Finance: Past, Present and Future

During the Scottish Independence campaign, big business came out strongly in favour of the Union - independence would have been detrimental to the interests of business. John Redwood MP has warned companies and big business not to interfere in a potential referendum in the UK on EU membership ( Guardian coverage is here ). This is akin to asking the Cookie Monster not to eat cookies.  Redwood (who I incidentally saw at Southampton airport last week) has suggested that their customers, employees and shareholders would not like large corporations interfering in the referendum. Redwood bases his argument on the idea that CEOs and corporate tycoons speak on their own behalf and do not represent the interests of their shareholders or other stakeholders. He therefore suggests that stakeholders and shareholders coerce corporate executives into staying out of the debate over the UK's membership of the EU by threatening to destabilise their businesses and corporate governance. Unfort

Investors, businesspeople, students and academics need to know much more about psychology. In the video below, the folks at Moneyweek discuss how psychology affects investors. If you want to read about how psychology affects decision-making, you should start with Daniel Kahneman's Thinking, Fast and Slow .

I heard Charles Goodhart tell a great joke the other day. What is the difference between a non-executive director and a shopping trolley? Answer 1: A shopping trolley has a mind of its own! Answer 2: One you fill with food and drink, the other is useful for putting the groceries in.

Click here to read an interview with Martin Wolf, the FT's chief economics commentator (hat tip - Graham Brownlow).  In the interview, he talks about the financial crisis and his new book - The Shifts and the Shocks . Below is an FT video, where Wolf talks about his new book.

Nathan Sawaya is an artist who uses LEGO as his media. I went to an exhibition of his in Amsterdam this summer with my family and I was really impressed by his work. He is coming to London this month - news story here .

The Irish government has just named the members of its new Credit Union Advisory Committee. I'm delighted that Professor Donal McKillop of Queen's University has been appointed as chairperson of the committee.  The press release is here .

Historically, companies return profits to shareholders using dividends. However, since the 1980s, firms have been returning cash to shareholders via share repurchases.  The Economist has a great article on why firms buy their own shares and some of the effects of share repurchases - click here .

Scotland votes today on independence. I don't want to see Scotland leave the United Kingdom - it will weaken Scotland and rUK, There are economic, social, cultural, and religious ties which bind Scotland to the rest of the UK. The 'No' campaign has mainly focused on the economic ties, which may be of second-order importance in the grand scheme of things. The 'Yes' campaign has focused on nationalism and sentiment in an attempt to convince the electorate.  The Labour Party could be the the big loser no matter how the vote goes today because independence or increased devolution will mean more power for the Conservative Party at Westminster.

In the INET video below, Stephen Kinsella talks about the Irish financial crisis and how austerity has affected the Irish economy.

The Page 99 Test blog has applied the page 99 test to my new book Banking in Crisis - you can read the test  here . The page 99 test is atttibuted to Ford Madox Ford  who as a literary critic opined "o pen the book to page ninety-nine and read, and the quality of the whole will be revealed to you".

If Scotland decides to leave the Union, what will it use as its currency? As an independent sovereign state, it can't use sterling. Because it won't immediately be (if ever) admitted to the Eurozone, it can't use the euro. Scotland will therefore need a new currency - let us call it the 'dram'. Drams could be issued by a new Scottish central bank and drams could simply have a floating exchange rate or a fixed exchange rate with sterling. Alternatively, Scotland could return to its historical roots and have a multiple reserve system, whereby multiple banks issue their own 'dram' notes, which are convertible into a precious commodity such as gold or a commodity bundle. This keeps the currency out of the hands of Scottish politicians, which may or may not be a good thing depending on one's perspective.

Banking in Crisis is officially launched this evening at my inaugural lecture, which is taking place at Queen's University Management School . In my lecture, I will be addressing two questions: (a) how severe was the 2007-8 banking crisis? and (b) who was to blame? In the lecture, I'll show that the 2007-8 crisis is the worst banking crisis ever experienced in the UK and that failures in the UK political system were ultimately to blame.  

The video below contains a debate on Scottish independence between Tom Devine and Niall Ferguson, two leading Scottish historians.

In my new book Banking in Crisis , Scotland plays an important role in the rise and demise of British banking stability. For example, whenever England had a banking crisis in 1825 and wanted to redesign its banking system, it looked north and copied the Scottish banking system, which was renowned for its stability. Later crises, such as 1857 and 1878, had Scottish banks at their epicentre. More recently, two of the largest problem banks in 2008 were Scottish - the Royal Bank of Scotland and Bank of Scotland. So what will happen to Scottish banks if  Scotland votes 'yes' on the 18th September?  Will depositors in Scottish banks withdraw their funds and move them south of the border in case Scotland is not able to keep the pound sterling or because of uncertainty about the Scottish currency? What will the Bank of England do if there is a run on Scottish banks in the event of a 'yes' vote?

Can economists help make us happier people? Can the insights of behavioural economics nudge us to become happier people? Tim Harford has a great post looking at this very subject and is slightly sceptical about the ability of economists or happynomics to improve our happiness. 

Are academic economists captured by special interests? Or are they 'pure' scientists in that they are free to say whatever they want? The 2008 Financial Crisis raised questions about the independence of economists - see, for example, the movie Inside Job   - see trailer below. Luigi Zingales of Chicago has recently published a working paper entitled " Preventing Economists' Capture " (hat tip - Graham Brownlow). The paper's abstract is: The very same forces that induce economists to conclude that regulators are captured should lead us to conclude that the economic profession is captured as well. As evidence of this capture, I show that papers whose conclusions are pro-management are more likely to be published in economic journals and more likely to be cited. I also show that business schools’ faculty write papers that are more pro management. I highlight possible remedies to reduce the extent of this capture: from a reform of the publication process, to a

The Great Recession has been extremely hard for young people in Europe. The youth unemployment rate in Europe is about 23%. In addition, young people have experienced large falls in real wages (11% for the UK). The new labour market for the young means that they have little bargaining power, have to accept poor conditions and pay, and can lose their jobs very easily. Click here for an insightful article by Paul Mason, where he critiques the new labour market for the young.  From www.theguardian.com

Daron Acemoglu and James Robinson have written a critique of Thomas Piketty's Capital in the Twenty-First Century - it is available here (hat tip - Graham Brownlow). Like his hero Karl Marx, Piketty attempts to uncover the general laws of capitalism. The following quotation provides a summary of Acemoglu and Robinson's critique: But Like Marx, Piketty goes wrong for a very simple reason. The quest for general laws of capitalism - or any economic system - is misguided because it is a-institutional. It ignores that it is the institutions and political equilibrium of a society that determine how technology evolves, how markets function, and how the gains from various different economic arrangements are distributed. Despite his erudition, ambition, and creativity, Marx was ultimately led astray because of his disregard of institutions and politics. The same is true of Piketty.