The Economics of Lying

One of the lead articles in last week’s Economist argued that “lying is at the heart of civilisation” and “lying is one of the things that makes the world go round”. Think about it for one minute. If lying was socially acceptable and prevalent, would contracting and economic exchange be even possible? Would the very fabric of society not crumble? We could trust no one – the government, doctors, business, our parents, our professors, our friends, and even our nearest and dearest. Sadly, the prevailing postmodern and relativistic culture in which we live believes that there is no such thing as truth. You can watch Os Guinness argue for why we need “truth” by clicking here.

In the City of London, there was once a phrase “my word is my bond”. People in the City could be trusted – social opprobrium (and even jail) would be the result of someone caught lying and cheating. Maybe the tolerance of lying and dishonesty has been at the root of recent financial chicanery in the City. It certainly has been at the root of voter cynicism in Western democracies. Expediency and “being economical with the truth” is the order of the day for the modern politician.

As an academic, I am interested in truth and academia is all about the pursuit of truth. Consequently, I disagree with the Economist – lying is not at the heart of our civilisation, rather its pernicious influence is contributing to the decline of our civilisation!

The Economics of Global Warming

The Berkeley Earth Project , an independent study of global warming, has found that the earth has become a degree warmer over the past half century. However, the statistical uncertainty surrounding pre-1920 estimates makes it very hard to say much about long-term trends - click here for graph . This is one of my concerns with the global warming debate - we simply don't have trustworthy long-run data which looks at temperature changes over the last millennium (or two). My second concern with the global warming debate is that it is very hard to prove any sort of casual link between global warming and human activity. The scientists may be able to show correlation between global warming and our production of carbon dioxides etc., but correlation is not causation. My third concern with the debate is that those who are sceptical or agnostic are stereotyped as flat-earthers or intellectually-challenged crackpots. This only stifles debate and the progress of science itself.

Boom and Bust: A Global History of Financial Bubbles

Boom and Bust: A Global History of Financial Bubbles, co-authored with my colleague Will Quinn , is forthcoming in August. It is published by Cambridge University Press and is available for pre-order at Amazon , Barnes and Noble , Waterstones and Cambridge University Press .

The Failure of Herstatt Bank

As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of

Finance: Past, Present and Future

Search This Blog