Articles

The dangers of confusing democracy with populism

Last week I received a communication from the Electoral Commission about the coming EU referendum. The pamphlet states the case for each side and gives instructions on how to vote. At first sight that process epitomises democracy in action. But on closer examination the leaflet illustrates why momentous decisions should not be made this way.

Helicopter money: A disguise for debt financing funded by short-term borrowing

The term “helicopter money” is derived from a vivid image created by the US economist Milton Friedman in which a central banker showers notes on a grateful populace. More recently, the notion has been promoted by Adair Turner, the former chairman of the UK financial regulator, in his book, Between Debt and the Devil .

Political instability stems from the diminished importance of the left-right spectrum

The problem of western democracies such as Britain and the US is that the institutions of a two-party system in which alternating governments compete to attract votes in the centre do not work well when politics is no longer arranged on a one-dimensional spectrum from left to right. Recent political upheavals are only the start of the resulting instability.

Berkshire business model is simple and effective, yet rarely copied

Buffett’s method is to find well-run companies and give them more freedom than they would enjoy on public markets. Yet other conglomerates use financial engineering and impose “transferable” management skills.

Incremental improvements to infrastructure offer better value for money

Does it lift your heart to hear that “Britain is uniquely placed to lead the world in a smart power revolution”? Do you share the ambition of George Osborne, chancellor of the exchequer, to discover “what the government needs to do to become a world leader in 5G infrastructure”? Here’s why my heart sank when reading these words in the plans of the UK’s National Infrastructure Commission.

The dangers of ever-closer tax scrutiny

Explaining your possibly complex financial affairs to unsympathetic journalists adds to the already too long list of reasons why able people might not want to go into politics. And such scrutiny draws attention away from genuinely serious and widespread tax evasion, corruption and money laundering, practices.

Central problem with banks is “too complex to fail” not “too big to fail”

Recent stumbles by Bernie Sanders illustrate a misdirection in his attack on the banking establishment. The central problem is not so much “too big to fail” but “too complex to fail”.

Radical uncertainty: The importance of the things we do not know we do not know

There is a world of difference between low-probability events drawn from the tail of a known statistical distribution and extreme events that happen but had not previously been imagined. And it is usually the latter that give rise to crises — and opportunities.

Democracy thrives on a diversity of thoughtful and sincerely argued views

“To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves and abhors is sinful and tyrannical.” The principle encapsulated in these words from Thomas Jefferson sounds fair. But we should be more anxious to fund the work of non-partisan institutions with direct policy relevance, like the Bank of England, IFS and Royal Society.

Investment opportunities abound but we must get over the barriers

The belief that the zero lower bound to interest rates is a significant obstacle to stimulating demand supposes that there is a host of projects that promises a prospective return less than zero but more than, say, minus one half per cent. This completely misunderstands the nature of the barriers to long-term productive investment. We need less financial ingenuity and more common sense.