Written by Henry Rex, CSaP Policy and Communications Officer.
Last week the Centre for Science and Policy held its fourth annual conference at Murray Edwards College in Cambridge. This year our conference explored opportunities for improving the way government accesses, assesses and makes use of expertise from the humanities, and offered examples of the significant contribution these disciplines have made to public policy.
CSaP’s Founding Director David Cleevely chaired a session on how understanding financial history can help inform future policy making. David was joined on this panel by Dr William Janeway (Warburg Pincus), Professor Barry Eichengreen (University of California, Berkeley) and Dr Rachel King (HM Treasury).
You can listen to a recording of the session here. //sms.cam.ac.uk/media/1957937/embed
“Any tradable asset can be the focus of a bubble”
Dr Janeway gave a talk on “Bubbles: The Good, the Bad and the Ugly”. He explained the difference between ‘good’, productive bubbles in asset prices, and ‘ugly’, damaging ones. In good bubbles the object of speculation is productive (e.g. technology) and the locus of speculation is in fairly liquid, unleveraged capital markets; whereas in ugly bubbles the object is unproductive and the locus is in the core banking system, so that when it bursts the whole economy freezes. As examples he contrasted the ‘ugly’ crash of 2008 with the ‘good’ crash of the dotcom bubble, which caused investment in network infrastructure from which global economies subsequently benefitted enormously. He ended by warning ‘be careful what you repress’. ‘Ugly’ bubbles should be repressed, but ‘good’ bubbles should be allowed to run. They might come to nothing, but they will do very little damage, and could be beneficial in the long-run.
“History is the lens through which we view current problems”
Professor Eichengreen addressed the use of history in policy making with regards to financial crises. “History is never more powerful than during crises” when there is no time for careful analytical reasoning or data gathering. The “lessons” of the Great Depression powerfully shaped the response to the 2008 crisis. Policy makers were greatly influenced by received wisdom about the mistakes from the Depression. The failure to stabilise the money supply and provide emergency liquidity in the 1930s shaped the policy response in 2008 (e.g. cutting interest rates and quantitative easing). “That is the narrative of sage policy informed by history… that narrative is too easy.” History can act as blinkers: believing the problems of the Depression to be solved led to missing the warning signs of this crash. So it is vital that we integrate a deep understanding of history into policy making. Crucially, historians must be integrated into current work, rather than focusing solely on the past.
“There are all sorts of ways in which the Treasury is increasingly more open to the contribution that history can make”
Dr King opened by talking about the short-term nature of political horizons, the high turnover of staff in government departments and the resultant short institutional memory. This is why its important for the Treasury to work with historians. She addressed a number of issues where the Treasury is currently working with academics (e.g. different forms of government; the budgetary cycle), and highlighted some of the steps that the Treasury is taking to engage more effectively with historians: the Permanent Secretary is a Visiting Professor of Economic History at KCL; they are building strong relationships with intermediary organisations; and they are running seminar series and secondments. She ended by challenging the audience to discuss what training is appropriate and useful for civil servants in accessing and understanding historical evidence.