Here’s my piece from the Fin on Thursday
The global financial crisis that began early in 2008 has put many of the seemingly unstoppable processes of globalization into reverse. The volume of international trade has fallen sharply, and that of international financial transactions even more so. The banks and financial markets that seemed to define the global economy have retreated into the arms of national governments.
There is one striking exception to this pattern of retrenchment. According to the TeleGeography Global Internet Geography Research Service, international Internet traffic has grown at an annual rate of 74 percent in 2009, well above the 55 percent growth measured in 2008.
In part this is a matter of momentum. The huge growth in capacity that was already committed before the crisis ensured that growth could continue. Although new investment in fibre optic capacity has slowed as a result of the crisis, the system has proved capable of absorbing massively greater traffic.
But there are more fundamental forces at work here. Although the Internet and its main manifestation, the World Wide Web depend on physical communications networks and commercial service providers, they are not, in the end, about cables and modems.
The Web is a set of protocols and social institutions for the expression and exchange of ideas of all kinds, whether expressed as text, audiovisual material or software. Ideas are public goods. They can be shared without losing value, and they cannot easily be restricted. The Web is a prime example of a global good, one which benefits people everywhere in the world and depends for its value on contributions made all over the world.
The fact that the spectacular expansion of Internet activity has continued, and even accelerated through the financial crisis shows that the global exchange of information does not depend, in any important way, on the global financial sector. Most Internet innovations have been developed on a non-profit basis, and even for-profit companies like Google maintain strong independence from the short term demands of financial markets.
On the other hand, the productivity of the real economy, and therefore the financial sector depends hugely on innovations that have arisen from the growth of the Internet. The first-generation innovations of the Web in the 1990s universally adopted by business and governments. Now they are shifting to ‘Web 2.0’ technologies, including wikis, blogs and web-centric applications.
There has, then, been a huge shift in the location of innovation. Many of the innovations that have driven productivity growth over the past two decades depend on public goods mostly produced outside the market and government sectors.
When we compare the huge social and monetary cost of the global financial crisis with the huge and continuing benefits of the global exchange of information, almost all of it given away free of charge, a striking paradox emerges. With a handful of exceptions the innovators who gave us the Internet received little or nothing in the way of financial reward.
Leading figures like Tim Berners-Lee, the initiator of the World Wide Web have become famous, but not, at least by the standards of the global financial sector, wealthy as result. And the thousands of contributors whose efforts turned these innovative ideas into reality have received little more than a warm glow of satisfaction.
Meanwhile, the innovators who gave us such boons as the CDO-squared, the option-ARM mortgage and the stapled security have walked away, collectively, with billions in salaries, bonuses and share options, leaving the rest of us to clean up the mess they created when the whole edifice of collapsed so spectacularly a year ago. ??Even during the dotcom boom, when financial markets were eager to finance Internet-based innovation, their efforts were spectacularly misdirected. Billions were hurled at ludicrous ventures like the on-line sale of pet food. Meanwhile, the innovations that were to produce the Web 2.0 wave, such as the first blogs and wikis, were being developed without any significant input of credit or venture capital.
This contrast raises questions about the way we organise our economic system , the way we regulate financial markets, and the incomes derived from those markets. If monetary returns are weakly, or even negatively, correlated with the value of social production, there’s no reason to expect financial markets to do a good job in allocating resources to supporting innovation.
?As a result, it seems unlikely, that the massive incomes generated in the financial sector to reward financial innovation are beneficial to anyone except, of course, the recipients.
John Quiggin 
Alice,
Glass was an excption to the general rule – and a frequently ignored and useless one in any case.
Having the odd exception to a rule does not invalidate the rule.
@Andrew Reynolds
Well now at least one Fed Governor (Atlanta??) has dissented and said the unemployment number promoted by the Fed is nonsense at 9% and it is really 16% in the US. What else are they hiding?
Andy – you say
“It was not Ponzi-like, a pyramid scheme or anything like this but (in the great majority of cases) it was simply an error in the models used.”
An error in computer maths models used…have people become so reliant on pre programmed mathematical models, they are incapable of thinking.
A mistake in a mathematical model caused the GFC??
I dont think so Andy. I would bet there are truckloads of faulty mathematical computer models out there fooling their two bit mechanic handlers in Treasuries.
Dont think, just follow the Tstats and all will be well.
Alice,
If you want a long discussion on how the models were (in hte main) faulty I can walk you through it – but in the context of a comment on another person’s blog I believe it would be too long. In simple terms, though, the bias in all the models is to recent data, as this is generally of better quality. The simple fact that there has not been a banking crisis in the US since the early 1980s (nearly 30 years ago) meant that “long tail” events were not considered as being as likely as they were. The models also seemed right to the banks as there had not been a crisis for nearly 30 years. The models backed up experience.
They were wrong. No “Ponzi”, no “pyramid” just error.
Crikey Andrew Reynolds, I thought the 1989-1990 USA savings and loans crisis was for real. Now where did you read that there was no banking crisis for 30 years?
I really think the elephant in the room that people are missing with recent banking failure (and particularly the rise in executive pay) is the rise of alienated savings.
When people invest/spend their own money, they tend to be tight with it, will be sensitive to risk, and not overpay people.
But when we have super/pension funds, we are giving it to some of the laziest businesses on the planet. These people have no real incentive to vote down executive pay, or stop overpaying bankers, or genuinely assess risk, so they dont bother.
Look at the shareholders who waive through outrageous payments for board members, investment bankers and big law firms – its the super/pension funds.
Unless we come to grips with the lazy managers of our money, this nonsense will continue.
@Andrew Reynolds
It was Ponzi-like, it sucked in money to lend to sub-prime mortgagees by letting lenders around the world think they were getting A grade bonds with good rates and then offered sub-prime borrowers extraordinarily good deals (or so they thought) so they could lend the money that was coming in. The whole thing would have put off the day of reckoning by having refinancing and various deferral of payment for sub-prime borrowers as part of the mix. This extra borrowed money which would have flowed through to pay those holding the A grade bonds is the glue that would have held the cash flow together. But the whole thing like a Ponzi, relied on expanding asset prices, new borrowed money coming in, new suckers borrowing. Yes, not Ponzi. Yes, Ponzi-like or Ponziod if you prefer.
Hardly an error. If it was an error it certainly paid well. At least some of these people knew what they were doing.
@dave
You are quite right. The old story of ‘other people’s money’. The whole thing was done with other people’s money and, hence, the lack of care, and no expense attitude.
Andrew Reynolds, what term would you use to describe the case where a derivative financial security on a portfolio of risky debt, for which, to the best of my knowledge, the theoretical conditions require “conintuous time trading” is sold as an investment grade bond, which, to the best of my knowledge is associated with the idea that you can hold the bond to maturity?
I retract my last comment, #6, p 3 on the grounds that it is outside the topic of this thread.
@dave
Absolutely.
@Freelander
Freelander – a lot pf people in Wall st and other financial institutions knew what they were doing – making millions from bad loans…and here is Andy trying to tell me the reason for the GFC was “a single error in a model.”
Thats comforting Andy…really comforting. The world financial system is sent crashing to its knees by an “error in a model”.
After the error in the computer model is fixed Andy, I suggest we make sure the batteries are changed pre-emptively from now on.
Alice,
Think about the “error in the model” and now apply that to Keynesian economics and climate change!
We really need independent thinking rather than relying on models that only operate under a certain number of assumptions and which one fault can lead to totally incorrect output.
@SeanG
Both climate change and the Keynesian arguments are relatively robust.
Also, they tend to be consistent with the results from other sciences (if you think economics qualifies for the science description). This cannot be said of the wall street models which are based on, as they used to say in economics, “brave” assumptions. “Brave” in the sense that they are almost certainly untrue.
There is a lot wrong with the wall street models, in their assumptions that they know the distributions that changes in asset prices are coming from or even that these changes being drawn from a distribution is at all meaningful. Also, the assumptions that all the individuals in the market can possibly rebalance their portfolios in ways that keep them protected, simultaneously, which is based on the result that one very small trading position could do this basically because its activities would have no impact on the market. This is why hedging activities that seem to be working fine suddenly come unstuck.
Alice,
Where did I say “a single error in a model”? You are using quotes as if I said those exact words. Link please – or retraction. One or the other, if you please.
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As Sean G alludes to, the only people out there capable of making macro economic decisions – and therefore errors – based on a single model is the government. I find that far more scary than the possibility of errors made by many different people not acting in concert. Banks (or anyone other than the government) cannot start wars or force me to pay anything much without my (individual) consent nor take half of everything I earn to waste on follies of their own, again, without my individual consent.
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Ernestine,
I do not think that your number 6 is outside the scope of this discussion. To answer it, therefore – it would depend on which portion of the cashflows you were entitled to. It is were a simple percentage of the total pot, then it is clearly a reasonably risky investment. If it were the first few dollars return in any given time period then the risk would be considerably reduced – possibly to close to zero. If it were the last few dollars in any given month then the risk of default is considerably increased – possibly to close to one. The information given is simply not adequate to answer the question, and that you expect me to be able to answer that is possibly indicative that you do not understand how these are typically structured. If you do, apologies, but a quick look at wikipedia on this may help you and anyone else that is not sure of how to structure these. The “waterfall” is a normal structure for credit enhancement.
@Alice
The error in the model hypothesis has been being promoted by Economics laureate Robert C Merton. See http://mitworld.mit.edu/video/659
Of course, Robert has a bit of form. See Wikipedia…
Merton has extensively consulted for the industry. These efforts have sometimes ended badly. Together with Myron Scholes, Merton was among the board of directors of Long-Term Capital Management (LTCM), a hedge fund that failed spectacularly in 1998 after losing $4.6 billion in less than four months.[2] The Federal Reserve was so concerned about the potential impact of LTCM’s failure on the financial system that it arranged for a group of 19 banks and other firms to provide sufficient liquidity for the banking system to survive. Although these investors were eventually paid off, the reputation of Merton and Scholes were tarnished.
But Robert did not finish there. Apparently the LTCM fiasco did not make him unemployable in finance…
Also, from Wikipedia…
In 2007, Merton was hired as Chief Science Officer of Trinsum Group, a financial advisory firm. On January 30, 2009 Trinsum Group put the following press statement on its website,
“Trinsum Group, Inc., a holding company, announced this week that it has filed a voluntary petition under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York. The Chapter 11 proceeding does not include the Company’s operating subsidiaries, including its consulting subsidiary, and their operations will not be affected.
During the past several months, the Company had explored a number of alternatives to strengthen the Company’s financial base, resolve certain legal issues, and dispose of non-core businesses outside of Bankruptcy. Despite some progress, the Company concluded that the Chapter 11 route provided the most efficient mechanism to achieve its goals with minimal disruption to each of its businesses.
“We have come to the conclusion that our businesses are better off as focused and independent entities,” said James McTaggart, current Chairman of Trinsum. “The goal of the reorganization is to separate each of these businesses in order to permit each to continue to operate independently of one another as strong and focused concerns.”[3]
JQ I think he and the other finance laureates should get honourable mention in your book!
@Andrew Reynolds
Maybe not so close to zero if some recent work in Germany is to be believed.
See: http://www.finance.uni-frankfurt.de/index.php?case=abstract&id=1864&lg=1
Interestingly amongst these working papers there is a suggestion that if a bank is having problems risk appetite goes up. Of course it is worthwhile for management, because it is other people’s money. No downside for management and if the company is lucky bonuses all around. In chess, when you are losing you can take great risk because you are losing anyway. In chess, this type of risk taking is referred to as the “f*cked it” attack. Same approach is taken in business (when it is other people’s money).
http://www.finance.uni-frankfurt.de/index.php?case=abstract&id=1544&lg=1
Derivatives need to be reined in and have needed to be for a long time.
>Brilliant analysis? The whole piece is dependent on an utter ignorance of the nature of the division of labor and what it implies. Actually, THIS ^ COMMENT (and everything that follows) is **utterly ignorant of what was being discussed in the linked article** (see my other "first level" comment below for my thoughts).
Keynesian economics is reliant on the specificity of modelling moreso than those who intellectually accept the marketplace. Think of this logically. Those who believe in the marketplace believe in it’s spontaneous capacity to adapt and grow. Those who believe in government will have to view the role of state like a machine. It is reliant on increasing spending by X to get Y, unfortunately it rarely works that way. That is why Communist or Socialist countries failed. They thought that economics was like a natural science. It ain’t.
This article discusses a fundamental issue that most comments ignore. Much of economics is built on the idea of the market where each player seeks to maximise their monetary value. If we have such a system then, so the theory goes, we will get the best overall result and we will optimise the use of resources.
Quiggin is questioning this assumption and is saying that there are other forces at work and that monetary value (prices) is not the only driver at play in economic activity. We are driven to communicate and cooperate by forces other than our own self interest as measured by money.
This is of course “bleeding obvious” but until someone gets up and says it and shows a counter example it is not quite so obvious.
One thing that is missing from the economic models is the concept of fairness. In fact as I understand it the assumption is that traders are at all times trying to get the most value for the least cost on every trade. Those of us who trade and do it for living know that that is only part of the equation and we will try to trade with others who act fairly. If it becomes obvious that a person is not being fair then we tend not to trade with them.
Some executives and some bankers have broken this rule of fairness and the rest of us are getting angry in the same way we get angry when we see a politician take advantage of their position to feather their own nests. We get angry because we intuitively know that unfairness does not result in the best overall outcome.
As well as fairness there are the other motivations for doing things and the rise of the Internet is just another example of these motivations. Most of us want to do things for others not for ourselves. We want to do things that please others because we are wired that way. (There appears to be about 5% of the population who lack this wiring and in the extreme case they are called psychopaths). Unfortunately economic theory ignores this fact that we want to do things for others not for ourselves. Indeed there is good physical evidence as measured by looking at the pleasure centres of the brain that giving a present gives more pleasure than receiving one.
Until economic models take these things, and others, into account they will be very poor predictors.
@SeanG
Couldnt agree more Sean. Thats what I have been trying to say. Thinking economists are becoming a rare breed overtaken by the technoautomatron economists who run data in computerised models without really ever attempting to understand, let alone question, the underlying assumptions of someone else’s models built in.
If you ask me, this problem may have started when we replaced long division with calculators in primary school. Computers as our servants, not our masters as Krugman said.
@Freelander
Oh Freelander – I wondered why Andy was taking that tack…error in model…when its just so lame an excuse. Shoulda known some “pro moguls in finance industry” propaganda would have hit the streets now containing a white rabbit excuse for the cause of the meltdown. Andy, what on earth… rubbish do you read? Merton sounds like a charming man, for an asset stripper and creator of other people’s unemployment. Has he ever actually run a business??
I think it goes deeper than just education but the concept of responsibility. People are too scared of the ramifications of getting it wrong that they look at the model, tweak the inputs abit and then agree on an outcome. Risk-taking is frowned upon which is disappointing but understandable.
@Alice
Yes, he’s run a business… into the ground! Long Term Capital was using some of his brillant money making ideas. That failure almost brought international finance to its knees about twelve years ago.
@SeanG
People without conscience are not scared of taking risks with other people’s money. (Or helping themselves to some of that money.)
Alice,
Where did I say “a single error in a model”? You are using quotes as if I said those exact words. Link please – or retraction. One or the other.
@Andrew Reynolds
Andy in your post number 47 you said
“The extent, and snowballing nature, of this downturn was not allowed for in the models used to price these instruments and so the models were wrong. It was not Ponzi-like, a pyramid scheme or anything like this but (in the great majority of cases) it was simply an error in the models used.”
An error (single) in many models (plural) then.
Funny how the error (singular) in the models (plural) disallowed a downturn in pricing when we have had at least 4 in the past few decades? Ill retract partially Andy (as in models plural) but I will not retract that overreliance on computerised models by the minions in finance and government, and the deliberate misuse of models to wildly speculate and gamble and engage in ponzoid activities, is also an error of lax regulation.
Too much money to play with, too few genuine business concerns, and too many arrogant egos in your game Andy.
page 2
Alice,
I would say there are vastly more arrogant egos amongst those that imagine that government can do better.
[…] Source […]
Andrew Reynolds, forget about the crap coming from the Federal Opposition for they are living in cloud cuckoo land and just think where Australia would have been if it wasn’t for government intervention. The majority of economists agree that pump priming the economy was a necessity.
@Michael of Summer Hill
Moshie – cloud cuckoo land is right (the fed opposition). “We didnt need the budget deficit, you dont need real jobs, and the environment doesnt need protecting – its all a gigantic hoax”
Lib Australia party (L = Lie whenever possible, I = ignore all economic problems and B = spread it as thickly possible).
Anyway – they have turned off the young kids by doing nothing for them and carrying on like a bunch of bog stubborn old men.
Both parties are wings of the same bird of prey. Its incestuous. They are really all mates in Canberra. They know the game: The govt is there to re-distribute from the worker to the politically connected.
Don’t think Labor is better than Liberal. They are both rotten to the core.
@ABOM
I’d broadly endorse that. As the anarchists used to say, no matter what the election result, the government always wins. Clearly, the government any government is there principally in order to reconcile the conflicts between different tribes of capitalists and is, to a greater or lesser extent a product of the strength, coherence and longterm social stability of one or other coalition of capitalists.
I don’t agree they are rotten to the core. They merely express their nature as above. It is mere mythology that they represent, in any meaningful way, the interests of the undifferentiated public. Everytime someone mentions leadership this point is reinforced. It’s this function, the instantiation of the political as a struggle amongst privileged elites, that explains why the qualification process basically disqualifies anyone who has not been acculturated to the rules of the game, including what it means to be acceptably unprincipled.
“But when financial institutions manipulate bundles of assets (for instance, mortgage-backed securities), the increase in risk proves non-linear.” R. Merton, cited in http://mitworld.mit.edu/video/659
(Increase in risk: one unanticipated default somewhere in the bundle)
And he can’t say that he didn’t know about this for about 20 years. The then available ceteris paribus solution to this non-linearity problem is ‘continuous time trading’ – too fast for record keeping, too fast for accountability, much too fast for the balance sheet approach to ‘money’ … relevant for whom or what?
Ernestine,
Merton is yet another example of a great academic who, when faced with the problems of the real world, finds that not everything works as well as in the classroom or library.
His theories have proved valuable – but must always be tempered with experience.
Well said Fran.
Most peaceful societies are those will minimal govt. American Indians had no govt. Monarchies were actually “minimalist” govts. Bhutan is a good example of a monarchy with fairly minimal govt. They seem pretty happy.
Democracy doesn’t work. See the extensive work on Han Hermann Hoppe on this subject. Democracy results in “tenured plundering”. You have a 4 or 5 year tenure. You plunder and move on. Like someone renting their enemies house – you trash it and leave.
by Hans Hermann Hoppe on…
My depression regarding the current state of the “democratic” world makes even my fingers depressed.
Andrew Reynolds, according to your theory academics lack real world experience. But if one looks at the Federal Coalition they are the ones who seem to be in cloud cuckoo land and haven’t got much wright since the last election. Why is this so?
@ABOM
I remain a believer in the possibility of inclusive governance however. The Indian tribe works because it’s small and because the bonds are open, and based on kith and kin. Also, there’s limited scope for surpluses to accumulate so very little scope for one person to have power over another. Of course, very few of us want to live as poorly as hunter gatherers, even if we are all nearly equally empowered. And of course, if everyone had to live like that we’d need a hell of a lot more land each, so it’s doubtful if the planet could sustain more than about 10 million people, and that only on the basis that occasionally we suffered a catastrophic population loss once every 50 years or so.
Once you move beyond a community of about 1000 or so you start needing power structures to regulate disputes. You also need to start building some of the infrastructure necessary to allow people to draw more from the land and you need bureaucracy to manage it and hey presto … the modern world is incipient. Need we wonder why it can be so that on the front page of the SMH today, it is shown that one man can make more in a year than another, ostensibly in the same society, could make working every day of two whole lifetimes? I not with some amusement that in the US, since 1980, the wage differential between the worker at the base level of a company and the CEO has grown by a factor of 10. Plainly, as the GFC has shown, the consequnces of this trend have not exactly worked out as the advocates of the virtues of inequality would have had us believe.
I’m a big believer in community. Community is what makes us truly human, IMO. The capacity to collaborate equitably, to learn from and teach others, and for others to stand metaphorically upon your shoulders and author things that improve on what you have done is what justifies the sapiens part in our species name. What we need to do is to work out ways of identifying legitimate and compelling interests (individual and collective) and connecting these with procedures that can ensure that wherever the material or human resources permit, these are met. Governance should be accountable, transparent and empowering and to this extent but not otherwise, democratic.
The problem is of course, a variant of Catch 22. The people with an interest in such a system aren’t in a position to implement it or even imagine how it could be so, precisely as a consequence of the current configuratiojn of the system. And those in a position to implement it and imagine how it could be so know full well they’d be worse off than they are now and so prefer the current system.
@Andrew Reynolds
Which Merton was a great academic Andrew? Robert K or Robert C (Robert K changed his name from Schkolnick to Merton but never explained why). His son, Robert C also an academic became part of the management recruited by Long Term Capital Management Hedge fund starter John Meriwhether, which borrowed billions of dollars to place huge bets on esoteric securities wiping out the savings of millions of people. Which Merton are you referring to Andy? I presume you are referring to (as great…???) Robert C Merton, nobel laureate and formidable arbitrager at LTCM?
There is something wrong with the picture Andy, again.
@Alice
Just in case you need reminding, Andy, the problems are not so much with the mathematical models as they are in the trading of obscure and unregulated derivatives they model. Just because something makes someone filthy rich doesnt make it right Andy. We have learnt nothing, nothing at all since the LTCM disaster. All we have learnt is to employ maths to model how some can skin others alive and get away with it. It may be clever in your view Andy, but there is nothing great about the mathematical engineer and arbitrager extraordinairre, Robert C Merton.
Fran, yes but the inequalities are actually govt enforced. If we removed legal tender laws you would be amazed how this would return things to financial sanity. The inequalities are caused by counterfeit paper being so easy to create. By govts and banks. They then give this stuff to themselves and their friends. Gold would stop this concentration of power by reducing parasitic activity.
When you say govt is required to resolve disputes. That’s true. But govts also resolve disputes between themselves and the people. Always in their favor. So when you have a decision making body like the govt, it grows. Until it kills everything it touches.
I’d prefer peaceful hunter gather subsistence to guaranteed chaos and exploitation.
What makes you think intensive farming is sustainable? It creates a surplus for the monied to steal. But how long can that go on for when you yourself say the planet could probably sustainably support around 10 (perhaps realistically 500) million people? Something’s gotta give.
I think it’s going to be arable land that gives first. Perhaps it will be water. Either way, this sucker’s going down.
Alice,
Perhaps the Merton that you referred to as “Merton”? You know – the one you were referring to. Why do you ask these questions?
As for the rest, I see the fault here as being in the distinctly perverse incentives set up by the regulatory system you seem wedded to.
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MoSH,
When did you get out of play school? Has the bell rung yet? Re-read my comment and then tell me where I said all academics were like that.
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Fran,
I agree with most of your comment. It is for many of the reasons that you go through in your comment that I believe that having the sort of large, intrusive government we now have is distinctly less than optimal – and why I argue for strong limits on that power.
@Andrew Reynolds
Interestingly, Keynes was an academic who was successful at making money from the market. Maybe that says something.
@Andrew Reynolds
Personally, I blame crime on the Police. About as much sense, and just as strained, as the blame the regulations or regulator mantra.
Andy I forgot the link I was going to put with post 37..
read this (all). The last line just about sums it up for me. Your great Mr Robert C Merton helped developed Black Scholes pricing model didnt he?
Or is that Black Holes pricing model?
But I bet he made much more gambling ion derivatives.
@ABOM
I know what you are saying about governments ABOM but lets be a bit real about it…some leaders are OK (till people get to them??). Rudd and Gillard I dont mind. Ken Henry as long as he doesnt let Treasury models cloud his vision. As for state governments in Australia? In a word mostly utterly pathetic. Selling every public asset of any use they can get their hands on. As for the opposition? Out of touch with the electorate and everything else. Just ask the benevolent monarchist if we can have some decent public trains, health, roads hospitals and schools and unis ABOM and you can have the rest of the bureaucrats heads on a silver platter.
All they do these days is interfere, meddle in management of systems by inserting suits like friends or family in plum jobs, degrade our once good systems and manipulate the media. Probably smoke funny stuff as well because something is making a lot of them dense!!.
Andrew Reynolds, I can read between the lines and find generalisations of no use.
@Andrew Reynolds
I too am for strong constraints on the exercise of executive power, but except in areas where we are really discussing matters of personal liberty, I prefer those constraints to arise as part of a bona fide expression of the tensions existing within an appropriately diverse and actively engaged community.
I might add that I’ve nothing against big government per se. Large communities require significantly sized governments to operate effectively. That’s not the same thing as claiming that the exericse of executive power should all or mainly be centralised. Some things are best coodinated from a centre and other things can be left to local initiative.
MoSH,
Perhaps instead of reading between the lines you might find reading the actual words of more use.
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Freelander,
If the police were setting the rules so that the only way to operate a business was to do it in a way that made no sense I would blame them too. What was your point?
Andrew Reynolds, I do read what bloggers write but when it is bulldust then it is not worth a crumpet.