Letters

The Age

Thursday October 23, 2008

Unrestrained markets are as noxious as unrestrained state socialist regimes

SINCLAIR Davidson's splendidly vitriolic rant (BusinessDay, 20/10) argues that the Rudd Labor Government has "lost the plot" because its economic policy has been "mugged by reality". When neo-classical economists such as Davidson lay claim to "reality", the rest of us can only feel spooked.

It may be that Mr Rudd is climbing aboard a populist bandwagon when he attacks excessive bank executive salaries. This does not obviate the need for more scrutiny of private banking practices. Nor does it mean we should tamp down public scrutiny of Reserve Bank policies. But it is simply not true, as Davidson suggests, that bankers in the private sector would get away with the kinds of losses he alleges RBA interest rate policies have produced.

Executives at big banks have presided over staggering losses, whether from software system failures or from exposure to high-risk financial products, and got away with it - so far.

George Soros understands far better than a hundred Sinclair Davidsons what role fundamentalist neo-classical economic nostrums have played in promoting reckless financial deregulation and a culture of credit-fuelled appetitive hedonism.

As Soros reminds us, unregulated credit provision in America to high-risk, low-income borrowers who faced punitive interest rates was bad enough. Creating a plethora of financial products to sell-on debt was far worse and only possible because governments had come to believe the myth that free markets can self-regulate.

That particular bit of nonsense - first promoted by Adam Smith in terms of the hidden hand of providence - should never have been taken seriously. Like others kinds of beliefs, it persists because of its soporific value.

If there is an essential point fundamentalists such as Davidson seem to have ignored, it is that unrestrained markets are as noxious, albeit in different ways, as unrestrained state socialist regimes.

The rule of law and intelligent public policymaking are as needful now to control the worst excesses of the financial sector as when Keynes first called for national and international policy controls of the finance sector in the 1930s.

Rob Watts, Professor of Social Policy, School of Global Studies, Social Science and Planning, RMIT

No time travel, please

FOR once, I find myself in violent agreement with John Legge of Surrey Hills (BusinessDay, 21/10). He and I do occupy parallel universes. In my universe, opinions can be related back to evidence and facts. In Mr Legge's universe, Lehman Brothers' collapse last month triggered a crisis that began to manifest itself in mid-2007. There is no time travel in my universe.

Sinclair Davidson,

RMIT University

© 2008 The Age

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