Reaction to "Socialize Finance"

Intro

It's not my normal cup of tea, but this article has a unique perspective that I've never heard before.

Note: The author uses anti-capitalist (and waffly) language that triggers me (and maybe you too) - this might cause some of my criticisms to be in bad faith. However, I think there's a lot of valuable thoughts in here, and so I'm trying not let that reaction cause me to skip over anything.

The article is split into two halves -- the first is a general overview of the author's position and the main thrust of the article, and the second is the part that's worth reading, where the author goes into more detail about proposed solutions.

Responses to the introduction

"And, where something like competitive markets do exist, it is usually thanks to extensive state management"

Like the author, I really believe in this. Markets need help in order to stay free and competitive. However, unlike the author I think this is the main goal here (I'm not totally sure what the difference here is - maybe I believe more strongly in the power of markets, and less strongly in the competence of government?)

"The development of finance reveals the progressive displacement of market coordination by planning."

Is this the key point? It could have been made clearer.

This seems bad if it's true, but I haven't been convinced that it's true. I tend to believe that this kind of thing results from bad regulation (and, to be fair, from natural monopolies).

And the institutions that make these financing decisions do so based on their own subjective judgment, constrained ultimately not by some objective criteria of value, but by the terms set by the central bank."

Yeah, so, the central bank is the problem for giving some financial institutions favourable terms!

"So, contrary to the idea of firms rising and falling through natural selection, finance’s darlings — from Amazon to Uber and the whole unicorn herd — can invest and grow indefinitely without ever showing a profit. This is also supposed to be a great advantage of markets."

It is a great advantage of markets! VC (venture capital) is a success of capitalism over socialism. How often do you see a government making very high-risk/high-reward investments?

"We seek rather to bring this already-existing conscious planning into the light, to make it into a terrain of politics, and to direct it toward meeting human needs rather than reinforcing relations of domination. In short: the socialization of finance."

I really disagree with this. The direction seems wrong - going from private planning to public planning seems worse than going from private planning to market-based planning (which we can do with the correct interventions. eg. remove the regulatory blessing of the credit agencies, make it easier to set up a bank)

Responses to the proposed solutions

Solution 1. A public payments system

Yes! (In my opinion, crypto naturally fills this purpose)

Solution 2. Postal banking.

?? Not sure this held up in 2016 let alone today. Banking can be purely digital these days.

Solution 3. Public credit ratings

(both for bonds and for individuals.)

My summary of this proposed solution is that they are proposing to socialize credit agencies, ie. make them government run.

There are currently only a few major credit agencies. (Bold for ["Big 3" credit agencies](<https: //en.wikipedia.org/wiki/Big_Three_(credit_rating_agencies)>)):

- **S&P**
- **Moody's**
- **Fitch group**
- Equifax

NZ Reserve bank [only approves 4 credit
agencies](https://www.rbnz.govt.nz/regulation-and-supervision/non-bank-deposit-takers/requirements/credit-ratings)
(the above ones!)

These companies had big involvement in the financial crisis - ratings agencies are basically incompetent at
their job, they should have picked up the subprime mortgage crisis.

It's not quite a natural monopoly, but almost. In practice there's only space for a few agencies.

Yes - Socializing credit agencies seems like good idea.

### Solution 4. Public housing finance.

If the claims here are true then yeah I agree. The government should finance directly (especially possible these
days with web / software), rather than going through private middlemen. On the other hand, it seems bad to me
that the government finances housing (is this true in NZ?)

### Solution 5. Public retirement insurance.

We have this. It's a good idea but only so far as the government is in the business of "protecting people from
themselves"

### Solution 6. If it isn’t permitted, it’s forbidden.

There's not enough detail here to know what the author actually meant, but my gut reaction to this is that I
highly disagree with it. Forbidding things is usually a bad idea. Instead, we should spend all our effort on
structuring the incentives correctly.

### Solution 7. Protect functions, not institutions.

I extremely agree with this one. Eg. Govt. should have bought the banks in the financial crisis, continued their
socially neccessary functions to manage the crisis, then dissolved or sold them.

### Solution 8. Require large holdings of public debt.

I don't understand this one.

### Solution 9. Control overall debt levels with lower interest rates and higher inflation.

This assumes that debt reduction is good, which is an empirical question and naively I don't think is true?
Richer people have more debt than poorer people, so by increasing inflation relative to interest rates you
disproportionately help people with high debt-to-income ratio. I think poor people have a lower debt-to-income?
(they have lower income, but even less debt than richer people). We should _reduce_ inflation in order to reduce
inequality.

Interesting, we actually have seen this happen since 2016 when the article was written, so I hope I'm wrong
here.

Update: After talking with a friend about this, I have some more thoughts.

### Solution 10. Democratize Central Banks

Disagree (at least with my imagined situation here - some kind of direct democracy). In practice directing
policy for a central bank does require "technocratic expertise".

I'd rather a competent central bank with somewhat misaligned goals than an incompetent central bank (with
nonsensical inconsistent goals). I wouldn't even vote or give input to a central bank right now, because I don't
think I know enough about how to turn high-level economic policy into my utilitatiran goals.

### Solution 11. Disempower Shareholders

(but respect the value of institutions)

DISAGREE! Institutions only have value in so far as they randomly get people in their heirarchy that care about
wellbeing/utility. But, the institution is still beholding to profit-making. We should make the
wellbeing/utility part explicit with regulation, and let shareholders try to extract as much value as they can.
**Without the incentive to shareholders to make money, the economy doesn't work at all, so we shouldn't touch
this.** We should embrace it, use regulation to keep markets efficient, and disincentivize negative
externalities (eg. worker suffering, pollution)

### Solution 12. Close Borders to Money (and Open Them to People).

Again, disagree. Definitely open them to people - but also open them to money! Bigger markets are better. (At
least, if they can be effectively taxed?) International cooperation on taxation is the actual important issue
here!

## Conclusion

I'm not super convinced by the policy solutions detailed by the document, with the notable exception of
socializing credit agencies.

The crux is that the author and I clearly disagree on the competence of government in performing vital
functions. That means that the author thinks that the default should be to socialize key financial
infrastructure, and burden of proof is on demonstrating that it will be better privatized. However, I have the
opposite opinion, and ask for proof that something should be socialized.