I usually vehemently disagree with Financial Times writer John Kay — a flaming liberal UK economist. It is with more than a little alarm that I find myself amenable to his call for more financial market intervention by government. More than anything else he writes in this article, it is the following statement that strikes a chord for me:
I do know that unless human nature changes or there is fundamental change in the structure of the financial services industry – equally improbable – there will be another manifestation once again based on naive extrapolation and collective magical thinking.
Human nature ain’t a-gonna change. So, you draw your own conclusion.
Kay writes:
We made a mistake in the closing decades of the 20th century. We removed restrictions that had imposed functional separation on financial institutions. This led to businesses riddled with conflicts of interest and culture, controlled by warring groups of their own senior employees. The scale of resources such businesses commanded enabled them to wield influence to create a – for them – virtuous circle of growing economic and political power. That mistake will not be easily remedied, and that is why I view the new decade with great apprehension. In the name of free markets, we created a monster that threatens to destroy the very free markets we extol.
I think that just about nails it. And it had better be one of the few times I stumble into accord with liberals on economics.
