You wouldn't think that tanking an economy would make anyone happy but it puts a spring in the steps of a small group; economics professors.    

If the lousy economy is cause for a party, the election of Barack Obama and more government meandering is apparently icing on the cake.    Witness Professor Panicos Demetriades of the Economic and Social Research Council's World Economy and Finance  Programme, who is today speaking at the 'Politics of Macro-Adjustment and Poverty Reduction' Conference.

"The theory that, to promote financial growth, the role of government has to be a limited, hands-off approach is probably gone forever. The new US administration could and should liberate financial institutions from these views. It will not be easy but less ideologically biased advice to LDCs would help promote global growth" says the Professor of Financial Economics at the University of Leicester. "What it should not do is to continue protecting the narrow interests of the U.S. financial lobby."

Somewhere, Rahm Emanuel is summoning a squad of ninjas to take this guy out.  The last thing Democrats need is a repeat of the 1976 wave of optimism that quickly got mired down in flaky academic financial experiments even Richard Nixon, with his bizarre wage and price controls, refused to touch.    And who knew that 'liberal' suddenly meant 'freedom by government regulation?'   I didn't vote for that.

Private banks and passive regulation are the reason third world countries are doing poorly, he says - evil America (read: Republicans) and their insistence that people who work hard should be able to make more money are what the problem is - not French farmers who get $900 a year in subsidies for each cow they own and can therefore sell agriculture products cheaper in Africa than Africans  can grow it.    No, it is all America's fault, despite the fact that 85% of the total agriculture subsidies for the entire world are in Europe.    The one thing third world countries can produce - food - is subsidized out of their reach.

But to Demetriades, passive regulation of the financial system is the problem and only direct nationalization of banks will cure it.    This, despite the fact that the 'you can't turn anyone down for a loan' regulation of deregulation during the last 10 years is what caused the current mess.

"Assuming the new US administration succeeds, we should see better, less ideologically biased advice to LDC's(1), to help to promote growth worldwide, even if it does not protect the narrow, short-term, interests of the US financial lobby in LDC's."

Succeeds?    He thinks foregoing the American economy is what Obama wants?   Here come Rahm's ninjas again.   The minute the people losing their jobs and their houses begin to think that Barack Obama or any other politician cares more about subsidizing farmers in other countries so they can compete with subsidized farmers(2) in Europe, that great sucking sound you hear will be the same sort of votes that went to Ronald Reagan in 1980.

Even Maureen Dowd, not exactly a cheerleader for any Republican since, well, ever, has had enough of the Keystone Kops fiscal mentality Demetriades seems to think we need more of:

Team Obama sounds hollow, chanting that “the status quo is not acceptable,” even while conceding that the president is accepting the status quo by signing a budget festooned with pork.
...
In one of his disturbing spells of passivity, President Obama decided not to fight Congress and live up to his own no-earmark pledge from the campaign.(3)

He says that nationalizing the banking system and running banks (which means lots of government employees and, of course, consulting jobs for economists) is the only way forward.

"In many cases, the shareholders have been more or less wiped out so nationalisation may be the only way forward if we are to come out of this recession sooner rather than later. Governments must become more hands-on. After all, they have invested billions of our money in the banks, we will not forgive them if we see no return."

Not so.  You only lose money if you sell.   If you bought IBM in 1980 it went up but then you were losing money on it in 1993 but you averaged 27% a year if you held on to it.    Selling out at the bottom of the market and giving it all to governments which no research has ever shown to be working efficiently is the dumbest investment move anyone could make.

It's the kind of strategy only an economist would come up with.

Paper: Svetlana Andrianova, Panicos Demetriades, Chenggang Xu, 'Political Economy Origins of Financial Markets in Europe and Asia', RePEc:lec:leecon:08/1


NOTES:

(1) Less Developed Countries.    This is a term they use instead of 'third world', which apparently sounds too colonial, but is also useless because it is a vague metric that applies to China, who is buying all our debt.   Anyway, it makes economists feel good to use an acronym only 7 other people on the planet understand.

(2) I am actually okay with subsidizing food.  Food, to me, is a strategic resource, and the minute you outsource it to the low bidder in another country, you are vulnerable.  We also subsidize cotton, though - they always bring that up when they are saying we are just as bad as they are - and have have offered to cut subsidies dollar for dollar, which means that their 85% in world agriculture subsidies would drop to 70% and the rest of the world would drop to 0.   Not all that great.

(3) Funniest part of that 'no earmark' pledge.   One of the co-sponsors of a $7.7 million pet project for Tribally Controlled Postsecondary Vocational Institutions (whatever that is ) was ... Barack Obama.   In a sign he was willing to stand up to Congress about at least one thing, he got his name taken off at the last minute.