Andy Haldane, Chief Economist of the Bank of England, was the guest speaker at the ‘Purpose of Finance’ series of the Master of Finance (MFin) programme at Cambridge Judge Business School.
Andy Haldane, Chief Economist of the Bank of England, was guest speaker at Cambridge Judge Business School on 6 June at the ‘Purpose of Finance’ series of the School’s Master of Finance (MFin) programme. His remarks were “in conversation” with event moderator David Pitt-Watson, Visiting Fellow at Cambridge Judge.
Speaking to an audience of students, faculty and others interested in finance, Andy Haldane discussed how he became interested in economics, his varied duties at the Bank of England, and lessons for policymakers from the financial crisis of 2007-2008.
Andy Haldane kindly agreed afterwards to briefly outline some of the themes of his presentation:
I became interested in economics by the very real events of the UK recession in the early 1980s, when I was just entering my teens. There are many theories in economics, but growing up in the North of England I saw people’s parents lose their jobs, so unemployment was a real issue. So 30 years later, in my current job, I’m still asking the question I asked myself then: how do these economic events happen, and how can we prevent the bad ones happening again?
My office is in London, but I spend a lot of time traveling around the country talking to people, businesses and communities about the economic issues affecting them. I read plenty of economic literature, but you need face-to-face conversations with people to understand the emotions that drive behaviour – because the best way to find out is to ask people. I trained as an economist, but this type of understanding is akin to anthropology and sociology as well. We need those conversations to add colour and contour to our models.
There is no better example of cross-disciplinary thinking than Adam Smith. While people talk a lot about his theory about the “invisible hand” of free markets in his book The Wealth of Nations (1776), that’s certainly not all Adam Smith had to say. His earlier book The Theory of Moral Sentiments (1759), which is about ethical judgment, is just as relevant to the economic system of the 21st Century.
Economic models that were developed to deal with acute risk are often severely tested in times of acute uncertainty. A major reason why the collective global damage from the crisis of 2007-2008 was so great was because there was great uncertainty as to how things were going to develop. What was happening wasn’t explained by our models of “risk” which try and model future outcomes.
Complex situations + complex regulation = complexity squared. Keeping things simple is often the best approach to financial policymaking and regulation to address uncertainty. As I outlined in a speech in the US a few years back called “The Dog and the Frisbee”, an average dog can master catching a whirling frisbee because the dog keeps things simple by running at a speed that allows the angle of its gaze to remain steady until the frisbee is snared in its jaws. It does a better job that someone trying to calculate where it will go using Newtonian physics.
I’m a great believer in the Bretton Woods institutions, the World Bank and the International Monetary Fund. The worst mistake you can make is a repeat mistake. In a global world, these institutions are important in providing a framework to help prevent errors from repeating.