Inequality

[Jacob]

Is anyone arguing that?

Anyone in the world?  I think so.  Fairly common trope in the progressive media that the purpose of financial innovation is to swindle people.

I meant anyone in the thread.

[Admiral Yi]

I meant anyone in the thread.

It was implicit in Fredo's question.  And implicit (or at least suggested) in the theory Joan is constructing about deadweight loss financialization.

[DGuller]

Actually I think it's much harder to make the argument that financial innovations have occured in the total absence of demand.

Demand could've always been there, but it could not be supplied until deregulation made it feasible.  And, for the record, I personally never claimed that financial innovations are necessarily bad.  Efficient risk management that financial innovation allows can certainly allow you to utilize capital more efficiently, which is good for society.  The problem is that just because something can be beneficial doesn't mean that it can't also be harmful, and complicated financial instruments can certainly be socially harmful, either due to misaligned incentives, or by the accidents they lead to in the course of doing something socially beneficial.

[alfred russel]

So I admit that I put out a poorly enunciated argument and that I cut it off half way because I needed to leave, but does anyone have a comment on my point of view that the "financial innovation" of the past 30-40 years wasn't due to deregulation but rather new demand?

A part of the argument for this that I didn't add was the collapse of Bretton Woods.

I imagine there wasn't much demand for currency swaps in a fixed exchange rate system.

That was a part of the point I was making (or at least trying to).

[alfred russel]

Actually I think it's much harder to make the argument that financial innovations have occured in the total absence of demand.

Is anyone arguing that?

I am trying to. JR has started with the premise that there has been significant financial innovation in the past 35 years (I think everyone agrees). To explain why he is discussing regulatory changes. I'm trying to bring up the idea that there were more fundamental changes to business that drove the financial innovation (and in turn the regulatory changes he is discussing).

[crazy canuck]

In my view the deregulation of the financial sector is largely what is responsible for the innovation which occured.  And, in my view deregulation was largely ideological.  The early 80s in America were all about cutting out all the red tape that was holding business back. Then when the financial markets began to "innovate" and take advantage of its new found freedom there was a political judgment made not to regulate the new financial products that were being created.

I recall a discussion around derivatives and the "whiz kids" that created them.  To some extent the debate was whether or not to regulate but there was also an aspect of how one would do such thing because very few people really understood what the heck they were or how they worked.

[Razgovory]

Well, the widespread adoption of polices from the Austrian economic school did immediately precede this change.  The similar Laissez-faire ideas that preceded the progressive era also produced similar economic unbalances.

[crazy canuck]

Is anyone arguing that?

Anyone in the world?  I think so.  Fairly common trope in the progressive media that the purpose of financial innovation is to swindle people.

WEll....the purpose of financial innovation is to make more profits. Which in the end means swindling people. That's the nature of capitalism.

  That is why I will never vote NDP.  I think most of you actually believe that.

[Admiral Yi]

Josephus just mongered his post!!

[MadImmortalMan]

The similar Laissez-faire ideas that preceded the progressive era also produced similar economic unbalances.

They didn't though. That's why the question is what changed in the late 70s/early 80s that had never been the case before. Otherwise, we'd be able to just point to the previous times and see.

I still say the transition time between ending Bretton Woods and the Plaza Accords has something to do with it.

[Josephus]

Is anyone arguing that?

Anyone in the world?  I think so.  Fairly common trope in the progressive media that the purpose of financial innovation is to swindle people.

WEll....the purpose of financial innovation is to make more profits. Which in the end means swindling people. That's the nature of capitalism.

  That is why I will never vote NDP.  I think most of you actually believe that.

Well.......I did delete that post...but not fast enough. 

[Oexmelin]

Yeah, that sounds about right. The huge growth in executive pay was the result of competition in the very narrow labour market of people who could boost shareholder returns exponentially.

... that's my uneducated guess.

I think a more sociologically based argument could easily be made that you have a semi-closed sub-group which basically rewards itself in what is essentially a non-state bureaucratic organization (i.e., which incorporates the lack of accountability which is a by-product of large-scale organization).

[crazy canuck]

Yeah, that sounds about right. The huge growth in executive pay was the result of competition in the very narrow labour market of people who could boost shareholder returns exponentially.

... that's my uneducated guess.

I think a more sociologically based argument could easily be made that you have a semi-closed sub-group which basically rewards itself in what is essentially a non-state bureaucratic organization (i.e., which incorporates the lack of accountability which is a by-product of large-scale organization).

Naw, generally there was plenty of accountability.  Its just that well intentioned people got sucked into the notion that paying the executive suite incentives would maximize shareholder value.  That was a genuinely held belief.  It wasnt something cooked up to "swindle" everyone.

It took a number of years before people began to realize that the kinds of incentives that were being given didnt help maximize shareholder value at all.  Often the reverse was true.  Now compensation committees are struggling with where to go from here.

Also, there was the kind of phenomenon that took place with hockey agents.  As the level of executive compensation rose compensation committees were concerned that they didnt want to lose their talented executives and so joined in.  fyi a similar kind of madness took hold with junior associate compensation about the same time but I digress.

[Razgovory]

The similar Laissez-faire ideas that preceded the progressive era also produced similar economic unbalances.

They didn't though. That's why the question is what changed in the late 70s/early 80s that had never been the case before. Otherwise, we'd be able to just point to the previous times and see.

I still say the transition time between ending Bretton Woods and the Plaza Accords has something to do with it.

They didn't what?

[MadImmortalMan]

The similar Laissez-faire ideas that preceded the progressive era also produced similar economic unbalances.

They didn't though. That's why the question is what changed in the late 70s/early 80s that had never been the case before. Otherwise, we'd be able to just point to the previous times and see.

I still say the transition time between ending Bretton Woods and the Plaza Accords has something to do with it.

They didn't what?

Produce the similar imbalances.