Memories Are Made Of This

This is a brief post but on a big subject.  In the Vox site this week there is an article by Charles Goodhart (see Wikipedia) and Wolf Wagner.  Another Wikipedia entry is Goodhart’s Law which relates to the article.

Essentially, Goodhart and Wagner argue that one of the roots of the major money problems of recent years arise from a lack of diversity and variability in the banking world of today as opposed to the past.

The thesis is that we need to restore something of the past to remove many of the dangers now inherent in the system:

http://www.voxeu.org/index.php?q=node/7866

There is a grim irony in this in that Goodhart is a Professor Emeritus at LSE and currently the School is under the cosh again arising from matters to do with the Libyan connection.

This is all about oil.  Around eight years ago I was at a session in the board room of the then ING at which Goodhart discussed the history of the Gold Standard with an Economic History group.  He did not touch on his Bank of England work.

But afterwards I was lucky enough to have a chat with him.  What interested me was the lack of memory in The City about severe financial conditions of the past, notably the Secondary Banking crash of the early 1970’s.

It was around this time that I had come to the view that the “Goldilocks” economy could blow fuses in a big way and there was also a growing problem with pensions and future liabilities.

In wondering what could go wrong, I suggested that nobody seemed to be aware of what might happen if there was a sudden major increase in oil prices, which was a feature of the 1970’s crash. 

Goodhart agreed that it might all become very difficult and moreover given the lack of memory and the interconnectedness of the developing world financial system it was possible that few people would be able to cope with it.

I wonder what happened next?