Saturday, 24 November 2012

Vickers false logic.

Can you work out the flaw in the following argument? 

“The Mafia controls the cement industry in Naples, therefor nothing should be done about the Mafia, else Naples would run short of cement”.

If you’ve spotted the flaw in that argument then you’ve got more brain than Sir John Vickers, the somnambulant chairman of the Independent Commission on Banking.

John Vickers and his pals think that if private banks’ money creation activities are curtailed, that will constrict credit and hit economic growth. Well it won’t because the government / central bank can make up for any deflationary effect that comes from constraining private banks’ money creation and lending activities.

Likewise (assuming you’ve got more brain than John Vickers & Co) you’ll have worked out that if the Mafia was closed down in Naples, that would not hit cement production because there will be plenty of honest cement producers waiting in the wings who would take over or replace the Mafia’s cement production activities.

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