Tom Barry

Going for growth in St Andrews

Posted at 15:27 06 November 2009 by Tom Barry  |  Comments[0]

An economics crisis as well as an economic crisis?

The financial crisis has damaged - perhaps irretrievably - many theories that most economists (including me) thought of as cornerstones of our discipline. Among these has been the idea that markets have an innate tendency to be self-equilibrating and rational.

This leaves us with something of a problem: if markets are prone to herding and momentum, what should be done to control their excesses? Yesterday, I heard Lord Turner of the UK's Financial Services Authority offer some ideas. He was speaking at an event in Washington organised by the National Journal and The Economic Club of America. (Full stream of the talk is available here.)

In a provocative talk, Turner discussed the extent to which the financial crisis was not just a crisis of specific institutions but a crisis of economic theory. Specifically, if we accept that deeper and more liquid markets are not always a good thing - because of the volatility they produce, for instance - then we must then answer not only the question of how big they should be, but also how government policy should go about controlling them.

The good news is that economics already has some good explanations for these effects, albeit ones that have been sidelined in recent years.

John Maynard Keynes was talking about investors' "animal spirits" over 70 years ago in his General Theory of Employment, Interest and Money. Although the term featured heavily in my first year undergraduate course in macroeconomics, by the time I reached graduate school, it had been subsumed by neat mathematical models based on representative rational agents.

The term has been resurrected in the last year and is the title of a recent book by Robert Shiller and George Akerlof. The new(ish) field of behavioural economics is also starting to provide the intellectual underpinnings of a new theory of how markets behave. My hope is that it will help governments design better policy too.

Posted at 15:24 30 October 2009 by Tom Barry  |  Comments[0]

On babies and bathwater

As Antonio warns in the Merchant of Venice, “the devil can cite Scripture for his purpose.” And you can make quite a lot of mischief quoting Shakespeare too. The villain of Othello, Iago, gets many of the best lines in the play as he manipulates events to bring about the hero’s doom. In one memorable passage, Iago lectures Othello on the importance of reputation:

The global economic crisis has filched many good names (not to mention a fair few purses). Some of this is deserved: the notion that markets are intrinsically self-regulating, for example. As President Barack Obama observed in his recent address to Congress: “without the leavening hand of wise policy, markets can crash, monopolies can stifle competition, the vulnerable can be exploited.”

But some reputations need rehabilitating. Open markets have lifted living standards for millions across the world, relieving the burden of crushing poverty. We must not reject them.

Similarly, some people now claim that making things is always better than providing services. This is mistaken – both manufacturing and services have their place in today’s economies. Within this, financial services have come in for particular flak. But while we may reject some of the worst excesses that preceded the economic crisis, we should also recognise that modern financial services provide powerful tools for allowing firms to raise capital, allow businesses and households to manage risks, and create higher returns for savers.

And, for some, the whole “Anglo-Saxon” economic model has been tarnished. While some criticisms are justified, many are not – and I worry when they are directed particularly at the UK. Correcting some of these misconceptions will be a big project for me and my colleagues at the Washington embassy in the coming months.

Posted at 12:01 14 October 2009 by Tom Barry  |  Comments[0]

One year on

I can’t quite believe that the bankruptcy of Lehman Brothers occurred a year ago. On Monday 15 September 2008, I started a report with the sentence: “The financial landscape has changed over a tumultuous weekend.” On reflection, that sentence was both an understatement and incomplete.

It was an understatement as it failed to capture the effects of the then-incipient panic rippling through financial markets and into the real economy. The consequences for jobs and growth were much worse that almost anyone anticipated.

But, although the financial landscape was quickly reshaped by the events of a year ago, the long-term changes have still to be worked out.

Many of those long-term changes will come in the form of new rules for financial institutions. On Monday, President Barack Obama spoke in New York of the need to establish the “ground rules and level playing field that helps to make those markets more vibrant.”
 
Work is moving ahead on establishing those rules. As important contributions to the debate, I’d highlight the work of the Group of 30, the De Larosière report (pdf) and the Turner Review. And now organisations like the Financial Stability Board and governments in the UK and US are now publishing specific proposals.
 
The work on reforming financial regulation is, by its nature, technical. Few get excited over the rules for tier 1 capital or the details of the resolution regime for systemically important institutions. But the rules are important – and we have seen over the last year the disaster than can ensue when they do not work.  As President Obama said on Monday:
 
"One year ago, we saw in stark relief how markets can err; how a lack of common-sense rules can lead to excess and abuse; how close we can come to the brink. One year later, it is incumbent on us to put in place those reforms that will prevent this kind of crisis from ever happening again; that reflect the painful but important lessons we've learned; and that will help us move from a period of recklessness and crisis to one of responsibility and prosperity. That is what we must do. And I'm confident that is what we will do."

Posted at 17:36 16 September 2009 by Tom Barry  |  Comments[0]

The fiscal challenge

Posted at 03:00 11 September 2009 by Tom Barry  |  Comments[0]

92 Actions

Posted at 14:02 09 September 2009 by Tom Barry  |  Comments[0]

G20 finance ministers

Posted at 12:31 27 August 2009 by Tom Barry  |  Comments[0]

Looking back at London

When world leaders gathered in April at the G20 Summit in London they delivered a lot. The BBC's headline ran "G20 leaders seal $1tn global deal". But a lot of what was agreed had to be put into action. With the follow-up Pittsburgh Summit looming in my calendar for the end of September, I've dug out the Leaders' Communiqué to check how the commitments they made are shaping up.

It looks pretty good.

First, the Financial Stability Board - an expanded version of the Financial Stability Forum - has been set up and held its first meeting on 26-27 June in Basel, Switzerland (pdf). That Board, plus action at the national level, is helping to reform financial regulation.

There has been more than $250bn in new bilateral funding for the IMF, and a $250bn allocation of Special Drawing Rights has been agreed in principle. And there is increased assistance for low income countries via the IMF and the multilateral development banks. Work is going ahead on establishing $500bn in New Arrangements to Borrow from the IMF. With the Administration's strong support, Congress recently approved the US's contribution.

In addition there has been $250bn in trade finance from the World Bank and Export Credit Agencies, including the establishment of a new Global Trade Liquidity Pool to help developing and emerging markets.

The challenge for Pittsburgh will be to maintain the momentum. With the global economy now apparently emerging from the worst of the financial crisis, there is a risk that we forget about the need to learn the necessary lessons. And even if the recession is ending, sustained recovery is still not assured. The UK will be looking to talk to our international partners at Pittsburgh about the actions still required to support balanced global economic growth for the future.

Posted at 14:02 13 August 2009 by Tom Barry  |  Comments[0]

Leading by example

Foreign policy and economics are linked. The biggest countries have more resources to pursue their foreign policy goals. In the past foreign acquisitions or colonisation were seen as a way to achieve economic dominance. But the two are often treated separately.

The recent financial crisis and subsequent global economic recession has shown that they cannot be. The Council on Foreign Relations recently put together a multimedia show that explores what they call "geoeconomics" - defined as anything that touches on both the economy and geopolitics. It's well worth watching in full.

As the CFR notes, one of the possible casualties of the crisis is the dominance of the open market model exemplified by the UK and the US. The risk is that countries around the world see the crisis as a signal that this economic model is not going to deliver for their citizens and they retreat from some of the reforms that have been so successful in driving global development.

Clearly, there are many lessons to be learned from the crisis - from financial regulation to the renewed use of fiscal policy. But it would be dangerous if they included wholesale retreat from global economic openness as well.

Posted at 16:44 11 August 2009 by Tom Barry  |  Comments[3]

London Summit

After Edmund Hillary and Tenzing Norgay had stood on the top of Everest for a few minutes, I wonder if their joy at their achievement was tempered by the need to get back to base camp in one piece.

The London Summit has finished, but although Summits are the highest point, the treks between them are just as arduous. The few months between the Washington Summit and London have seen seemingly endless preparations for the meeting by my colleagues in the British and American governments - and by governments around the world. Congratulations to them all for pulling it off.

But, having reached the Summit, the journey is far from over. The communiqué over which so much effort has been spent is only useful if we can translate its aspirations into action.

So, for today, let's celebrate the achievement of the Summit. Tomorrow the hard work starts again.

Posted at 12:35 02 April 2009 by Tom Barry  |  Comments[0]

Better government

One of the more interesting parts of my job is the opportunity to help British and American policy makers work with each other. This is not just about co-operation with the US Federal Administration. The US system has been described as a vast natural experiment in government. With fifty state governments (plus DC and six territories), hundreds of cities (often headed by powerful mayors), and 3,077 counties, there are countless opportunities for innovative forms of government and public services.

Our network of posts around the US regularly hosts visits from British ministers and officials who want to study the best the US can offer. For example, in Washington, the District government faces a number of difficult urban problems - such as violent crime and a failing education system. But the young mayor, Adrian Fenty, has made significant progress in starting to fix some of these issues through new policies and ways of governing. We can and should and have tried to learn from what he's doing.

To take a different recent example, some of my colleagues (not me) last week organised a visit by British education minister Ed Balls. He looked at some of the innovative steps taken in New York City to improve school standards. As reported in the UK's Daily Telegraph, he is now thinking about how to apply some of those lessons in the UK. Obviously, the US experience is different from that in the UK. Many of the policies will apply only when changed for a British context. But by working with the best and the brightest US policy makers and thinkers, we can help the British government improve its public services - and at the same time strengthen and broaden our relationship with the United States in all its variety.

Posted at 11:21 31 March 2009 by Tom Barry  |  Comments[0]

Fixing Financial Regulation

One of the few things that almost everyone agrees about at the moment is that financial regulation needs to be overhauled. Important products have gone unregulated, and risks unmonitored. Filling in those gaps is crucial to preventing a future crisis and restoring confidence in the system. As the Chair of the House Financial Services Committee Barney Frank said recently, people are "not going to go back into the water until we tell them we've killed most of the sharks."

Of course, agreeing that something must be done is not the same as agreeing on what must be done. There are bound to be differences of opinion about the right policy detail - both inside countries and between them. But I feel that we're all now pointing in more or less the same direction. You can see that in the G20 Finance Ministers' Communiqué following their recent meeting in the UK (paragraphs 6-7 if you want the detail).

Treasury Secretary Geithner was on the Hill today, launching the Administration's plans for overhauling the American system of financial regulation. The proposals are pretty similar to those outlined in Financial Services Authority Chairman Adair Turner's Review for the British government. And that review was close to the Group of Thirty Report published in January.

The next step for the UK is a White Paper on financial regulation - to be published around the time of the next Budget at the end of April. That paper will build on the outcome of the Summit being held in London next week as well as the Turner Review. Financial regulation is a technical field - so this is not something that will be solved tomorrow. So while the sharks in the financial water are not yet dead, hunting season is officially open.

Posted at 10:03 27 March 2009 by Tom Barry  |  Comments[0]

Free education

I wanted to bring to your attention a rather great new site called Academic Earth. It aggregates lectures from various universities (Harvard, Berkeley, Princeton, Stanford, MIT, Yale - you may have heard of them).

They're pretty good quality (I mean the production values are pretty good; the academic quality is excellent) and you can watch them online or download them for your iPod.

I recommend starting with these lectures on the financial crisis.

Posted at 08:53 24 February 2009 by Tom Barry  |  Comments[2]

A global grand bargain?

Today, we published a report called the Road to the London Summit - The plan for recovery.

It's worth reading for a few reasons. First, it lays out what I'd call the UK government's narrative of what happened and why - what the triggers were and how a financial crisis was transmitted into the real economy. Second, it explains what the UK government has done in response to the financial crisis and economic downturn. And finally, it talks about what the UK wants to achieve with out partners at the London Summit on 2 April.

The very final page is called "The Global Deal". This is a single cut- out-and-keep outline of the shape of a possible grand bargain - action to stimulate global demand, renounce protectionism, reform financial regulation, reform the IMF and give it more resources, support lending, create an international early warning system, and honour development aid commitments.

What do you think? Is this achievable? Too much? Too little? You can join the debate here.

Posted at 14:37 19 February 2009 by Tom Barry  |  Comments[2]

Speedy policy

Lord Mandelson's been in New York, talking at the Council on Foreign Relations about handling the crisis. For some reason, his full remarks aren't on up on the web yet, but the highlights are here. He makes an interesting point about handling crises:  

The political dilemma for us is that we need high level meetings and action, which generate big expectations which, in turn, trigger disappointment and market reaction when immediate results are not produced.

I was chatting with a friend about this dilemma the other day. On the one hand, we want to deliver concrete results - the need is too urgent. But on the other, we have to recognise that it's only going to be the start of a lengthy process of recovery. Politics and the news move very fast. But the economy is slower to react. President Obama recognises this too: 

I also think that the American people understand we won't get everything done overnight. The US government and the US. economy are enormous ocean liners, they're not speedboats.

We just have to hope that, by leaning on the tiller hard, the turn will come sooner.

Posted at 09:53 18 February 2009 by Tom Barry  |  Comments[0]