Indeed – the party would have a good chance in Thames-Coromandel area methinks.

“While the Greens (rightly) see a number of environmental issues as market failures, their solution is to regulate the market. On the other hand, the approach that would normally be advocated by National (i.e. outside of election years) would be a more nuanced approach”

I think the regulation of market failures is fine – however, I don’t think the Greens always appropriately identify the market failure (tax on scarcity!!). I more balanced approach – which integrates the economy and our environment as both precious and a scarce source of capital would surely sound like a sensible sort of thing to say.

If asset values are fundamentally lower than the banks pinned their entry on – they NEED to go out of businesses. That is just the way it is.

“I thought the idea of banks providing a financial accelerator channel that affects the rest of the economy was mainstream now”

Yes it is – but the “accelerator” channel only provides a market failure in the case of “asymmetric information”. If policy aims to deal with this failure then it deals with the problem.

“This is impossible so I don’t see why you even bother suggesting it. The whole financial system is about pricing risk – the government can’t just step in one day with the “correct” risk premium.”

Indeed. But surely there are still some private agents providing insurance. If this is the case, the government knows that the asymmetric information problem leads to a suboptimal amount of insurance (at a higher premium) and so can be sure that offering insurance at a slightly lower rate than is currently available on the market will improve the outcome. The problem is trying to change this rate later on – however, this is a problem for after the crisis, not during it.

“Leaving that aside, if your house was on fire, would you call the fire department, or would you be content with owning an actuarially-fair fire insurance policy?”

Indeed, that is why the people that own the banks are so determined to tell everyone it is the end of the world – so they don’t have to face the cost of the risk they took on initially. I don’t see that as a reason for government intervention 🙂

“Matt, I’m not certain how you reconcile your liquidationist views at a macro level with your belief in the prevalence of market failure and potential for welfare-enhancing government intervention at the micro level”

Easy, its all a matter of asymmetric information. Asymmetric information insures that loans that should happen don’t – and this is an issue that deteriorates during a credit crisis. This is an area where some, temporary, government intervention can help – and that is what they are doing.

If I couldn’t bring my macro-views back to micro principles they would be indefensible.

Note: The way I see things, the economy does get hurt – however, there is nothing else the government can do to reduce the size of this hurt. The fundamental value of assets is lower than expectations were – there is a real cost to that.

Well firstly it is rather limited in its current form, and secondly, while it reduces the risk of a bank run, I think the much greater concern is bank insolvency, which could arise from falling house prices and rising mortgage defaults. Given the similarity of the banks lending profiles, I stand by my claim that if the weakest was insolvent, the rest wouldn’t be too far behind. I thought the idea of banks providing a financial accelerator channel that affects the rest of the economy was mainstream now.

“Not if the premium on insurance was set at the market rate – such that it took into account risk.”

This is impossible so I don’t see why you even bother suggesting it. The whole financial system is about pricing risk – the government can’t just step in one day with the “correct” risk premium.

Leaving that aside, if your house was on fire, would you call the fire department, or would you be content with owning an actuarially-fair fire insurance policy?

Matt, I’m not certain how you reconcile your liquidationist views at a macro level with your belief in the prevalence of market failure and potential for welfare-enhancing government intervention at the micro level.

Interesting theory. Given the middle-class origin of the Greens, it would certainly be something of a return of the prodigal son.

However, there is a little problem called economics in the way. While the Greens (rightly) see a number of environmental issues as market failures, their solution is to regulate the market. On the other hand, the approach that would normally be advocated by National (i.e. outside of election years) would be a more nuanced approach.

If they can reconcile these approaches then there may be some hope of the two combining but I ain’t holding my breath.

Agreed – that is a very key point.

“On the plus side, he’s now my Vice Chancellor (boss)”

Good times – you guys should do some newspaper articles/press releases on the crisis. There is definitely scope for intelligent commentary on the issue.

“So the polls should be about:
Greens 10
NZF 0.1
Labour 20
National 30
Act 39

Give their present polices”

I’m not sure – the parties seem to be changing the scope of their policies so constantly that I have no idea what is going on 😛

I wish parties has to state “long-term” policy goals and how (and when) they wish to achieve them.

Interesting question, that would be the best counter to my claim 🙂

There used to be one, and it didn’t do very well 😛

I would vote for it – especially if they got a really pragmatic leader who spoke really well and promised not to really do anything 😉

Give their present polices