Future economic growth prospects for the UK
As regular sufferers of this column will know, there is no sympathy here with the view (held by both those on the right and the left of politics) that “the economy” is a web of institutions, relationships (legal and otherwise) which can be meaningfully captured and explained via quasi-scientific ‘equations’ or ‘laws’. Laws which seek to describe the decision making processes and “utility maximising” behaviours of wholly rational, living, breathing computational automatons.
Adam Smith would have found such claims to mathematical ‘truth’ underlying economic behavior as blinkered nonsense which categorically failed to accurately capture the full kaleidoscope of human motivations and emotions. And it appears that Andrew Haldane, Chief Economist to the Bank of England also counts himself firmly on the side of Mr Smith. I am indebted to Larry Elliott in today’s Guardian (19th Feb) who has written about a speech delivered by Mr Haldane on 17th February 2015 at the University of East Anglia entitled “Growing, fast and slow”. Mr Haldane is showing his sympathies here, with a nod to the work of the psychologist Danial Kahneman who wrote a book entitled ‘Thinking fast and slow’ which considered human’s decision making processes – and how these can sometimes lead us astray.
Mr Haldane’s speech covers a lot of very interesting ground, drawing persuasively from the fields of sociology, psychology, neuro-science and several thousand years of human history to consider what the UK future growth path might look like from this point onwards; and what we and Government must consider if we want the future to be brighter. One thing which the Guardian article latches onto in particular is one of the closing contentions of the speech that the ‘information revolution’ we are experiencing may not be an unalloyed ‘good thing’. No surprises there for any armchair student of history – most revolutions have been a mix of good and bad.
One specific aspect of this is the fear that with the explosive growth of social media communications such as Twitter (..and rambling blogs perhaps…) we are in danger of giving birth to ever shorter attention spans and that this may have adverse consequences for future economic growth. Mr Haldane comments that historical evidence suggests that sustainable economic growth has only tended to come about as a result of individuals taking a longer term view and hence being more amenable to taking risks which have a longer term potential ‘payback’. If we lose this willingness to take such a longer term view, he fears that this could have adverse consequences for innovation of every sort.
This idea that , economically speaking, we are suffering for a surfeit of short termism is appealing. Many of the problems we have experienced since 2008, it could be argued, have been characterised by short term thinking. Short term performance targets encouraging senior personnel at some banks and financial institutions to move the organisations over which they were meant to exercise prudent stewardship into ever riskier (and morally and legally dubious in some cases) lending and investing decisions. Short term political thinking meaning that all rosettes lacked the will to build robust regulatory frameworks to control the financial services aspects of our economy – until it became too late. Small businesses finding it impossible to raise investment equity funding from institutional funders because they cannot convincingly demonstrate a short term 3-5 year compound annual growth rate of some 30%+.
It is interesting that in the field of psychology there are several experiments concerning the downsides of short termism. A classic one revolves around a longitudinal study of a cohort of children (ie following them over many years from infants to adulthood) which, apparently, concluded that those children who were able to sit alone in a room and resist the urge to eat a chocolate bar placed in front of them tended to grow into adults who enjoyed greater levels of economic / financial success, achievement and security.
I have read his speech and it is very well written as well as providing much to stimulate the grey matter (and many of his tentative conclusions or suggestions are not what you might have expected) but what I find particularly exciting is that, arguably, the UK’s pre-eminent economist is freely drawing upon the disciplines of psychology, sociology, history and perhaps even mythology in order to make better sense of economic matters. That approach, with all these “-ologies” in the chorus line would be one which will upset greatly those of a neoliberal economic persuasion – although not, as I suggested earlier, their claimed inspiration, Adam Smith.
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