Media Spotlight: The Trouble with Markets By Roger Bootle

23 November 2009 | By Natalie Thomas

Renowned economist Roger Bootle offers us his theories on what went wrong with the world economy in his book The Trouble With Markets.

This is not Bootle’s first foray into the world of publishing. He has put the economic world to rights in two previous books, The Death Of Inflation and Money For Nothing.

Bootle’s latest effort centres on his theory that the financial markets underwent an implosion and he blames several sectors of society for failings that brought this about.

He also gravitates towards the idea that markets are not invincible and society should not think of them in that way.

And Bootle is well qualified to pontificate about the downfall of the markets. As well as being founder and managing director of Capital Economics he is also a special adviser to the House of Commons Treasury Committee.

He was also formerly group economist at HSBC and under the previous Conservative government was appointed to the chancellor’s panel of economic forecasters which became known as the Wise Men.

Bootle adopts the role of a philosopher in parts of this book and questions why the UK relied so much on the financial sector in recent times, and why we thought of it as indestructible.

He attributes the recent crisis to several weaknesses in the financial structure, looking primarily at the fragility of markets, the excessive risk-taking of banks and problems with remuneration models.

Bootle clearly believes the 1980s and 1990s unleashed serious problems on society including rampant self-interest and the philosophy that greed is good. These factors, along with a lack of effective regulation, led to markets being given a free rein and large institutional shareholders becoming overly dominant.

He also paints a negative picture of the future, with predictions of slow economic growth accompanied by low inflation or even deflation. This will be coupled with a long period of what he calls ‘nero-zero’ interest rates for up to five years.

While Bootle writes in a witty tone and never overcomplicates topics, in some sections the book is heavy going. But although he points out that he predicted the downfall in the markets long before anybody else he tries to avoid sounding arrogant or focussing too much on himself.
And he also offers some compelling food for thought on the subject of what we can do to ensure we avoid many of the mistakes of the past while acknowledging that history is almost certain to repeat itself.

His thoughts on China mirror those of other commentators in that he believes the UK will only recover if China leads the super-saving countries by changing course and adopting a policy of increasing domestic demand.

He also thinks the dominance of the US dollar has been a problem for the world’s financial system.

“The excesses of cowboy capitalism could lead to the evolution of a global money and to the beginning of a global governance,” he says.

Bootle is speaking from experience and it shows. While other commentators argue about what can be done to prevent another financial crisis he seems to accept that the way markets are built means another dose of chaos is all but inevitable, but believes we can at least learn a few lessons before then.

 

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