The Values of Money: No Long View
by The Revd Andrew Studdert-Kennedy
Posted: 22 Jul 2011
Almost everyone I have spoken to during my sabbatical studies of Banking and Finance agrees that one of the major weaknesses of the current system is its emphasis on the short-term. There is an impatience within our lives, not just their economic aspects, that makes waiting for things a frustration and affront.
Recognising the problem does not however lead to a remedy. Like St. Paul's wish to do good rather than evil, the financial system's need to accommodate the long term rather than the short seems destined for failure.
So many factors seem to combine to make this so, and we can probably think for ourselves what they might be.
One contributory factor which had never occurred to me was the changing way funds are invested. Instead of the traditional or classic sense of investing funds to increase productive capacity, savings are now 'placed' on financial markets simply in order to make a return. Ironically, chief amongst such placed savings are pension funds where a high level of liquidity is required if payments are to be honoured. Managers of these funds seek to find returns from within the financial markets themselves and rely on investments which offer easy entry and exit. Efficient markets depend upon speedy and numerous transactions and the way such funds are now managed is part of a trend away from relationships towards transactions - away, that is, from the long to the short term.
There are of course well known political factors that encourage a short term approach to the economy, but we should also remember that there are economic ones, too. Those who believe that consumption is the key stimulus to economic growth will advocate a policy of public spending and low interest rates on the basis that stimulating consumption will in turn stimulate the rest of the economy.
One of the merits of stimulating consumption is that it is quicker than the alternative model whereby saving and investment are the important ingredients of long term, productive, economic growth. Here, then, is another factor encouraging the short term.
In contrast to this short-term (Keynesian) approach, other economists argue that increased consumption is the effect and not the cause of economic growth and that for growth to be sustainable a longer term and more patient approach is required.
At present, however, the longer term view seems to be
squeezed out and the emphasis on short term transactions is considered by some
to be having a damaging effect on the trust and transparency upon which markets
depend. Part of my reading has been Paul Dembinski's excellent book Finance:
Servant or Deceiver? Financialization at the Crossroads
(Palgrave Macmillan 2009) which explores this issue as well as looking at the
way finance has increased its share of economic activity and infiltrated our
own worldview and aspirations.
Next I want to learn more about economic growth and how it might be sustainable.This piece is part of a series by Revd Andrew Studdert-Kennedy exploring the role of the financial sector and how we might come to understand it better.
Rose - Posted: 8 Nov 2011
The opinions expressed in this article are those of the author, and do not necessarily represent the views of St Paul's Institute or St Paul's Cathedral.