what do we hear from money print­ers and Char­tal­ist alike — don’t worry its all for your own good. 

    Did any­one see 4-Cor­ners this week- fea­tur­ing in large part Mac Bank. Funny how peo­ple are updet that the banks made so much profit. Didnt they real­ize this would hap­pen when their whole sale busi­ness was guar­an­teed by our all car­ing gov­ern­ment. I’m look­ing forawrd to the lynch mobs.

  • noah cross

    A side bar — Chris Joye is mak­ing a bet with Jeremy Grantham on hous­ing. Ana­lyst in $100m prop­erty bet with Wall St guru: “We would ask Mr. Grantham to cease and desist from his hyper­bolic jaw­bon­ing,” Mr Joye said, accord­ing to Dow Jones Newswires.

  • Thanks for spot­ting that Noah,

    I’ve relayed it to Jeremy’s col­league Edward Chan­cel­lor.

  • mahaish

    hey aac, a quick reply as im about to head out the door,

    banks are part pub­lic util­ity, part pri­vate enter­prise,

    bank own­ers deserve to go broke and loose con­trol and own­er­ship of the bank, but the bank needs to sur­vive unless we want the depos­i­tors to do their dough as well.

    we can achieve both if we have a mind to

  • Farnorth5

    Very good sum­mary of “Eco­nomic Mechan­ics”
    The same applies to Canada,although very few peo­ple will admit the role of credit in the Real estate market/Construction/Banks/Finance Com­pa­nies..
    Van­cou­ver has an unusual phys­i­cal charecter­is­tic of being blocked in on all four sides,which means exist­ing land has to be rebuilt on for the most part.Even so with Van­cou­ver match­ing Toronto plus,local devel­op­ers only pro­ceed when 70% of a project is presold before construction.They are very care­ful not to give the pub­lic the idea there is a “sur­plus” and a pos­si­ble tem­po­rary down­turn in pric­ing.
    Because of infla­tion over time,most peo­ple still act as if prices never go down and all
    real estate always dou­bles in price every 7 years !!!.(1960 to 2010 — $30,000 to $300,000 change in val­u­a­tion due to infla­tion…) Van­cou­ver real­ity -$585,000 aver­age.
    in 2010.
    Of course this unique ponzi always comes to an end every­where in the world ‚once the
    num­ber of par­ties can no longer increase their bor­row­ing amounts to keep the cur­renr
    price level going.