I won’t explain what it is, for that read here. I thought of that reading Economics of Contempt on community banks and credit unions’ opposition to the Durbin amendment (I have no idea what’s in said amendment). EoC quotes Barney Frank (in a different context) saying “The lobbying power doesn’t come from the big banks. The community banks beat the big banks.” I recall earlier hearing from Charles Calomiris that deposit insurance was pushed through over F.D.R’s objections (memories of such insurance at the state level was still fresh in his mind) by the small-bank lobby in the southeast, although it was initially limited to much smaller amounts. Scott Sumner said here that the “too-big-to-fail” investment banks have been blamed when small ones are causing more losses to the taxpayers. I’ve been persuaded by the free-bankers referencing Canada that large diversified banks unhampered by American-style branch restrictions are more stable in a crash, but it is in tension with my implicit model for most businesses. Larger numbers of firms generally results in more competition and benefit to the consumer (though perhaps the condition of free entry is more important than actual numbers), and under Mancur Olson’s theory of collective action a small number of actors can more easily lobby (or even just maintain a “gentleman’s agreement”) to rent-seek. Perhaps my folk model doesn’t take into account public opinion, which may go stupid for “small business”. Those of Randian bent might think in terms of a conspiracy of the mediocre. Even folks not of such bent like Albert O. Hirschmann can make such noises at times.

Robin Hanson said that big businesses are preferable because they are easier to regulate here. Your mileage may vary on that one. Like Brian Doherty, I’d be particularly interested in hearing the left-libertarian class-warfare angle.

About these ads