0:00:00hello i'm here with the professor she the dow professor i'm a is a asserting
0:00:04university and a long time friend about it thank you very much for going to
0:00:09be q s
0:00:11i wanted to ask you know what you're going to be presenting at the conference
0:00:16i'm going to be talking about an insurgency
0:00:19which is something that some very much in people's minds because of the crisis
0:00:23but
0:00:25in this is something i've worked on for a long time
0:00:28but what you want to focus on here is the way in which a subsidy
0:00:34affects
0:00:34the structure of the economy is not just a matter of
0:00:38how it affects peak at all that's really important
0:00:41but i want to talk about the ways effects structure which really
0:00:46reinforces the keynesian argument that answers until to be taken
0:00:50seriously and in mixed at positions corresponding to recognise the importance of uncertainty in a
0:00:56sense see the whole idea of animal spirits a overrides the onset the elements what
0:01:01i the uncertainty is implicit in his whole economic analysis
0:01:06and it and i mean it it's bright from the foundations upcoming get comes from
0:01:10this work in philosophy which predated his economic so it really
0:01:16is right in that the ground and i mean for some particular concerned about just
0:01:20the fact that mainstream economists filed are talking more button certainty
0:01:24are not really grappling with
0:01:26an inability to quantify risk
0:01:29and they regard to something
0:01:32to be added into c v
0:01:34yes that they don't think they are reading a bit more fright night because he's
0:01:38of the i idea that at a certain level the chaney one uncertainty
0:01:44is a normal unquote i'll or risk and that's what you think the party absolutely
0:01:48and the crisis to be we so markets precinct which is very complicated buttons of
0:01:54and the ability to price
0:01:57and to encode would be a you been doing is you actually draw you've taken
0:02:02quite an interdisciplinary approach like means of course came to withdraw no loss with you
0:02:06also don't as well the working in a look at some of the latest a
0:02:10cycle psychological studies and my understanding is that
0:02:14you know what we're learning about the way human being tracked radical certainly what that's
0:02:18like also teaching as is very different from what the economic textbooks teachers
0:02:23that's right that the reason i looked a psychology is because read following canes it's
0:02:30clear that human decision makings not separable and sir
0:02:35rational
0:02:36optimising
0:02:37i can decision making on the one hand
0:02:40and emotional
0:02:43reactions on the other pictures
0:02:46defined by many is as irrational that rather it's a combination of the two
0:02:51and when i look at that some fact i'm going back to the scottish enlightenment
0:02:55traditional because that's an idea that's very important just miss and you
0:02:59clearly it's something that wasn't read the body see the rational expectations colby
0:03:05i and what you think the implications that are first for foreign for the way
0:03:10we teach economics
0:03:13well i'd like to see economics first are being taught in terms of
0:03:20the possibility of different approaches to the subject
0:03:23i mean i obviously have more confusable output
0:03:26the approach that i prefer and the type of csi prefer
0:03:30i think
0:03:32it's in portion for students to be aware that because of our uncertainty
0:03:38we have to choose between a range of different approaches
0:03:43and have to be able to justified for each of our approach we take
0:03:49to others and
0:03:50and you mention your own personal preferences so wanted to elaborate on those a little
0:03:54bit
0:03:54well my preferences for propose kings in approach which is a
0:03:59at a particular interpretation of k-means which draws on this philosophy as well as
0:04:05and as part and parcel this economics
0:04:08okay and clearly the there's a lot more often in inpainting problem were courses in
0:04:13some ways helping to remove it here and i am but in the world real
0:04:20world of policymaking
0:04:22we don't seem to be making much headway and that's a particular the prominence in
0:04:29the u k where you're asked to you would you care to comment on that
0:04:35the rest
0:04:35a lot of public discourse but canes which there wasn't before the crisis so at
0:04:40the at least
0:04:42there is an awareness of kansas arguments about
0:04:45the need for fiscal stimulus
0:04:47in a recession what's missing
0:04:50is all the rest of cans which provides an explanation for the crisis
0:04:55really building on this theory open-source and t
0:04:59and that's what i think its own portion just need to be
0:05:04to focus on that aspect of kansas thinking back rather than to think of it
0:05:08is something that's just a effects of a crisis that actually to understand
0:05:12the way economy speaking of
0:05:15and in non trained systems
0:05:17and what is what do you think the implications but also a for you know
0:05:20what we're doing a little the regular tree frog know what you think the implications
0:05:24of this uncertainty principle you like all from terms of regulation
0:05:29well i think it it's
0:05:32it's more portion
0:05:33in terms of thinking about this is institutional structure within which regulation occurs
0:05:40and the way in which regulators
0:05:43can encourage practises
0:05:46there's the travel speculation is that it's imposes constraints on a set of which doesn't
0:05:52like constraints in this very innovative
0:05:55at responding to constraints so i mean of a starting against regulations search for watermarking
0:06:01is that there has to be as much attention
0:06:04to the institutional structure the way in which the regulators the one that resources
0:06:11behave with the banking sector
0:06:14so that
0:06:16there needs to be
0:06:17a build a proper relationship between the two as there was
0:06:22happen till the seventies where there was a an understanding that the
0:06:25the central bank and
0:06:27commercial banks
0:06:28how did not an obligation to each other
0:06:32the banks for effective least franchised
0:06:34to reduce my money and there was a recognition problem partition community banks are somewhat
0:06:40unique in that regard because it is the only business
0:06:44where effectively your liabilities the business model is about is not by the government's well
0:06:49i suppose required to the banks don't seem to see that when less a losing
0:06:53money which point also the public backstop becomes very important one h m
0:06:58yes but i mean deregulation gave them much more filtering to processing that the blind
0:07:04so that
0:07:06they
0:07:06to backed off their side of the deal
0:07:09and we don't really seem to be read regulating it seems to me that we
0:07:14have an increase the complex structure and that we are instead of trying to simplify
0:07:20that structure to deal with say the channel response or do we seem to be
0:07:24introducing
0:07:26more and more cumbersome regulations which in turn the bank was trying to game and
0:07:31so that the system doesn't fundamentally changes was well and it doesn't do with the
0:07:35channels you set out
0:07:37yes i think it's really important address the issue of the cultural banking
0:07:42and i mean this is something that is discussed
0:07:45quite widely in the financial times mean in
0:07:49public discussion but not an economics i think was an obligation economists to be able
0:07:54to provide
0:07:55some guidance
0:07:57and haven't you tell we just what you if you were the position of the
0:08:01chancer miraculously i think would be very good idea would call you tomorrow one and
0:08:05ask people by what would you tell in recall say and specifically
0:08:10well first started say take advantage of the fact that
0:08:12you have
0:08:14a lot of sway over as the banks and which there is large public ownership
0:08:19the that
0:08:20that should have been a wonderful opportunity to
0:08:24push a change in culture by example and i know it's a very difficult thing
0:08:29to do but it's
0:08:30something that there has to be some change no
0:08:34this is often thought of as something
0:08:36outside economics
0:08:39but we possibly arguing later on today is that this is
0:08:44this is very much part and parcel of the way in which an economy functions
0:08:48because of uncertainty it requires conventions
0:08:53conventional practises stress
0:08:56all these things before and also shows the logical and political and indeed value judgements
0:09:03come into it which also the as you say that's been what we this is
0:09:08of economics profession in a it forgets that it's a social sciences opposed to a
0:09:13and like to thank of itself as the size and
0:09:15and even size is not the devoid of a value judgement switch to but the
0:09:19received signal be or mainstream economists and seem to think well be reduced a simple
0:09:25mathematical equation someone human experience
0:09:29so that seems we will be a challenging slot and like you i part of
0:09:35the u k a had a very strong approach to be too huge chunks would
0:09:39be back but i get the sense of they're looking to know now that there
0:09:43was talk about writing them up making them to
0:09:47it's just a smaller less the symmetry dangerous institutions but the under the you'd modeling
0:09:51importance of the banking industry that schemes will be changing
0:09:56well i mean i don't have any particular information about how things are going but
0:10:01i think it
0:10:02it would be really important splits off retail banking
0:10:05because it's retail banking but provides societies mommy
0:10:10no the
0:10:11it's difficult to be a lender of last resort to massive institutions which are engaging
0:10:16all sorts of
0:10:18praxis which are not the presence of a traditional retail banking
0:10:23so a between forty i'd like to see is returned the idea that we happy
0:10:28still bank spectra which are fairly constrained
0:10:32and yet have the privilege of wonderful unstressed absolute improvement
0:10:38and so i think it's important that
0:10:41the presumption be the banks don't fail in other words it's i think it's important
0:10:45to look at banking and
0:10:47in term in positive terms of for banking
0:10:50can and then d
0:10:51should do
0:10:53gorgeous also credited to mediation for example is close to explore data for example talk
0:10:59about how nine percent of investment banking activities that don't have any some kind of
0:11:04social utility
0:11:07well that's a yes i mean he made able to that statement that allows for
0:11:11all i
0:11:14but how well is segregated and i institutionally in the u k context
0:11:19yes it's i mean there are clearly huge difficulties
0:11:26i mean as i understand that it should be possible to ring fence retail banking
0:11:30within large organisations i mean it requires
0:11:34what you hear the victory
0:11:37yes i'm
0:11:39i mean somebody's the more satisfaction approach would be to separate
0:11:43retail banking off and institutionally
0:11:48but it
0:11:49it could also be possible to ring fence but it really requires very close attention
0:11:53to for banks of doing emission
0:11:56to mine additionally important for the four
0:11:58the authorities to really close knowledge
0:12:01of what's going on the ground with in banking
0:12:04so that they can be a lower for any changes in practice since and
0:12:09so the holidays of course of the conventions in the practise is keep changing they
0:12:14keep getting much more elaborate and it's particularly difficult to achieve bank this discipline via
0:12:22the liability side of the right balance sheets now i i've always felt that the
0:12:27important thing to do is to
0:12:30restrict the range of activities so that you don't actually have this complex regular tree
0:12:35structure
0:12:36yes
0:12:38but the way with that the that doesn't seem to be anyone moving in that
0:12:41direction even though that would be consistent with what you are in the papers for
0:12:45yes
0:12:46and there is talk about i mean for seem to be
0:12:51straightforward measures let alone restricting one class separation
0:12:58and so on approach point get round the problem of excessive mortgage lending for example
0:13:05so that you know i think that's along
0:13:07a lot that can be done with fairly simple
0:13:11simple recognition and you get any sense that the there's any movement in that direction
0:13:15any recognition of this in all of us are rules and the u k
0:13:20it certainly widely talked about
0:13:24but may have to wait for another government
0:13:26i think of that a somewhat less than a little i thank you very much
0:13:32for agreeing to speech translation mapping like slot