A couple of months ago I wrote that the term laissez-faire might be replaced with the term ‘lazy-faire,’ explaining:
Greenspan was a kind of libertarian policy-maker, and I guess that libertarian policy-making can be a form of intellectual laziness, a sort of ‘don’t bother trying to regulate or control anything much, the market will take care of itself, let’s go to lunch instead’ kind of attitude.
Now I was reminded of this on the weekend by a long, excellent and devastating article in the Financial Times about Mervyn King, Governor of the Bank of England. There’s far too much in there to write about here – suffice to say that he doesn’t come across well in this forensic and excellent analysis of King – but i did want to pick up on one theme in particular. It seems that King was so confident in the magic of the market that he didn’t take much interest in the all-important issue of financial stability in the run-up to the greatest global economic crisis since the Great Depression:
Although one of the BoE’s two core purposes was “to ensure financial stability”, it seems he neither enjoyed nor fully understood the influence the BoE still had in calming financial excess by use of its powerful voice. Work in the financial stability division did not excite him
. . .
Staff found presenting financial stability issues in front of the new governor frightening because of his apparent disdain for their work.
. . .
Former colleagues say that Sir Mervyn found it difficult intellectually to grapple with the influence the BoE had when things were not written down with formal targets and powers, so he preferred to assume markets were likely to be efficient and crises would not occur.
He rarely attended meetings of the Financial Stability Committee, and his attitude seems to have bordered on open contempt for their work:
“One former economist, whose current financial sector employers are so nervous about the BoE they refused to let him be quoted on the record, says: “I went to two meetings. Mervyn turned up to the first one and fell asleep. It hardly made me think I needed to worry about that.” The financial stability committee was soon a “running joke” in monetary analysis, the division of the BoE geared around setting interest rates every month. The signal sent by these events could not have been clearer. “Before the crisis, working in financial stability was an absolute career graveyard,” says Richard Barwell, UK economist at RBS who left the BoE in 2010 after nine years.”
Politicians the world over seem to have succumbed to this form of intellectual laziness. After all, it’s very hard indeed to design and implement a successful policy to reinvigorate a country’s manufacturing sector. But “light touch” regulation and supervision? As easy as pie. Let them get on with it, and let’s go to lunch.
Almost the entire economics profession, it seems, was out to luunch.