In the Policymakers' Thrall

If policymakers hadn't existed, what would have happened post-Asia/LTCM crisis in 1998, post-dot com bubble in 2000 and post-global financial crisis in 2008?

The reason I ask is not so I can expound my views on where the world would otherwise have gone, but to show just how important our policymakers have become. Every area of our lives is now touched by policymakers: the products you buy - all regulated; the transport you use - all regulated; the things you do - most of it regulated (where you can walk, what you can do, when you can do it); how you invest - all regulated; the money you use - regulated; the price of money - regulated.... in fact, while Communism may have been slain with the fall of the Berlin Wall, we live in a newly 'socialised' world. I am not saying that this is necessarily a bad thing - it means you can trust the food you eat, it means the car you drive has been made to a minimum standard and it means everyone trusts the money in your pocket.

Nevertheless, it does mean that we are putting remarkable trust in our policymakers, whether the government officials that determine the country's tax and spending policies, the monetary policymakers that determine interest rates ie. the price of money, and the myriad of regulators and officials who determine all the other aspects of our lives. Let's hope they all know what they are doing. But is that not a bit too much to ask? How can they really know. And if they did 'know', who are they serving - your interest today, tomorrow or in 5 years time? The current population or the future population? And which future population, the one 10 years hence or 50 years? The one including future immigrants and emigrants, and if someone is 80 are they less important that a 10-year old, even if they've been a big contributor to society, and the 10-year old is currently a truant and likely has few prospects? You can see why policymakers are never popular.

Interesting Times

Which brings me nicely to the Bank of England.

At this point you may be thinking, but what is he talking about, who's got a problem with the Bank of England? They've done a good job, haven't they? To which I will say only one thing - if they were doing a good job, would they ever be popular? Surely half the country at any time should be complaining about the price of money, it either being too high or too low. But maybe it's just that the vocal majority of home-owning, borrowed up to the eyeballs members of the population who would be vocal, have actually got the Bank of England where they want them to be. As they always say, if you borrow £10 from a bank, it's your problem. If you borrow £10million, it's the bank's problem. Well, the Anglo-Saxon populations of the world have certainly been borrowing. And they've borrowed so much that it is nearly no longer their problem. It's everyone's problem. And so how have the policymakers responded? - by kicking the can down the road and taking on the problem themselves. It works in the short-run, but it can't be done indefinitely.

Everyone clamoured for a 'solution' during the financial crisis. Well they got one. It was about the only one available, but then they needed to implement the second phase of the 'solution' swiftly afterwards, but did not. Since when did policymakers wish to court unpopularity?

Nonetheless, June 30th 2011 is going to be the end of the 'solution' in some senses (see here for more information on this crucial date). We certainly do live in interesting times.