Fox And Chicken Coop Economics

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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Aesop was an Ethiopian slave who wandered the Greek isles in antiquity dispensing wisdom for the amusement of the people and his owners.

The oeikos, was never about Socrates’ search for meaning and Truth even when he lived in Athenian democracy. It has always been about interest groups in a world, the agora of the polis, of individual rights.

Economics, say Paul Samuelson and William Nordhuas in Economics 101, evolved from mercantilism to classicism, neoclassicism, and now New Keynesianism (Gregory Mankiw).

Today’s economy is a result of further evolution since 1993 beyond New Keynesianism. It went through an epoch of Feel Goodism in the 1990s of living the good life on borrowed dime and then Freakonomism after 9/11 of lowering crime and terrorism by abortions (sex education about contraception and disease prevention can come later say Freakonomists. Of note here is that education by neuronomism – the Matrix way for Anthros, or behavioral control by mind control of individual preferences to maximize social welfare and probability of species perpetuation is the next age of the bioeconomist).

It is not about whether leaders know to do what is correct at any given time, but it is about their pursuit of their self-interest.

That which ought to be done must, therefore, appeal to their sense of political survival, not knowledge, wisdom or Truth.

In the name of Christ, Holy Ghost and His Father, the disease of Roman indulgences has spread to Lutheran lands 600 years after the Renaissance.

In all, $16 trillion has been printed by the United States alone to save the Reformation, in addition to the Sunday evangelical bibles.

The housing crisis occurred because of a perfect storm of text book causes of market failure (Pindyck and Rubinfeld, Microeconomics) : moral hazard in monetary policy to mitigate adverse selection in asset accumulation in the population, leading to the export of the negative externalities of such a policy since 1997-1998 before they could no longer be exported. Now, the world is on the verge of implosion, once again paying for America’s mistakes, the committee which saved the world to preserve long term capital is no where to be found.

At the core of the crisis is information asymmetry about financial innovations (Akerlof, Stiglitz and Spence): paying off financial market participants, selectively by picking winners and losers, to take risk to globalize since 1993 and to increase homeownership since 1998.

Ben Bernanke’s Fed has reportedly authorized the dispensation of $4 trillion, the size of the 5th largest economy – India, since 2007-2008 in its 12 banking districts around the country from its 13th district in Washington, D.C. , toward economic recovery.

Bernanke, to govern the Fed, purchased the allegiance of 18 of his Federal Open Market Committee (FOMC) colleagues with monetary largesse. When money is free speech, why reason?

The political dance between Congress and the Fed has been to engage in what economists call “transfer payments” around the country through expansionary monetary and fiscal policies for the Fed to keep the business leaders in the districts of their elected representatives happy.

The returns from catering to the interests of FOMC members and members of Congress overseeing the Fed and at large are smaller than what they can be if the money being paid to banks for their mistakes due to Fed negligence in bank supervision, a moral hazard, is also invested to create jobs in a timely manner.

Federal Reserve supervising the banks it saves when they are in crises compounds that moral hazard when its institutional governance structure is private (8 FOMC members representing Federal Reserve Bank Boards) and public (11 FOMC members, 7 in Washington and 4 representing Federal Reserve Bank Boards because of 1/3 Fed Board vote in their appointments).

Recapitalization of banks as ex ante declared policy of the Fed, whether the voice is that of the now dead and gone Milton Friedman, Edmund Phelps, Alan Greenspan, or Benjamin Bernanke, is corruption because it employs moral hazard as public policy.

Paying people for their mistakes skews the economic incentive structure – fox of the financial markets guarding the chicken of an economy.

Aesop would have said, “those who make mistakes ought to pay.” Alas! He was put to death by his Greek masters.


About Chandrashekar (Chandra) Tamirisa
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