Interesting Julius that you should mention Telstra. If ever one needed an example of neoliberal dogma put into practise, the privatisation of Telstra is surely it.”

I have a bit of a problem in your first sentence with “global” though you may be right about what many [are] arguing. Better bank supervision in America and a few other countries in terms rather than the erection of some edifice for the globe would have been a good start, and maybe adequate. And that’s without mentioning the positive harm done by the US Congress and succesive administrations in encouraging the lending of money to people on terms that they would not be able to comply with.

As to your second sentence I first translate your use of “neo-liberal” into “economic rationalist” which I have always been and so was happy to find a Ted Mansfield of the Post & Telecommunications Union saying at a conference in 1983 “there is no alternative to economic rationalism”. While private risk assessment and investment decisions are important to making an economy function efficiently I am not sure privatisation could be regarded as central to economic rationalism even if logical thinking based on the premise that competitive private enterprise is generally the best way of making capitalism work well leads to the conclusion that a government business ought to be privatised. After all economic rationalists cannot favour monopoly except perhaps on some special grounds which have little or nothing to do with economic rationalism.

Economic rationalism (or neo-liberalism) is only the best first approximate generalisation for making sense of the economy and promoting good economic policy. If you consider the various starting points that have been promoted by interest groups in the past the point becomes clear. How about putting first the need to ensure that small country towns don’t lose population to the detriment of their local facilities, services etc.? How about starting with the need to ensure that no one who has been in a job for more than 5 years is laid off unless the business is actually broke? Free trade is another good starting point which fits with economic rationalism (neo-liberalism) though Mr Rudd might not like to admit that.

Would that include trying to deal with the effects of reduced competition and vertical integration in the grocery and petroleum markets by way of internet price-watch schemes, instead of reviewing the efficacy and enforcement of competition and trade practices laws? Ref Crikey item #10 on Friday.

Adding a bit more detail, I suggest only an NGO cooperative, funded mandatorily by all institutions offering investment products, would be free of conflict of interest.

And only a single global cooperative would have the big picture to see when a whole asset class is getting too big to fail, and therefore needs to have its risk rating reviewed as an asset class. A bit like the global reinsurance companies now using the sort of risk modelling that QBE pioneered, to see what would be the consequences of a plausible catastrophic event or systemic failure.

Many would argue that much of the refining and correcting governments have been doing lately, relate directly to their past failure to properly regulate and oversee global markets.

Interesting Julius that you should mention Telstra. If ever one needed an example of neoliberal dogma put into practise, the privatisation of Telstra is surely it.

@James….”I have no idea what neoliberalism is.” Once upon a time James they called themselves economic rationalists until that brand name became tarnished.

Interesting James that you cite the of the failure of the ratings agencies re the sub prime mortgages. Difficult though to imagine the ratings agencies being the target of government intervention, while most governments await their pronouncements with trepidation. Still a case of the tail wagging the dog I’m afraid.

I have no idea what neoliberalism is. But liberalism (which in a nutshell means live and let live) is the idea that the government’s role in markets is to ensure transparency and fair play, and also to stop businesses from cheating the competition game to bring about monopolies. Producing better products and services for a lower price is not necessarily the most cost-effective way to beat the competition to make profits. Deceiving the market, trading inside information, entrapping customers, price fixing, predatory pricing, and so on, are often easier than competing fairly. These violate liberal principles (the second part of the “live and let live” statement) and the government’s job is to stop them from happening.

Liberal theory does not give the government any role to play in deciding that the market has misjudged an asset class and over-exposed itself to certain risks. (Although if asset bubbles result from interest rates set by a non-market-based Reserve bank, maybe we should ask why the Reserve doesn’t use a supply-demand basis to set interest rates, as any market participant would.)

Government might have had a role to play asking if credit rating agencies were subject to conflict of interest. They get paid to rate something, and if they don’t rate it highly, maybe another agency will. It never seems to have occurred to them, for example, that the creditworthiness of a $50 billion market in subprime mortgage products was a far cry from the creditworthiness of a $600 billion market in the things. I would think ratings agencies are a far better target for government review and intervention than banks.

Rudd showed no interest whatsoever in question like these. He just jumped on a bandwagon shouting that unfettered greed should be brought low (eg by taxing the richest people at 90 per cent?) and government was the answer.

The trouble is that governments are big and strong and clumsy and slow (not least to refine, correct or reverse what they have done badly) so getting a few things right is v. difficult and dangerous to try. Think of the enthusiasms one might have had as a clever teenager or undergraduate. How obvious such devices as proportional representation seemed, just for one common example. Yet how badly it impacts on the political process in many polities where it isn’t just a safeguard against something worse.

The more things you hand to government, the more things you are handing to politicians and bureaucrats to manage and make rules for, only a few of which would ever be within their competence even if you supposed that they became bureaucrats or politicians because they had a set of abilities or skills or knowledge which fitted them for managing anything but a few broad necessities. And even these latter, remember, they handle less than perfectly by a large margin. War? Preventing crime? Sound money (low inflation)? Only since they largely abandoned using interest rates to manipulate other variables and handed the decisions to central banks!

I don’t disagree with you about the need for government counterweights to the influence of human nature as manifested in greed and stupidity - and herd behaviour inter alia - in the major institutions of our society (and where businesses are monopolistic and important - which is not a reason for excusing extortion against Telstra). Given that the judiciary and legal profession in most First World countries don’t lead to great crises there may be something to learn about built-in checks and balances which don’t require too much of current politicians and bureaucrats when the regulation of financial markets is further fine tuned (which appears to be all that is required in Australia though I wouldn’t mind seeing my prejudices indulged by mandating a better equation of risk and reward for executives and directors to the risks and rewards of other stakeholders, particularly shareholders, and that wouldn’t be confined to finance…..).

In reply to James…. It should have taught us that in the absense of appropiate government regulation and oversight, greed and stupidity prevail. If it hasn’t, history will repeat itself.

Henry is usually on the money. I hope though, that he doesn’t start quoting again those economists who advised the Premiers in 1931 that, inter alia, “confidence has to be restored”, as part of a case against the fiscal stimulus. Note please that those economists were a couple of years late and what they said wasn’t actually true either. They said that subsidies and government make-work schemes couldn’t make business profitable. Really? How about the bloke (or his missus) with the home insulation contract and those he bought his materials from?

I am surprised that Professor Garnaut saw Rudd’s piece in the Monthly as anything other, than a bit of of opportunistic political grand standing.

If the Global Financial Crisis taught us anything, it is that ‘neoliberalism’ unfettered let the market rip capitalism, like all other dogmas eventually runs its course leaving others to pick up the wreckage.