John Kay

On October 11th John gave evidence to the joint committee on the draft Financial Services Bill. Others in a attendance were, the former chancellor, Alistair Darling, Professor Charles Goodhart and Professor Eilis Ferran. The committee discussed the future of regulation in the financial services industry, the Vickers report and the details of the bill. Watch full coverage of it here.

On the 4th October INET published a paper, written by John, that deals with the relationship between economics and the world we live in. The Map Is Not the Territory: An Essay on the State of Economics spells out methodological critiques of economic theory in general, and of DSGE models and rational expectations in particular.

INET forwarded John’s paper to a handful economists and invited them to respond. Harald Uhlig, Chairman of the Economics Department of the University of Chicago, replied with his recent paper Economics and Reality.

Michael Woodford, John Bates Clark Professor of Political Economy at Columbia University, offered his perspective in What’s Wrong With Economic Models? A Response to John Kay.

You can also read the editor of the Journal of Post Keynesian Economics, Paul Davidson’s response here.

John’s latest book Obliquity has now been released in many different languages, in countries all over the world. They include the US, Germany, Brazil, Italy, China, Korea, Taiwan, Turkey, Holland, Japan, Hungary and Portugal.

After the 2007-8 financial crisis, the most common response from politicians and other public figures was for more regulation. John argued that what was needed was not more regulation, but better regulation. In 2009 The Centre for the Study of Financial Innovation published Narrow Banking, in which he discussed the reform of banking regulation. It focused on structural reform that would ’separate the Casino from the Utilty’, allowing banks to fail whilst safeguarding retail deposits. This concept has since won widespread support, and was a central theme in the Independent Banking Commission’s report, led by Sir John Vickers, which was released on the 12th September 2011. Read John’s latest thoughts on this subject in this FT article, Don’t listen to the lobbyists: they never go away.

On Wednesday 17th August, Demos and the Open Society Institute hosted a debate on the effects that free markets have on open societies. John discussed the issues of capitalism and freedom with Lord Maurice Glasman, Ed Miliband’s policy advisor and creator of ‘Blue Labour’. Watch the highlights here.

On the 22nd June the Secretary of State for Business, Vince Cable, announced a review that will  examine investment in UK equity markets and its impact on the long-term performance and governance of UK quoted companies. John will lead the review, supported by an expert panel. 

He said,  “Equity markets are a principal mechanism of control and accountability for boards and senior managers, and a means by which individuals and households provide for retirement and other long term financial goals. The Review will examine how these capital market disciplines contribute to the achievement of such goals and to the community more generally by enhancing the competitiveness and long term performance of British business. I believe this is probably the most important issue in industrial policy today and am pleased to have the opportunity to assess the evidence and make recommendations to Government.”

The final report will be published in 2012. To read the terms of reference click here.  

At a lunch at the Mansion House on 25 May 2011, John received the Senior Financial Journalist award from the Wincott Foundation in recognition of his Financial Times columns.  All these columns can be found on this site in articles. For John’s recent Wincott Foundation lecture, click here.

INET (the Institute for New Economic Thinking) is an initiative kick-started by George Soros to promote a more pluralist approach to economic thinking in the wake of the financial crisis. John is a member of the INET advisory board. INET is based in New York (http://ineteconomics.org/) and has sponsored major conferences at King’s College, Cambridge, in 2010 and Bretton Woods in 2011.  It has also provided (and continues to provide) substantial research funding, including initiatives at Oxford and LSE. In an interview with INET’s director, Rob Johnson, at INET’s New York offices, John discusses his recent book Obliquity, which was published in the US in April.

The best way to make the financial system more robust to the inevitable shock and failures is to restore elements of the functional separation which existed before the 1980s – most of all, to split the utility functions of traditional retail and commercial banking from the casinos of investment banking. As the crisis developed in the period from August 2007 to the bankruptcy of Lehman in September 2008 and the collapse of major banks followed that failure, John developed this theme in articles all too presciently entitled -  More regulation will not prevent next crisis, There is a better way to stop bank failures and Taxpayers will fund another run on the casino, which expounded the now famous utility/casino metaphor. The argument is developed at much great length in his pamphlet Narrow Banking. The Independent Banking Commission chaired by Sir John Vickers, has put ring-fencing the utility at the centre of its proposals. For a preliminary view on the Commission’s thinking, read the Interim Report which was published in April.

The SNP’s decisive victory in the elections in Scotland on 5 May 2011 creates a marked shift in the political landscape.  The Scottish government is now committed to holding a referendum on independence.  In the previous Scottish Parliament (under an SNP minority government) John was a member of the Council of Economic Advisers established by the First Minister, Alex Salmond.  John believes that the independence issue is a red herring – that Scotland wants and is now likely to obtain greater economic autonomy but the degree of economic autonomy a small state can enjoy is necessarily linked in today’s global environment.

For a fuller description of this position, read Johnn’s recent Prospect article. Readers outside the UK may wish to begin with this month’s Handelsblatt (a German magazine for whom John does a monthly article ) which provides more background.  See also The Economics of Small States and The Fabric of Scotland.