By Arnold Kling
In principle, I am against attempts by government to structure industries. But I take the view that the political economy of small banks is better than that of large banks. Large banks find it easy to persuade regulators that they are doing wonderful things and find it easy to persuade politicians that they need to be bailed out. Maybe small banks would find this task somewhat harder.
Agnostic of the gene expression blog writes,
If voters truly did not approve of antitrust practices that beat up on corporate giants, we wouldn’t see it — the offenders would be driven out of office…
This is a special case of what Bryan Caplan writes about in The Myth of the Rational Voter: where special interests succeed in buying off the government, it is only in areas where the public truly supports the special interests. For example, the public is largely in favor of steel tariffs if the American steel industry is suffering — hey, we gotta help our brothers out! They are also in favor of subsidies to agribusiness — if we didn’t subsidize them, they couldn’t provide us with any food! And those subsidies are popular even in states where farming is minimal. So, such policies are not the result of special interests hijacking the government and ramrodding through policies that citizens don’t really want. In reality, it is just the ignorant public getting what it asked for.
Read the whole thing, which is one of the best expositions of the North-Wallis-Weingast thesis that you will find. “Agnostic” claims that humans developed an aversion to large economic institutions during the era of “natural states,” when the ability to assemble a large coalition mattered more than producing quality goods at low prices. My view of banking is that we are still in the “natural state” mode, where political connections and cronyism matter more than price and quality.