Posts Tagged ‘John Kay’

FT columnist John Kay defends liberal education

Wednesday, August 26th, 2015

It is a mistake to focus basic education on job-specific skills that a changing world will render redundant in a few years. The objective should be to equip students to enjoy rewarding employment and fulfilling lives in a future environment whose demands we can neither anticipate nor predict. ….

Fareed Zakaria’s book this year defending liberal education — a tradition that introduces undergraduates to a wide range of subjects and approaches to knowledge — is very much to the point. And so is his refutation of philistine Republican governors (just Google Rick Scott, Rick Perry, or Patrick McCrory), who draw cheap laughs at the expense of philosophy and anthropology. A little capacity for reflection might reveal that morality is not simply a matter of common sense or reading a sacred text, and that an understanding of other cultures — or simply an acknowledgment that there are other cultures — might have led to better outcomes in, for example, Iraq.

John Kay, “A liberal education is now more useful than job-specific skills“, Financial Times, 26 August 2015 (ungated link).

Best-selling author Fareed Zakaria’s latest book is In Defense of a Liberal Education (Norton, 2015).

women in the world of finance

Wednesday, March 18th, 2015

British economist John Kay thinks that banks would improve if more women were in charge.

The most powerful posts in the financial world are held by women. Janet Yellen chairs the US Federal Reserve, and Christine Lagarde is managing director of the International Monetary Fund. Mary Jo White heads the US Securities and Exchange Commission, and was preceded in that job by Elisse Walter and Mary Schapiro. America’s new Consumer Financial Protection Bureau is directed by a man — but the reason is that the industry feared Senator Elizabeth Warren would fill the role too effectively.

All of these posts are public appointments. …. Senior jobs in private-sector finance are taken almost exclusively by men. ….

Simple justice, and the folly of excluding any qualified person, argues against discrimination on grounds of gender (or anything else). But perhaps men and women bring rather different qualities to finance. Cambridge neuroscientist John Coates (himself a former Wall Street trader) emphasises the link between testosterone and risk taking. The surges of testosterone and cortisol he observes as traders are gripped by excitement and depressed by loss are not observed in the same way in women.

This is perhaps a hormonal explanation of why men are drawn to the risk-taking functions in finance while women are engaged in regulating and organising. We might have better banks if there was rather less male risk taking and more female regulating and organising. Time, perhaps, for more women to be employed in executive roles in financial institutions.

John Kay, “Banks might improve with more women in charge”, Financial Times, 18 March 2015 (ungated link).

Published by FT with a different title.

lobbyists and sex workers

Saturday, February 28th, 2015

This post is not about lobbyists’ payment to sex workers for services rendered (nor vice versa). Rather, it is about difficulties both groups face in legal collection of fees for services rendered.

Economist John Kay explains that only five years ago did the US Supreme Court begin to classify lobbying as a remunerative activity worthy of judicial protection. Previously, the court ruled that an agreement to lobby for pay, like an agreement to provide sex for pay, is “pernicious in its character”, so unenforceable. Sex workers, presumably, are still unable to appeal to courts for collection of unpaid bills.

[In 1874] the [US] Supreme Court … [ruled that a] contract to lobby government … was contrary to public policy and hence, like an agreement to sell sex, unenforceable in the courts. Paid lobbying, said Mr Justice Swayne, was “pernicious in its character”. But this was only the beginning of his denunciation. “If any of the great corporations of the country were to hire adventurers to procure the passage of a general law with a view to the promotion of their private interests,” he thundered, right-minded men “would instinctively denounce the employer and employed as steeped in corruption and the employment as infamous”. ….

But in Citizens United in 2010, the same court held that the expression of views you were paid to hold was no longer “an infamous employment, steeped in corruption”, but an activity deserving of the protection awarded to free speech under the First Amendment. That contentious decision probably did not, in the end, seal the outcome of the 2012 election — though the tide of political donations that it unleashed will surely decide a presidential contest before long. Americans may look back on Justice Swayne as the wiser judge. “If the instances (of paid lobbying) were numerous, open, and tolerated,” he predicted, “they would be regarded as measuring the decay of the public morals and the degeneracy of the times.”

John Kay, “What did the US Supreme Court have to say about Sir Malcolm Rifkind in 1874?“, Financial Times, 25 February 2015 (ungated link). Published earlier in the FT with the title “Good lobbyists augment legislators’ work”.

Noah Haynes Swayne (1804-1884) was a Republican politician, the first Republican to be appointed as a justice to the US Supreme Court. He was in office from 1862 to 1881.

In response to Mr Kay, the Deputy Chief Executive of the Chartered Institute of Public Relations (London, UK) describes lobbyists’ service to clients as legitimate, positive and useful.

John Kay … draws on another age to summarise the problems of the present and denigrates the modern lobbying industry, which is a legitimate business service and a positive and useful part of our democracy.

Modern lobbyists service their clients and employers by helping them understand legislative and political processes and to create ethical and achievable objectives within them. They are highly skilled at introducing information into political dialogue in the most effective way to assist in the achievement of these objectives. Good lobbyists know their interests are best served by enabling legislators to exercise their critical judgment based on a range of relevant, balanced information.

Phil Morgan, “Good lobbyists augment legislators’ work“, letter to the editor, Financial Times, 27 February 2015 (metered paywall).

the simple economics of increased longevity

Wednesday, October 15th, 2014

Thanks to technological change, life expectancies everywhere are rising. John Kay this that this is wonderful -a demographic change to be welcomed rather than feared.

Achieving these extended lifespans costs money. Not necessarily much, because healthy lifestyle is a more important contributor to longevity than medical treatment. But we all die, either from the remaining diseases we have not yet learnt to cure, or the accumulated effects of old age itself. So medical and care costs will inevitably be an increasing fraction of national income. But this is money the public really wants to spend. It resists attempts to control the grotesque costs of private US healthcare. “More for the National Health Service” is always the British electorate’s top spending priority. ….

Gloomy prognostications, sometimes of population explosion, then of secular stagnation, have repeatedly been falsified. But one certainty is that all the issues of concern result from developments that give us more choices – the choice between higher material living standard and more leisure, the indulgence of spending more looking after ourselves, and the opportunity for women to have careers as well as, or along with, family lives.

What is not to like about these developments? Why should we care about lower gross domestic product per capita, or higher public spending as a share of national income if it is the consequence of things that make us better off?

John Kay, “Economic growth allows us to choose longer lives – surely that’s a good thing?”, Financial Times, 15 October 2014 (ungated link).

banking in crisis-prone USA and dull Canada

Thursday, June 5th, 2014

Mark Carney, governor of the Bank of England, is rightly admired for his handling of the global financial crisis. But perhaps the key fact is not that he is Mr Carney, but that he is Canadian, and the bank of which he was previously governor was the Bank of Canada. ….

The US had a uniquely fragmented and fragile retail banking structure, the product of a long-term alliance between community bankers and agrarian populists, made possible by a system jealous of states’ rights. This was replaced towards the end of the 20th century by a network of financial conglomerates controlled by deal makers and traders, who had a decisive hand in stimulating the subprime mortgage boom; a new, bizarre and disastrous play in the game of bank bargains.

Profs [Charles] Calomiris and [Stephen] Haber describe Canada’s mortgage market as displaying “enviable dullness”: but they might have applied the phrase to Canada’s financial system and some might extend it to the country itself.

Capital markets, regulatory institutions and the behaviour of people employed in the financial sector are neither predetermined nor universal, but rather the product of culture, history and the political system. That is a perspective developed effectively by Profs Calomiris and Haber.

John Kay, “Why banking crises happen in America but not in Canada“, Financial Times, 4 June 2014 (ungated link).

Mr Kay is reviewing Fragile by Design: The Political Origins of Banking Crises and Scarce Credit, by Charles W. Calomiris and Stephen H. Haber (Princeton University Press, 2014).

reforming the economics curriculum

Wednesday, May 21st, 2014

Students of economics are in revolt – again. A few years ago, even before the crisis, they established an “autistic economics” network. After the crisis, in 2011, a Harvard class staged a walkout from Gregory Mankiw’s introductory course. That course forms the basis of textbooks prescribed in universities around the world. This year, 65 groups of students from 30 countries established an International Student Initiative for Pluralism in Economics. In no other subject do students express such organised dissatisfaction with their teaching. ….

Their demand for more pluralism in the economics curriculum is well made. Yet much of the “heterodox economics” the …  students suggest including is flaky, the creation of people with their own political agenda, whether Marxist or neoliberal; or of those who cannot do the mathematics the dominant rational choice paradigm requires. Their professors reject the introduction of these alternative schemes for the same good reasons their science colleagues would reject phlogiston theory or creationism.

Yet teachers are mistaken in their conformity to a single methodological approach – encapsulated in the claim that has taken hold in the past four decades that approaches not based on rational choice foundations are unscientific or “not economics”. The need is not so much to teach alternative paradigms of economics as to teach that pragmatism, not paradigm, is the key to economic understanding.

John Kay, “Angry economics students are naive – and mostly right“, Financial Times, 21 May 2014.

Ungated access here.

GDP is a flawed measure of output

Wednesday, April 16th, 2014

Gross Domestic Product (GDP) has many flaws, some of which are well-known. It ignores unpaid work, for instance, including work done, mainly by women, caring for young children, the elderly, the infirm – even a spouse and adult children. The famous example from first-year economics is that GDP would go up if everyone took in their neighbour’s wash, charging each other for laundry services. With few exceptions (imputed rent for owner-occupied housing is an important one), GDP is a measure of market transactions.

FT columnist John Kay thinks that the problem is more serious than many realize. GDP, he explains, measures poorly even what it is supposed to measure.

At Oxford university, many students regard attendance at lectures as optional. So teachers who fail to enlighten or entertain end up talking to empty rooms. A malicious fellow student measured lecturing performance by computing the ratio of attendance at the start of a course to attendance at the end. The highest score was earned by the hapless teacher of a first-year course on national income accounting.

Few universities now offer such a course. They have responded, or pandered, to student preferences, and the economics curriculum has moved on. Not necessarily in a good way; national income accounting … is no longer well understood. ….

And national income accounting cannot handle the financial services sector. Reported output of financial services rose dramatically during the 2008 financial crisis. This nonsensical result arises because the measurement of financial services output is strongly influenced by the margin between average bank lending and borrowing rates, which increased sharply. When someone confidently quotes the contribution of financial services to national income, you can be sure they have no understanding of the esoteric concept of “financial services indirectly measured” (don’t ask). Only a few people in the depths of national statistics offices do. This problem casts doubt on the validity of reported growth rates both before and after the crisis.

It once puzzled me that many economists in the financial sector forecast and discussed GDP without knowing what it was. I have since realised the job of market pundits is not to forecast GDP but to forecast what the statistics office will announce is GDP, and that is not at all the same.

John Kay, “GDP is flawed – just not the way most people think“, Financial Times, 16 April 2014.

There is much more in the full column, which can be downloaded at the link or, in a few days, at

supporting scientific research

Saturday, February 22nd, 2014

It is sad that Senator Tom Coburn is stepping down from the Senate because of ill health, but less sad that he is stepping down. The blend the Tea Party brew is rather weak for Mr Coburn, who believes research should be useful and has firm views of what is useful. ….

Mr Coburn’s greatest ire was reserved for the funding of political science. He believes that people who want to understand politics can watch Fox News – though he conceded that some might prefer to pay attention to CNN and MSNBC. Last year he tagged an amendment to an omnibus bill that blocked grant funding to academic research in this field. ….

Politicians can always win cheap laughs by reading out the titles of research projects they do not understand. In the early years of Margaret Thatcher’s premiership, her minister Sir Keith Joseph tried to abolish the then Social Science Research Council but a report commissioned from Victor Rothschild failed to deliver the desired verdict.

Rothschild used the example of research on “kinship and sex roles in a Polish village”, a project description that had provoked much merriment in the UK public accounts committee. A respondent pointed out that the work showed how the inefficiency of fragmented land holdings increasingly tended by ageing women gave rise to economic cost and political tensions. We now know that such tensions grew in Poland in the following decade. And then the Berlin Wall came down. ….

Of course, there is a lot of bad and useless research. But … it is difficult to decide which research is useless or how research will influence our lives. The most immediate practical offshoot of particle physics research had nothing to do with particle physics at all: the worldwide web began as a means of enabling the scientists involved to keep in touch.

John Kay, “Philistines may carp but scientists should reach for the sky“, Financial Times, 19 February 2014. (ungated link)

Thomas Coburn (born 1948) is a Republican Senator from Oklahoma, medical doctor and Southern Baptist deacon. He is a social conservative who opposes gay rights and embryonic stem cell research, and supports term limits, gun rights and the death penalty.  Sir Keith Joseph (1918-1994), a Conservative politician, was influential in creating the political philosophy known as “Thatcherism”.

John Kay on inequality

Wednesday, December 4th, 2013

There is nothing new here, but I found the entire column interesting, perhaps because I agree with it.

Some inequality is inevitable, and there seem to be three principal factors that make it more tolerable.

Inequality is easier to accept if everyone is becoming better off. Recent dissatisfaction in Britain and the US is significantly attributable to the fact that while some have grown much richer, median incomes have not increased. The criticism that the rapid economic growth of China and India has been accompanied by rising inequality is mainly made from outside these countries.

Inequality is easier to accept if the beneficiaries have benefited people other than themselves. Bill Gates’s extraordinary wealth causes little resentment because he is associated with technological innovations that have transformed business and personal life. Financiers rarely attract similar approval because – sometimes rightly, sometimes wrongly – they are suspected of appropriating wealth created by others rather than engaging in genuine wealth creation.

And inequality is more tolerable if its beneficiaries behave well. Mr Gates has chosen to devote his Microsoft fortune and his time to philanthropy rather than fly in entertainers and exotic foods for lavish parties. Investor Warren Buffett lives in the Omaha bungalow he purchased 50 years ago.

John Kay, “London’s mayor is half right on envy, greed and inequality“, Financial Times, 4 December 2013.

This will soon be posted at, in the archive of John Kay’s past FT columns.

Ronald Coase, R.I.P.

Tuesday, September 3rd, 2013

British economist Ronald Coase, who had a great influence on my own understanding of economics, has died, at the age of 102.

Coase wrote and published little, but the quality of his writing was superb. In 1991, he won a Nobel memorial prize in economics for two articles: “The Nature of the Firm”, published in Economica in 1937, and “The Problem of Social Cost”, published in the Journal of Law and Economics in 1960. The first publication is the one that had such a profound effect on me even though (perhaps because) the article was regarded as an aberration by mathematical economists and econometricians, who ignored institutions as they modelled the firm as a production function. One of the reference books that I keep at my desk – next to Adam Smith’s Wealth of Nations – is The Nature of the Firm: Origins, Evolution, and Development, edited by Oliver E. Williamson and Sidney G. Winter (Oxford University Press, 1993).

FT columnist John Kay admires Coase as much as I do, and has written a warm obituary for tomorrow’s newspaper.

Ronald Harry Coase, the son of two Post Office workers who both left school at the age of 12, was born in the London suburb of Willesden in 1910. Condemned to wear leg irons as a boy, he won a late scholarship to Kilburn Grammar School and then went to the London School of Economics. There Arnold Plant, professor of commerce, introduced him to Adam Smith’s “invisible hand” and helped him win a travelling scholarship to the US to investigate the structure of American industry.

In classical economic theory, agents moved effortlessly towards equilibrium in a frictionless world. In reality, goods are bought and sold in marketplaces – sometimes literal, sometimes virtual – and economic life is dominated by corporations. Classical theories ignored or looked through these institutional arrangements. Economists saw only the investors, employees and customers who obtained, without cost or intermediation, the information they needed to do the business of the market economy.

John Kay, “Ronald Coase: Nobel Prize winner who explored why companies exist“, Financial Times, 4 September 2013.