John Kay

The elevation of credibility into a central economic doctrine has turned a sensible point – that policy stability is good for both business and households – into a dogma that endangers stability.

The highwayman who offers “your money or your life” leaves you free to choose – in a sense. There is a spectrum, not a sharp distinction, between free exchange and coercion.

Our intuition is that a centrally planned allocation of resources will be more efficient than an uncoordinated one. In a market economy, that error constantly leads us to overestimate the economic advantages, and longevity, of large companies.

This year I wrote that if men think about sex on average every seven seconds, the average man last thought about sex three and a half seconds ago. But neither love nor equity markets are so predictable.

What would an economist do if he wanted to study horses? He would go to his study and think “what would I do if I were a horse?”

Rational expectations fail for the same reason communism failed – the arrogance and ignorance of the monopolist.

On October 14th at Merton College, Oxford, Professor Robert Frank gave a talk exploring the potentially illuminating role of Darwin in economic theory. John was asked to give his response, along with biologist, Sunetra Guptra. Watch the event here.

The reputation of economics and economists, never high, has been a victim of the crash of 2008. The Queen was hardly alone in asking why no one had predicted it. An even more serious criticism is that the economic policy debate that followed seems only to replay the similar debate after 1929. The issue is budgetary austerity versus fiscal stimulus, and the positions of the protagonists are entirely predictable from their previous political allegiances.

Few voters were ever much interested in the old rhetoric of socialism, and they have equally little interest in the new rhetoric of rights.

A few failed components may bring about collapse in a complex interdependent system. As in the Gulf of Mexico spill, or at the Fukushima disaster, or in the credit market in 2008.