by Cheryl Rofer
Defining the system is really, really important in thermodynamics. That, in combination with conservation principles, gives a firm basis for calculations that otherwise might have to be relative.
So it's not a bad thing to look for in economics. I've found three examples lately of people considering what the system is. A word of caution: all could be correct for different purposes. System definitions differ, depending on what you're trying to calculate (or understand).
John Quiggin sees central bank independence as something that has to go for the duration of an emergency. That's another way of saying that now the central bank is part of the political system. Ben Bernanke may be agreeing with his latest infusion of funds. Or maybe not. It's important that the central bank be independent from political considerations, but this brings up the problem of defining political and financial. Quiggin notes that one needs also to consider the separation of prudential regulation and monetary policy.
The New York Times editorial board brings up the issue of which system(s) the regulators should be regulating. Should there be one giant regulator over the whole system (which would need to be defined)? The argument for this is that the individual regulators that now exist may have missed something. This is complicated by the question of whether, in fact, the regulators were even insisting on compliance with existing regulations.
In an article in The Nation,* William Greider brought up the related question of lending institutions that are not banks and therefore escape bank regulation. Some of these are implicated in causing our current problems.
Clearly some system definitions will be needed as new regulations are developed. One criterion might be the functions that an organization performs. An alternative would be to define what sets of functions are allowed in a single organization. This was the point of the Glass-Stegall legislation that was gutted some time back.
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* I have not provided a link because when I went to The Nation's website to find it, one of those horrendous ads that makes you feel you need to virus-scan your computer popped up. The only way I could get rid of it was to close the tab. Either The Nation has been infected, or it needs to seriously reconsider its advertising policies.