I took Rajiv Sethi's advice and read all Ashwin Parameswaran's posts at Macroeconomic Resilience. I promised myself early last year that I'd keep up on posts at Macroeconomic Resilience. Instead, I got swept up in despair over the BP oil spill, TEA Party emergence, and continued malaise following the financial implosion. I quit blogging and just hunkered down. But something got me started again. So today, I want to explore Parameswaran's thoughts on the resiliency of our banking/finance system.
I like the idea of working toward macroeconomic resilience. With resilience defined: "the capacity of a system to absorb disturbance and reorganize while undergoing change so as to still retain essentially the same function, structure, identity, and feedbacks." It's all bit wonky, but it works. I like too that Macroeconomic Resilience may be the only financial economics blog I've seen that ties routinely to Buzz Holling and friends work, e.g. at the Resilience Alliance. I have championed that work for years in trying to move my old employer, the US Forest Service, into adaptive ecosystem management.
Here are a few themes I found while webcrawling through Macroeconomic Reslience,with example-hyperlinks:
Similar ecologically-framed concepts are noted at Resiliance Alliance.
I will continue to follow Macroeconomic Resilience, and to engage Parameswaran in commentary on his blog. In the meantime here are a few salient points I gleaned from his posts:
I sense, perhaps incorrectly, what I'll call a "small is beautiful" bias woven throughout the posts. E.F. Schumacher's Small is Beautiful: Economics as if People Matter is my source for my chosen reference point. I too, harbor a similar bias. But I am not yet convinced that immediately breaking up the big banks is prudent strategy. Better perhaps, to work on regulatory rules that allow big banks to fail relatively gracefully, and see if the big banks have staying power in emergent banking/finance ecosystems as they evolve.
Another thing that bothered me is the notion that interest rates might now be too low. Maybe. But there is something that rings true about not being able to move objects by pushing on a string.On the other hand, if money is just going to "crony capitalists" to play derivative games that don't positively affect the "real economy", then maybe there is a point to be made. I'll have to look further into this notion. I certainly have argued, along with many others that Greenspan left interest rates too low for too long during the bubble-up era that predated the crash of 2008 (or thereabouts).
Unlike Nouriel Robini (last I checked), Parameswaran does not believe we ought to reinstate Glass Steagall, but rather that we need mechanisms to allow for a more diverse thereby resilient banking/finance sector. This argument deserves attention.