Adair Turner, Baron of Ecchinswell, an academic and chair of the United Kingdom's Financial Services Authority (regulator) has made the headlines again, this time propounding that banks should use their profits to strengthen their finances as opposed to paying out lavish bonuses or stock dividends. These comments are very noble coming from someone who was once part of the banking profession himself. Amongst other thing, he has proposed that taxes be increased on financial transactions and increase that the capital requirements of banks, thus shrinking the financial industry in the UK. He said:
"[Banks] need to be willing, like the regulator, to recognize that there are some profitable activities so unlikely to have a social benefit, direct or indirect, that they should voluntarily walk away from them.”
Mr Turner has also proposed a Tobin tax; a tax intended to put a penalty on short-term speculation in currencies. It is difficult to understand why Mr Turner has suggested that banks should not profit from activities that have no social benefit. A fellow student suggested to me that this meant that pharmaceutical companies should not make abortion pills and should voluntarily walk away from these activities. Mr Turner's suggestions go against the most fundamental reasons of incorporation; limited liability and the enterprise and risk taking it encourages.
Of course there is little chance that tax or proposals will receive any international support. The power of banks was well demonstrated by the limited restrictions placed on recent bailout funds as the banks regarded themselves as being "too big to fail". So this begs the question as to why Mr Turner made these comments; the NY Times reported that Mr Turner was probably more interested in the reaction and "outroar" that these comments may incite. Mr Turner's comments make little sense and have even been described as "stupid", but this is precisely what Mr Turner anticipated when he made these comments. He is trying to venture into the area of politics.
This was also seen by Ken Henry, Australia's Treasury Secretary, who has been described as an "ambassador" for the Rudd government following comments defending the government's decision to impose economic stimulus. More recently, he has reject calls from the Opposition for these stimulus measures to be withdrawn, notwithstanding that these stimulus measures would impose dangerous debt burdens on future generations and deficits for at least six years. However, is it really a public servant's best interest to make these sorts of comments in public?
Public servants like Ken Henry or Adair Turner venture into dangerous territory when they assume the roles of politicians and espouse ideas or opinions such as describing recent stimulus packages as "the most effective use of fiscal policy we've seen in our lifetimes". Former Treasurer Peter Costello lay the blame back on the Rudd government for bringing Ken Henry into the political arena. He wrote that the government had attempted to "capture some economic shine from Henry" and therefore was inevitable that they would face political questioning. Very aptly, he stated that
Of course there is little chance that tax or proposals will receive any international support. The power of banks was well demonstrated by the limited restrictions placed on recent bailout funds as the banks regarded themselves as being "too big to fail". So this begs the question as to why Mr Turner made these comments; the NY Times reported that Mr Turner was probably more interested in the reaction and "outroar" that these comments may incite. Mr Turner's comments make little sense and have even been described as "stupid", but this is precisely what Mr Turner anticipated when he made these comments. He is trying to venture into the area of politics.
This was also seen by Ken Henry, Australia's Treasury Secretary, who has been described as an "ambassador" for the Rudd government following comments defending the government's decision to impose economic stimulus. More recently, he has reject calls from the Opposition for these stimulus measures to be withdrawn, notwithstanding that these stimulus measures would impose dangerous debt burdens on future generations and deficits for at least six years. However, is it really a public servant's best interest to make these sorts of comments in public?
Public servants like Ken Henry or Adair Turner venture into dangerous territory when they assume the roles of politicians and espouse ideas or opinions such as describing recent stimulus packages as "the most effective use of fiscal policy we've seen in our lifetimes". Former Treasurer Peter Costello lay the blame back on the Rudd government for bringing Ken Henry into the political arena. He wrote that the government had attempted to "capture some economic shine from Henry" and therefore was inevitable that they would face political questioning. Very aptly, he stated that
"Public servants are there to advise; politicians are there to make decisions."Perhaps both Ken Henry and Adair Turner could learn from Mr Costello's wise advice. Stick to your own jobs of providing advice to politicians, and refrain from taking their ideas or recommendations to the public arena. Leave the difficult decisions to the politicians.
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