The Bank of England, the Dog, and the Frisbee

Originally posted Thursday, October 25, 2012

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“To ask today’s regulators to save us from tomorrow’s crisis using yesterday’s toolbox is to ask a border collie to catch a frisbee by first applying Newton’s Law of Gravity.”

  — Andrew G Hardane and Vasileios Madouros

So ends the speech by Andrew G Hardane, Executive Director, Financial Stability and member of the Financial Policy Committee and Vasileios Madouros, Economist, Bank of England at the Federal Reserve Bank of Kansas City’s 36th economic policy symposium, “The Changing Policy Landscape”, Jackson Hole, Wyoming on 31 August 2012.  Haldane’s speech primarily criticized the labyrinthine banking regulations of Basel III.

Andy Haldane, photo from the Bank of England

The implications of Haldane’s thinking reach far beyond the critique of expensive (he estimates 70,000 compliance officials must be hired by mid-sized European banks will be required by the regulations) and inefficiently brittle rules.  Haldane also draws refreshingly on the need to base policy not on intricate, Rube Goldbergesque systems based on dubious assumptions, but on the real world, frequently referenced by The Lehrman Institute founder and chairman Lewis E. Lehrman as “the laboratory of history” … “the only laboratory we human beings have available to us: the laboratory of human history.” (from Lehrman’s March 17, 2011 testimony at a hearing before the Monetary Policy Subcommittee of the House Financial Services Committee).

Haldane’s rising profile helps to provide additional context to the leading-edge intellectual climate under which the Bank of England produced and published, last December, its increasingly influential Financial Stability Paper No. 13, Reform of the International Monetary and Financial System, making a rigorous assessment of the performance of the post 1971 fiduciary currency monetary system relative to its predecessor Bretton Woods gold-exchange standard and the classical gold standard.  It concluded, to international notice, that the fiduciary currency system had badly underperformed both versions of the gold standard in all fields measured, including economic growth, recession, employment, panics and crises.  Financial Stability Paper No. 13 was called by this writer in a column originating in Forbes.com, and reproduced in many venues around the world — from Pravda.ru in Russia, to China, to Africa and London, The Death Certificate of the Paper Dollar. 

Although The Bank of England did not proceed to recommend a restoration of gold, it provided invaluable rigorous engagement with the empirical data — “the laboratory of history” — essential to the reform of the international monetary and financial system.  Haldane and his team are proving themselves not only excellent public servants but authentic humanitarians.