Notes From Underground

In yesterday’s Financial Times, one of the giants of the economics profession, Luigi Zingales, wrote an op-ed, “A Strong Free Press Is Our Best Defence Against Crony Capitalism.” Zingales takes the financial media to task for failing to be a watchdog against the corruption that exists in global capital markets.He poignantly states:”While nowadays almost all the world professes itself to be capitalist,not everybody experiences the same type of capitalism.In fact,the form of capitalism prevailing in most of the world is very distant from the ideal competitive and meritocratic system we economists theorise in our analyses and most of us aspire to. It is a corrupt form, in which incumbents and special-interest groups shape the rules of the game to their advantage, at the expense of everybody else: it is crony capitalism.”

This is a very powerful indictment of the financial media, especially the electronic, visual media that is dependent upon the immediacy of breaking news and thus NEEDS AND DEMANDS ACCESS TO THE POWERS THAT BE. The producers do not challenge the presumed powers for fear of not having access and maybe not be called on at the next FED press conference. The beauty pageant of financial media had its birth in the days of the self-proclaimed MAESTRO for the Greenspan put was beloved of a bullish Wall Street. The higher the market, the greater the advertising revenue so the paychecks of the media were dependent on the strength of the market and the ratings that it garnered. The market needs detailed, in-depth analysis so as to allow capital markets to operate in a more efficient manner.

This Thursday, the ECB will hold its press conference and the questions European journalists ask ECB President Draghi are much more incisive and less dependent on the need of access. Listen for yourselves and juxtapose it to Chair Yellen’s news conference last month. The questions asked to the likes of IMF Director Lagarde in one-on-one interviews are so soft as though they were vetted ahead of time. This need for ACCESS OVER SUBSTANCE maintains the foundation of crony capitalism over quality capital formation. In January 2016, the media will sprint to Davos, Switzerland for the mother-lode of ACCESS as global crony capitalists pay hundreds of thousands of dollars to cavort with the world’s policy-makers.

What type of information gets exchanged in many meetings that all closed to all but most-powerful (and this is with public officials also being involved)? The father of modern-day global free market capitalism, Adam Smith, warned of such aggregation of power elites: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Again, in a plea I make annually as a KAPITALIST: PEPPER SPRAY DAVOS.

Zingales sums up the argument for a vigilante press in a powerful closing paragraph: “Inquisitive, daring and influential media outlets willing to take a strong stand against economic power are essential in a competitive capitalist society. They are our defence against crony capitalism. When the media outlets in any country fail to challenge power, not are they only not part of the solution, they become part of the problem.”

***The biggest news story was the election in Canada where Justin Trudeau was elected prime minister as the Liberal Party won an absolute majority. From a global-macro perspective, the significance of Trudeau’s victory is that his key economic adviser was Larry Summers. The backbone of the Liberal economic platform was placing forward the need for fiscal stimulus to offset the economic drag from low energy prices since fossil fuels are Canada’s key export. The Canadians under defeated Prime Minister Stephen Harper have run a tight budget even through the global credit crisis, so they are actually well-positioned to increase fiscal stimulus. Larry Summers has been pushing for a global fiscal stimulus initiative so for him this is a victory and certainly provides for instituting his plans for increased public investment. It will be interesting to see if Justin Trudeau appoints Professor Summers as finance minister. (I don’t know if a foreigner can be a cabinet official or if a cabinet secretary must be a member of Parliament.)

The Canadian dollar held today even as a Conservative government was rejected. Will Canada begin to set the G-7 agenda on widespread public investment and increased fiscal stimulus? If so, monitor firms that have the potential to garner large contracts for massive infrastructure projects for there are few publicly held global firms that have the wherewithal to create massive infrastructure projects. Are the days of QE numbered as governments look to fiscal stimulus and its large multiplier effect? Paul Krugman had a blog post today about the need for fiscal stimulus in Japan. It seems that the St.Louis Fed paper about the ineffectiveness of QE has found an audience. Be attentive to a change in policy.

Tags: Canada, crony capitalism, Davos, ECB, Justin Trudeau, Larry Summers

This entry was posted on October 20, 2015 at 7:18 pm and is filed under Central Banks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.