1. Are Banks Necessary?
Ashwin at Macroeconomic Resilience had a very interesting post last month arguing that the fundamental function of banks — maturity transformation — is no longer required. Historically, the reason banks existed was to bridge the gap between ultimate lenders’ desire for liquid, money-like assets and borrowers’ need to fund long-lived capital goods with similarly long-term liabilities. Banks intermediate by borrowing short and lending long; in some sense, that’s what defines them. But as Ashwin argues, today, on the one hand, we have pools of longer-term savings for which liquidity is not so important, at least in principle, in the form of insurance and pension funds, which are large enough to meet all of businesses’ and households’ financing needs; while on the other hand the continued desire for liquid assets can be met by lending directly to the government which — as long as it controls its own currency — can’t be illiquid and so doesn’t have to worry about maturity mismatch. It’s a very smart argument; my only quibble is that Ashwin interprets it as an argument for allowing banks to fail, while it looks to me like an argument for not having them in the first place.
Another way of reaching the same conclusion, in line with recent posts here, is that you can avoid much of the need for maturity transformation, and the other costs of intermediation, including the rentiers’ vig, if business investment is financed by the business’s own saving. In comments to the Macroeconomic Resilience post, Anders (I don’t think the same Anders who comments here) points to some provocative comments by Izabella Kaminska in a Financial Times roundtable:
An FT view from the top conference, with Martin Wolf moderating. He said an interesting thing re. all the cash on the balance sheets of American corporates. That for many US corporates, banks have become completely redundant, they just don’t need them. … The rise of the corporate treasury, investing wisely on its own behalf. Banks have failed at the one job they were supposed to do well, which was credit intermediation… No wonder banks have sought ever more exotic creative financing options .. their traditional business is dying. They’re not lending, can’t lend. So corporates are inadvertently acting by piling up cash reserves to solve that problem…. [You] see lots of examples of Corporates who don’t trust banks. … it’s amazing to think that we have come this far in the last two years… to a point where people like Larry Fink are suggesting banks are pointless.
This is part of the story of Japan’s Lost Decade that Krugman doesn’t talk about much, but that Richard Koo puts right at the heart of the story: By the mid 1980s, Japanese corporations could finance almost all of their investment needs internally, but the now-redundant banking system didn’t shrink, but found a reason for continued existence in financing real estate speculation. Banks may be pointless, but that doesn’t mean they’ll go away on their own.
2. Are Copyrights Necessary?
I’m surprised there hasn’t been more discussion in the blogosphere of this new working paper by Joel Waldfogel on copyright and new music production. (Summary here.) Has Yglesias even mentioned it? It’s totally his thing: an empirical study of whether file-sharing has reduced the amount of good music being produced, where “good” is measured by radio airplay, and various critics’ best-of lists. Which, whatever, but you’ve got to measure it somehow, right? And, oh yeah, the answer is No:
We find no evidence that changes since Napster have affected the quantity of new recorded music or artists coming to market. … While many producers of recorded music have been made worse off by changes in technology, there is no evidence that the volume of high-quality music, or consumers, have suffered.
Information wants to be free.
3. It’s an Honor Just to Be Nominated
Hey, look, someone at everyone’s favorite site for d-bags with PhDs, econjobrumors.com, has started a thread on the worst economics blogs. And the first blog suggested is … this one. “Krugnuts times 11,” he says. I think that’ll be the new tagline.