The Institute Blog

Adair Turner: How Do We Get Out of This Mess?

How do we get out of this mess? 

That's the question that Adair Turner, Chair of the UK Financial Services Authority, was addressing in his lecture to Cass Business School this week. Since the current policy mix has failed, Turner reflects, "we must think fundamentally about what went wrong and be adequately radical in the redesign of financial regulation and macro-prudential policy to ensure it doesn't happen again." 

In this lecture, Turner does just that, getting to the root causes of the crisis and proposing policy solutions to clean up the mess and get our economies growing sustainably.

The good news is that the crisis has opened this debate and created the possibility for change. New policies and previously radical policies, like overt monetary finance and NGDP targeting, are beginning to be considered. Turner's lecture provides an important roadmap for central banks and governments of the broad toolkit at their disposal. As economic crises persist around the world, hopefully they will listen.

Click here to watch the speech, or download the attachments below to read the full lecture.

Click here for an FT interview with Turner

AttachmentSize
Turner Cass Lecture 2013 Text.pdf559.47 KB
Turner Cass Lecture Slides.pdf1.83 MB

Comments

0

The contents and direction of this lecture from within the economics establishment confirm what I'd already suspected on the Great Recession -
> The problems are known (ie recognised as such);
> They are sufficiently characterised (despite doctrinal differences);
> The suite of possible responses is known;
> Their effects have been sufficiently debated.
Properly, the next step is decision - and as noted, sooner rather than later.
While this decision applies at national level, there clearly must be close international coordination; the recent World Economic Forum was thus a perfect venue.

I don't share Dr Turner's apprehension about OMF. His examples of Weimar and Zimbabwe are I suggest red herrings (or boojums), as the former had a huge foreign drain in war reparations, and the latter's economy is doubtfully representative.
Also, any "new" spending by government can be targeted at underperforming sectors, at prices accepted by government, so only inflationary by their choice. With proper disclosure and oversight, at need the process can be micro-managed.
The money (after tax) released to the economy into the usual one-month settlement cycle is substantially recovered by taxation in one year (~95%), so any undesirable effects are largely short-term.

0

Please excuse me for being mean and nasty, but I have had a fight with martin wolf at the ft about this. It's not a bad paper, but the main point is turner represents to problem not the solution. You are the institute of new economic thinking publishing old school thinking.
for the past 5 days I have built up a body of evidence where this is wrong.

For the record, and if one wants to be intellectually honest. Turner didn't see the problem before it happened. I don't want to hear from him. I want to hear from economists like steve keen (who predicted the event) on what to do in the future, and how to get out of this mess. I don't want to hear from someone who got us into this mess on how to get out. If he was worth listening to, we wouldn't be in this mess to begin with

When I see a post like this my worry is the institute of new economic thinking is in danger of capture. I'm more interested in the views of who got it right, then the reflections of who got it wrong.

You get it or you don't, but what I see is the institute getting too lose to the established order.

Look, this isn't so bad, but for example when i read in the ft larry summers editorials, I want to puke. Past screw ups don't deserve a big voice in the future!!!

kuddos if you put this up. most establishment sites wouldn't

0

This is an Institute for Decidedly Ingrained Old Thinking (IDIOT). Even the old master has warned against this in the last two sentences of his famous book, “…in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.”

0

The current accepted policy response is QE. This will only lift asset prices and widen the gap between the wealthy and the rest of the population.

To spur growth the money supply needs to be put directly in the hands of the people (helicopter drop hard cash NOT Debt!)

The second part of the puzzle is to have higher interest rates, low rates actually deter growth.two examples;
1) If an individual were to buy a house priced at £200k with a 6% interest rate, ie pay more over the term of the loan than paying £400K with a 2% interest rate. That individual would be happier to spend rather than have the thought of a BIG debt over their head £400k
2) higher interest rates would mean people and Companies would put money to work on longer term projects, meaning more emplloyment, growth etc
3) Savers, if a saver knows he is getting 5% on his money they would be happy to spend more, at 0% the saver ends up saving more to compensate.

In short asset prices have been inflated too high, interest rates too low and money should have been put direct into the hands of the public

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