How the Dunning-Kruger effect will stop techies buying houses

Oh, and murder the economy as well

So, what are the EU and US regulators now suggesting should be done? They suggest that any originator of a securitised loan should keep some portion of it on their own books, and not sell 100 per cent of it on. They are essentially insisting that to ensure the banks don't go bust again, they should in future do what has just made the banks go bust. This is not a sign of competence, but the insistence that they are right in doing so is most certainly a sign of misplaced feelings of superiority.

Or if you would like an example of quite startling stupidity, look at those calling for windfall taxes upon the banks. We'd really rather like the banks to have lots more capital. That way they can absorb the losses they've already got, plus the ones that we're pretty sure are going to come. If they've got enough capital then they won't go under again when the next set of losses come along.

There are two ways in which a business can increase the amount of capital it has. It can earn it by making a decent profit and sticking some of it in the piggy bank for later. Or, alternatively, it can go out and ask the shareholders to buy some more newly issued shares. It's also true that we want the banks to be lending more to businesses at the moment. Given our new worries about losses after recent bitter experience, this also means that the banks need more capital before they can lend more money.

So what is the effect of raising the level of tax on bank profits? Well, obviously, the bank has smaller post tax profits to stick away in the piggy bank, so it makes it harder for them to raise more capital that way. Furthermore, by raising the tax on profits, we've just made it less attractive to invest in bank shares, whether new or old. Whatever dividend you're going to get will now have a larger bite taken out of it by the Treasury.

The resulting effect of raising taxes on the banks will be to make it more difficult for them to raise the capital that we think they need, thereby prolonging the business loan drought and thus the recession. This is exactly what we don't want to happen. This is Dunning-Kruger at its best. Erroneous conclusions reached by those without the wit to realise it.

Now we might think that there's a simple solution to this: string up the idiots from the lamp posts and let's get on with it ourselves. After all, we all know what should be done to make the world a better place. But that's where we come to the second part of our problem. We who do in fact know the right course of action don't think that we do: we suffer from illusory inferiority. So we just keep our heads down and get on with what we really do know how to do: coding, running large and complex systems, and, you know, just in general demonstrating competence and knowledge while those without either are the only ones who put themselves forward to try and run the world*.

Quite what the solution to all of this might be is difficult. If it really is true that only the incompetent have the self-confidence to put themselves forward to try and rule us all, then it makes anarchy remarkably attractive. Still, at least we've now got an explanation for things like IR35, S660A and all the other banes of modern working life. They quite simply are too stupid to know what they are doing. ®

*Given that I have once put myself forward for election this is perhaps an inappropriate use of "we" and "they".

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