Policy Insanity

by George Hatjoullis

It was Einstein that reputedly said to keep doing the same thing yet expect different results is a sign of insanity. It is thus both disturbing and exasperating to see policy makers keep banging out the same nonsense and declaring confidently that all is well and will be well.

Japan has a deflation problem that is rooted in the banking crisis that I became aware of in 1990. I was a fixed income strategist with Morgan Stanley International at the time. I did not expect the problem to still be with us in 2017. At the time the US was experiencing a Savings and Loan crisis. This was tidied up in a few years. The legacy of the Japan banking crisis remains. On March 27, 2013 I published a blog explaining why I thought only debt monetization would break the Japan deflation mentality. I have since written many blogs reinforcing this view and explaining how. The idea has received support from some prominent economists. Still Japan continues with conventional policy and expects different results. Madness.

In 2010 I joined SocGen in a poorly defined advisory role. The first order of business was the Greek debt crisis and the resultant euro zone crisis. It was obvious at the start that Greece could not exit the crisis without debt relief and that the problem of contagion posed an existential risk to the eurozone. Nevertheless, the German lobby insisted on Greece paying back its official debt and undergoing a dramatic and painful reform programme. The rest is history and the eurozone survived largely because of the creative response of the ECB, typically against German opposition. The German position has been explained in many ways but my direct experience can confirm that sheer vindictiveness was not uninvolved. The Greek ‘can’ has been kicked down the road repeatedly. We are at the fourth programme. The Greek economy has been crushed and many reforms put into place. Still there is no end to the crisis and no debt relief. Madness.

There is a popular antipathy towards ‘red tape’. It has contributed to anti EU sentiment which has been widely presented as a source of stifling red tape. The reality is that red tape is there to protect the public. In the property sector, health and safety red tape has been steadily eroded. The fact that so many Tory MPs are commercially connected to this sector is purely coincidental. The catastrophe at Grenfell Towers will be subject to a public inquiry and is already subject to a criminal investigation. The fire started because a fridge exploded. Fridges are not supposed to explode. The fire spread rapidly up the outside of the building. The cladding is implicated. Cladding related fires appear quite common. Do you want more or less red tape?

Policy makers are often individually intelligent people. The collective stupidity and insanity we consistently observe thus remains a mystery. I can confirm that Social Psychology does not offer clear and unambiguous guidance. The best explanation available is that institutions absorb individuals as components of a larger organic entity, much like humans are made up of bacteria, amongst other things, and these institutional entities pursues their own interests and not those of the wider society. Whatever the truth, collective insanity seems a human social condition.