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many current accounts, so as they had customers that wanted cash it made sense for them to do a deal with a bank that had more money sloshing about and vice versa. That’s always going to be true. Banks are always going to want to hedge exchange rate risks and so on and so forth. You can’t stop banks from doing deals with each other, that’s kind of fundamental. You just need a way to make the system safer.

Q: Were there any countries that acted responsibly in the build up to the financial crisis? A: Canada... and Mark Carney, who was in charge of the Canadian banking system at the time He has now taken up a role as a senior international regulator.

Q: How much control do politicians have over the economy? Can we blame them for this recession? A: Politicians have a massive amount of influence over the economy, but not always in the way they expect. Everything politicians do has unintended consequences. A classic example is the targets set for the National Health Service. A few years ago, the government decided that ambulance services would be set the target of reaching emergency victims within eight minutes of receiving the 999 call. Eventually it became clear that ambulance dispatchers were giving a low priority to people who’d been waiting more than 8 minutes: the target had been missed, so why bother? Economic policy- making is full of these unintended consequences, which is why politicians need to have more than good intentions – they need to constantly be monitoring and evaluating the effects of what they’ve done and to be willing to reverse decisions in a hurry.

Q: Let’s talk about the contentious issue of bankers’ bonuses. Are people justified in their outrage over this? Surely banks should be repaying their bailout billions to the taxpayer before offering their executives such colossal bonuses? Or are

we all being naive? A: It’s a hugely frustrating issue. To give you a sense of the complexity involved, remember that these guys were getting huge bonuses before the banks were nationalized, when their shareholders were private- sector investors who

presumably would rather have kept their money than hand it over to the bankers. One reason the pay was so high was because a skilled

investment banker or trader really can make a colossal amount of cash and so would expect to keep a chunk of what he makes. Another reason is that the bankers have much more information about what’s really going on. They can make poor deals look like good deals.

is a tax on oil companies: in the end it will be you and me who pay it. I think there’s room for more taxation of banks and a need for more well-directed foreign aid, which is what the RHT was originally supposed to be spent on. Unfortunately, I don’t see evidence that the RHT is the right way to achieve these goals. I suspect it will mostly be avoided and, to the extent it is not avoided, will be paid by bank customers. This will make transactions less frequent and thus more volatile. I could be wrong, but I have yet to be persuaded.

Q: In your latest book you talk about how success always starts with failure. Obviously there are compelling reasons

efficient, higher-quality competitors.


So for decades there’s been this infuriating problem that it’s impossible to tell whether they’ve earned the money or not – and impossible to say what would happen if we sacked them all and replaced them with civil servants on the national average wage. The fact that all the banks have been nationalized doesn’t really change the basic problem; it just makes it more political.

Q: Do you think that the proposed Robin Hood tax (a tax on banks rather than cuts to public services), which it’s claimed could raise £20 billion, is a good idea? A: Well, the RHT isn’t a tax on banks any more than fuel duty

why the government wouldn’t want to consider letting the banks collapse, but what if they had? Would this have been a good time to test out your theory? A: It would have been a terrible time. The point of Adapt is not that failure is always great, but that we need to figure out ways of making failures productive – that is, fail early, fail often, fail safely and learn from failures quickly. Wall Street and the City really were too big to fail. Hopefully the Vickers and Volcker reforms will make the banking system a little bit more like the rest of a capitalist economy, where we expect failing firms to be put out of business by more

Q: You have said that business leaders and politicians tend to fall foul of the ‘God Complex’, which you describe as ‘the absolute, overwhelming belief that you are infallible in your solution, however complicated the problem is’. You suggest that we should instead use problem-solving techniques such as randomized trials in public policy. Could you give me any examples of how this could work in practice? A: Actually, the Cabinet Office has just finished a pilot scheme testing out whether there’s a way to get doctors to pay their tax more promptly, and another pilot scheme aimed at collecting court fines without sending in the bailiffs. Both ideas were simply tested out with a randomized trial, where letters or text messages were sent out to some people and not to others. We learned a lot and it only took a few weeks. We could do that – over a longer term – with the way we teach literacy in schools or with prisoner rehabilitation. Anywhere where we have good ideas to make the world a better place, but no idea whether those ideas work. There are ethical issues here, just as with randomized trials in medicine, but doctors have thought a lot about transparency, ethics, and consent and I think we can learn a lot from the medical profession.

Q: Is our capitalist based democracy the ultimate pinnacle of human civilization, or do you think the future has something better in store for the human race? A: Well, I think the real advantage both of democracy and of capitalism is that they allow space for new ideas to be tried and to be rejected if they don’t work. One of the first points I make in Adapt is that prediction is very difficult, especially when it’s about the future

Tim Harford’s latest book, Adapt, is out now in paperback.


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