The New Statesman interviews Mervyn King, the most recent ex-Governor of the Bank of England. He’s just published a book, “The end of alchemy” and King is now exploring if Central Banks have run out of policy tools. They examine the problem of banks, “too big to fail”, King proposes a transition from the role of the Central Bank as a lender of last resort to that of a pawn broker or insurer, requiring the banks to pay for the underwriting of their customer deposits. Also they look at King’s assertion that people at work don’t have enough time to think and read, he observes that he only got this back when he got the top job at the Bank. It’s true of all of us though and it reminded me of Mike Threlfall who publicly stated that the desirable utilisation for his consultancy team was 50% since otherwise they ceased to be consultants. The article looks at the heavy reliance on Maths that King’s generation of economists depended upon, and the probability that they thus underestimated the reaction of people. Economic rationalism has been challenged by modern behavioural economists, and in the interview King argues that people (& firms) are pursuing “coping” strategies, rather than utility maximisation strategies and that the traditional macro economic tools no longer work. He’s quoted as saying, “People’s beliefs and expectations cannot be captured by an economist’s view of how the world works”. He’s obviously learned from the 2008 crash, but whether his lessons are enough is another matter. Traditional economists are turning away from austerity, and innovations in both macro-economics and monetary policy are being developed. I should read the economic press’ book reviews of his book.


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