Wednesday, January 17, 2018

The Rules Of The Game

Adair Turner

Were over-compensated and unaccountable bosses to blame for the Great Recession, or was lax regulation the culprit? Who should be held accountable when sovereign-debt crises erupt? Which reforms must be adopted to save capitalism – above all from its practitioners?

If there is one lesson to be learned (or re-learned) from the global economic crisis of 2008/2009, it is that bad rules produce bad outcomes. Indeed, at almost every turn in the financial meltdown, one found a tableau of perverse incentives: entrenched managers compensated for short-term gains rather than long-term performance; rampant moral hazard driving down lending standards; and investment banks paying ratings agencies to assess their securities.

Which institutions, and the incentives associated with them, improve or impede the performance of firms, sectors, and economies, and why can minor policy changes produce major, sometimes unintended, consequences?

These are the questions that preoccupy Adair Turner, founding Chairman of Britain's Financial Services Authority, a former Vice Chairman of Merrill Lynch Europe, and current Chairman of the Institute for New Economic Thinking. As Director General of the Confederation of British Industry,Turner focused on regulation in the real economy. As the author of the acclaimed books The Future of Finance and Economics after the Crisis, he has focused on how to improve financial regulation to boost growth and employment.

Every month, in The Rules of the Game, written exclusively for Project Syndicate, Adair Turner brings a global sensibility to analyzing the role of finance in economic development and takes readers into the high-stakes world of macroeconomic policy and regulatory strategy. It is in these trenches of capitalism that the Great Recession took shape, and in which measures to prevent its recurrence will succeed or fail.

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