St Paul's Institute

Rating the Real Economy

by The Rt Revd Dr Peter Selby

Posted: 26 Feb 2013

So it has happened. We are not AAA anymore. And now that we are not AAA we learn, not surprisingly, that being AAA was not the really important thing anyway. And if we have not held on to our AAA rating through the strategies designed to ensure that we did, that just shows that our commitment to those strategies must be continued with redoubled energy.

Why was it important? Because it reflected the markets' confidence in our economy and therefore the interest rates that would have to be paid on the UK's sovereign debt. The lower the rating, the higher the cost of borrowing would be.

But now that we've failed in the aim of keeping the top rating we are told to accept the fact that the rating is not as important as all that after all. We learn, from the Business Secretary no less, that ratings agencies are basically tipsters, and tipsters as punters well know sometimes get things right and sometimes get them wrong. What counts, he tells us, is the 'real economy', the place where people earn an income or go bankrupt, get or lose jobs, and make things people want to buy or give people services they want and are able to pay for.

So the truth is out. We've been at the races placing bets. When we wanted to know if this or that economic policy was right we asked the tipsters. That didn't mean our bets would always come successful, but it would give us the best chance. Somebody has no doubt researched the result of placing bets on horse races in line with the Radio 4 tips that are broadcast every day; but it is certain that if everyone bets right nobody will win - except that the bookies will make sure they profit.

But there's a rather important distinction between the racing tipster and the ratings agency: racing tipsters may influence bookies' odds, but they can't - or at least not legally - influence the outcome of the race. A horse won't run faster because it says on the Today programme that it's the best horse in the race. But the ratings agencies actually affect the economic outcome. They don't just say what the level of confidence is: they change the level of confidence by means of the ratings they hand out. They don't just predict form; they change it. And in the case of the UK economy they seem to have had the effect of pressing the Chancellor to steel himself to apply the remedies and the strategies he's been using with even greater energy and commitment.

This suggests that we have wandered into a casino unawares, and now have no choice but to put up our camp bed and live there. The tipsters and the people on whose confidence they are advising us to place our bets are in league - not in some crooked way (there may be some of that, but that is not the point I'm making) - but because the system in which they operate requires them to be. I advise you what the level of confidence is going to be; you place your confidence in my advice and accordingly alter the level of confidence you place on a particular country's economy. And the system depends, like horse-race betting, on there being winners and losers.

I'm quite aware of all the arguments in favour of this economic system in which we bet on each other's confidence, such as that there is no alternative other than command economies which, experience has taught us, at best don't work and at worst create excuses for dictatorial behaviour of the kind we saw in the last century. But I retain a religious discomfort about life in this casino that transcends my awareness that there seems no alternative place to live. The discomfort is that the main issue our Hebrew ancestors stood firm on in relation to surrounding cultures was a conviction that life was not, after all, a gamble. The world, they believed, is not random, nor the plaything of supernatural deities beyond human power to influence.

On the contrary: the world is the creation of a God - the only one there is - who values love and justice above all else. Those other deities are actually an excuse for allowing the powerful - the croupiers and managers of the casino they declare this world to be - to retain their power and exercise it in their own interest.

And this God who values justice and love, and seeks to save the world from randomness and chaos, invites the human creatures with which the planet is populated to have the same values and live by the same hope: that by the exercise of the will, intelligence and creativity with which humankind is endowed there is the possibility of joining in the creation of a world that is just and sustainable.

I therefore listen to what the tipsters tell me with more than an ounce of suspicion. I have the sense that their 'objective' evaluation of the markets is actually highly self-interested, and has the more or less open purpose of ensuring that we do not take the steps we need to take to produce a world that is just and peaceable. So I prefer the prophets' advice to the tipsters because even if it is only in the long run I think they see more clearly what needs to be done and the aim we need to have.

About this author

The Rt Revd Dr Peter Selby is the former Bishop of Worcester. Following his role as part of the Interim Directing Team from 2012-2014, he continues as an adviser to St Paul's Institute.

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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.