Friday, 29 January 2010
A plan for 'Imperfect Competition'
For the last few days I have waited before wading into the conversation regarding the Volcker Rule.
The Volcker Rule was the plan President Barack Obama announced on 21 January 2010 in which he proposed to reform the banking and financial services sector in the United States.
As usual the Press have been trying to pull this press release into the wrong direction and flawed analysis is once again being applied to the debate on financial services regulation.
In my mind, having watched the 8 minute YouTube clip, see (Volcker Plan), what the President was referring to in his statement was to the economic theory of Imperfect Competition.
Imperfect competition refers to the fact that there are:
1) Many participants in the market both buyers and sellers
2) All sellers have diversified products and services they sell
3) Monopolistic competition can be a resultant format of engagement in the market by sellers
4) All participants participate equally and fairly on a level playing field, therefore the barriers to entry are low
Therefore the supply side concentration of power in the financial markets which currently rests with too few oligopolistic institutions (Oligopoly ), will be broken by a new framework being created, under which market participants will have to engage in the free market mechanism.
So there we have it in a nutshell, a democrat proposing a free market framework in which risk is shared over a wider continuum of participants and no one participant able to be a 'pure' price maker and thereby skewing the 'rules of the game' in their favour.
What better testimony to the theory of Imperfect Competition than to just ask the players to merely move away from the current uneven playing field on to a new more equitable playing field for us all to share.
As long as these players take one of the libertarian principals of personal responsibility to heart, we might actually end up with the “Socialist President” creating the (im)perfect free market mechanism for financial services competition for many a generation.
theMarketSoul ©2010, is open to one or two more pleasant surprises from beyond the pond.