As The Guardian reports this morning:
A group of 58 leading economists and politicians, including the former business minister Vince Cable, has written to the chancellor to say that scaling back City regulation will put the UK at risk of another financial crash.
The open letter, which has also been signed by the former Greek finance minister Yanis Varoufakis and Columbia University professor Adam Tooze, was sent in reaction to the Queen's speech, which outlined Rishi Sunak's plans to “cut red tape” through a financial services and markets bill.
I was one of the 58. The letter is intended to make these points:
- We are worried because the government's approach drags us back again into past mistakes. Having regulators focus on ‘competitiveness' as an objective was, after all, found by the Treasury and parliament to have contributed to the 2008 financial crisis which cost the world economy some $10 trillion.
- The choice to prioritise this during a cost of living crisis is also clearly totally out of touch. The last thing people need is their employment and what small savings they have put at risk by provoking another financial crisis. Polling evidence by charity Finance Innovation Lab shows 70% of people think such a policy is ‘out of touch & elitist', and 9/10 don't think it should be a priority.
- On a basic level it's clear the role of any financial regulator should be as a watchdog, not a cheerleader, and the public understand there's something very dubious about changing that.
- The reality of promoting ‘competitiveness' will be to once again set the financial sector against the real economy, reducing real economic growth and instead encouraging short term gambling and risk taking, crowding out investment in small business and jobs.
- The government says they want to ‘level up', but the only ones to benefit from this policy are big multinational finance companies based in the City of London that want to gamble in pursuit of short term profits. It will suck money out of the rest of the economy, increasing inequality across the country, and dumping risks and consequences on the rest of us.
- It also means an inevitable reduction in standards, as companies ‘race to the bottom'. This is one reason that a ‘competitiveness' objective contributed to the last financial crisis, and it also means more corrupt and criminal money will end up in the UK
- Instead of focussing on competitiveness, the government should be using this ‘once-in-a-lifetime opportunity' (their words) to ensure that the future of financial regulation helps the financial sector play its part in tackling our real social challenges. Why not strengthen regulatory mandates to ensure that the sector contributes to our fight against climate change, overcome deep-seated financial exclusion, or to promote stable and sustainable economic growth evenly across the whole country? Those are the kind of objectives for the future of finance we can all get behind.
In other words, the government has got it very wrong if they thinkg that deregulating the City is going to help right now.
The full letter was as follows:
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Surely yet another bit of scrabbling around to show a benefit of Brexit?
No pain, no gain.
Bravo. Thank goodness for voices of sanity .
Thank you all.
Unbelievable Richard.
How quickly they forget.
Idiots.
Here’s someone who nailed it before 2008. Apparently when Rajan spoke about this issue at one of the infamous central bank DAVOS events, Larry Summers spat his dummy out and went apoplectic.
http://www.kansascityfed.org/documents/3326/PDF-Rajan2005.pdf
There are a lot of great names here and you are in excellent company – Robert Shiller of Yale though – I wonder what he thinks? He’s no fan of the ‘efficient markets’ hypothesis that Dumb and Dumber seem to think needs further ‘unleashing’. Louise Hyman as well from Cornell University and his work on shrinking income – but nonetheless an impressive bunch of signatories.
Good luck to us all I say.
Unbelievable…………..
PSR, your link is to an article by Rajan on the financial system. It has to signatures. I think you must have another link in mind.
Sorry, ‘no signatures’.
Larry
As a ‘digital adaptive’ I’m not too au fait with what you are getting at.
I’ve seen different copies of Rajan’s paper that featured in the film ‘Inside Job’ but they basically make the same point and although Rajan seems to be one of those orthodox optimists, his paper at least brought the notion that there was something structurally wrong with the financial system and although he was not exactly the fox in the chicken coop it was as close as any naysayer was going to get given how Larry Summers managed to close down debate about the causes of the 2008 crash as much as he could.
Well I’ll just wait for Sunak and Johnson to label all of you as “left wing economists” to be ignored just like left wing solicitors.
In the 1990s the Scott Inquiry into the illegal sales of arms to Iraq by the 1980s Thatcher Tory government concluded that it was the result of a culture of decision making devoid of integrity and focussed on the avoidance of all accountability.
They further concluded that the resulting policies had little purpose beyond enriching the Tories and their supporters, or the constant search for electoral advantage.
The real motives of the Tories are nothing if not consistent.
It is also worth noting that the findings of the report were buried by a highly mendacious Tory/Media propaganda campaign carefully linked to a display of utter contempt for the supposed rights of the House of Commons.
It’s a desperate rearguard action to try to save the the financialised economy. Won’t work, we’re way past that now. But will waste time and effort which we don’t have to spare. An economics founded on the real, energy-based economy is needed more than ever.
It astounds me to continue reading news articles in which some industry person expresses surprise all their input costs are increasing simultaneously. And this talk of stagflation as if that’s not just another way of saying reducing standards of living.
Every productive activity, and most unproductive, uses energy ( or technically, exergy). When energy return on energy invested is in long term decline, which technical advances in renewables will not arrest for many decades, the real economy per capita shrinks. It may be that fusion power sorts this a bit sooner, but that’s decades away too.
And on top of this climate change is increasing the energy cost of staying still (eg in the U.K., ruggedising the built environment against increased rainfall and transitioning the energy system away from fosssil fuels), and societal stupidity is actively destroying productive assets including in the energy system eg the Russian war. Less energy per capita per year for non-essentials. And for many even essentials, given how inequitably we choose to deploy it.
There have been some attempts at energy/exergy based economic models, if anyone is interested. Eg Malcolm Slessor and Jane King, Steve Keen, Tim Freeman, Ayers & Warr, Simon Roberts et al.
It is reported in the Guardian on line. Couldn’t see it in the Independent or on BBC website.
While searching I found this letter from 2016. It is not as though we weren’t warned of the damage these ideologues want to do.
https://www.independent.co.uk/news/uk/politics/eu-referendum-an-open-letter-to-uk-voters-from-leaders-of-96-british-universities-a7092511.html
The money-power continues to use the power of money to have their policies applied.
We need a coherent alternative to this neoliberalism and to have a name for it.
I was also alerted to this public letter today by The Counterbalance (https://thecounterbalance.substack.com/p/the-great-competitiveness-hoax), newsletter of the Balanced Economy Project.
I rec8mmend subscribing to it