Here is today's example. I was innocently off reading Krugman's blog (who, despite his attitude towards the Euro, I genuinely respect and enjoy reading, independently of whether I agree with him on any given issue), when a commenter's remark about changes in models sent me here:
"Today’s mainstream macro models contain a small number of “representative agents”, such as a household, a non-financial business and the government, but no banks. They were omitted because macroeconomists thought of them as a simple “veil” between savers and borrowers, rather than profit-seeking firms that make loans opportunistically and may themselves affect the economy."
_Again_, with the Were You People Reading Bagehot? He spends a big chunk of space in a fairly short book on why England and France are different and it comes down to English people put their money in banks where it could be loaned in large quantities, whereas in France, there _were_ no large quantities of money available that were not already being used because people kept their money in strongboxes at home. At the time, I commented to R. about the inherent irony of small dealers in gold, silver and similar: their politics tend towards encouraging a diversified portfolio including precious metals kept in a safe at home but their business involves a degree of reliance on the financial system that's kind of amazing.
It did not occur to me that economists in the more-or-less-here-and-now had failed to internalize this core feature of banking.
Good news, I guess, is that's being changed, altho not necessarily in the ways that I would have preferred. They appear not to have addressed the fundamental error in thinking, which is that the money would have been available to borrow whether the bank existed or not. WHICH IT WOULD NOT HAVE.
Baby steps, amirite?
Here's what I wish people were thinking about. Over the thousands of years of borrowing and lending that we've engaged in, we've shifted how we deal with borrowers who pull out their pockets and say, sorry, don't have it. While I don't think we ever killed them, we definitely sold them (their wives, kids, etc.) into slavery to pay the debt, locked them up (and charged them for that, too), transported them to the colonies, make them work off the debt in jobs not of their choosing, caused the debts to be inherited by others (without the option to renounce that exists today), etc. We're increasingly turned borrowed-but-not-repaid into a naked and marginally enforceable promise to repay with some regulations on how much you're allowed to harass the person. What we _haven't_ done through legislation or judicial action (to my knowledge) is explicitly limit the amount of money that can be loaned to a person for a given purpose/in total. We have all kinds of financial advice designed to tell people the "rules", and we have credit scoring systems to help lenders who are still in the being-responsible phases of the business cycle. Why don't we have enforcement to make sure that the "rules" are _rules_ (with administratively onerous ways to waiver around them in unusual circumstances)? Why don't we have enforcement to make the you "can't" borrow more than x% of your income for housing a _no really you are not allowed_, either to borrow it or to lend it?
I'm not proposed to throw anyone in jail, but it'd sure be keen if we could rank debt in violation of the above as the first and easiest to discharge in a bankruptcy.
I cannot imagine how we can get to a point where we talk about these kinds of rules if one side of the game is busy pretending that _banks don't exist_.
ETA: If you're thinking, but boy, people who don't have very much money really need access to credit, and more than any set of rules will justify. Well, that was the argument for a whole lot of subprime lending, so I'm not sure that passes the sniff test. Further, online payday loans engage in so many illegal practices already, it's difficult to imagine that any scheme along the lines I describe above would have any impact on them whatsoever.