Finance: Past, Present and Future

The Bank of England has produced a very helpful pamphlet entitled Your Money and the Financial System , which explains how the financial works, how it is regulated by the Bank, and the roles of the Bank's Financial Policy Committee and the Prudential Regulatory Authority . This pamphlet is a useful primer for students and anyone with an interest in the workings of the UK financial system. Source: www.theguardian.com

Vox have just released an e-book entitled Secular Stagnation: Facts, Causes and Cures .  The list of contributors is impressive - Larry Summers, Paul Krugman, Barry Eichengreen, Edward Glaesar, Nick Crafts, Joel Mokyr are just some of the authors. The book's summary is here . The workable definition of secular stagnation which emerges from the book is "that negative real interest rates are needed to equate saving and investment with full employment." The main concern of the authors is "that secular stagnation makes it harder to achieve full employment with low inflation and a zero lower bound on policy interest rates."

On 18th September, Scotland is holding a referendum on whether it should secede from the Union ( click here ). There has been much debate as to what will happen the Scottish economy if it leaves the Union. What about its share of national debt? Will it default on it? This is where economic history gives us some insights. The last time a country left the Union was in December 1921 when 26 of the historic counties of Ireland gained independence to form the Irish Free State. In a recent QUCEH working paper , Nathan Foley-Fisher (Federal Reserve Board) and Eoin McLaughlin (University of Edinburgh) look at what happened whenever Ireland left the Union and defaulted on its debt, leaving the British to pick up the tab!  You can access their paper here .

What motivates people to work? Is it purely monetary rewards? In the fascinating TED talk below, Dan Ariely discusses the non-pecuniary aspects of work. According to Ariely, these non-pecuniary factors are becoming more prevalent in the knowledge economy.

I've recently finished reading Fragile by Design by Charles Calomiris and Stephen Haber . The basic premise of their book is that politics shapes banking systems and that banking systems become fragile because of politics. Using the political and banking histories of the UK, US, Canada, Mexico and Brazil, they argue that the well-being of banking systems depends upon the ability of political institutions to limit and balance the interests of coalitions groups whose bargaining power determines the shape and structure of the banking system. Calomiris and Haber argue that there is a 'Game of Bank Bargains', where the structure etc. of a banking system is a result of a bargaining game between politicians, taxpayers, depositors, businesses, bankers, bank shareholders, and debtors.  This is a must-read book. Although I largely agree with their basic premise, I see things slightly differently. In my new book Banking in Crisis , I too argue that the fragility or otherwise of...

Laurence Ball has a column at VOX which argues that the 2008 financial crisis, and the Great Recession which followed it, did lasting harm in OECD economies - levels of output seem to be much lower than their long-run potential. His working paper is here .   According to Ball, "the loss in potential varies greatly across countries, but is large in most cases. For 2015, the loss ranges from almost nothing in Switzerland and Australia to over 30% in Greece, Hungary, and Ireland. The average loss for the 23 countries in the sample, weighted by the sizes of their economies, is 8.4%". The loss for the UK is 12.4%. He also finds that the more several the recession, the greater the loss of potential output.

Last week the UK's Prudential Regulation Authority and Financial Conduct Authority published consultation papers aimed at making bankers more responsible and accountable for their behaviour. Proposals in the papers include a 'hippocratic' oath for bankers, deferred bonuses, and clawback of bankers' bonuses. The Bank of England's press release is here and consultation papers are here and here . In my new book, Banking in Crisis , I argue that British banking was very stable whenever bankers and bank shareholders were held to account. However, it wasn't regulators and rules holding them to account: rather, it was the fact that bank shareholders and directors didn't have limited liability that kept them honest.