Tuesday, 17 March 2009

Thought for the day

There’s an old adage that if you have a hammer, every problem looks like a nail. One of the problems I have with a lot of the attempts at reform in the little bit of the world that I inhabit is the recurring demand for more, or better, disclosure (usually by companies). This seems to rest on the assumption that better informed economic agents would make better decisions, and therefore lead to better aggregate outcomes. It's a very market-focused mindset.

However, despite having called for better disclosure plenty of times myself, I’m much less confident these days of its ability to bring about change. Surely in the current crisis there was plenty of information flying about, but lots of people chose to do things like ignoring information that told them things they didn’t want to hear, and piling into things without properly seeking to understand the information available. So provision of information alone can often be a weak policy tool, as recognised by this report. Yet the demand for disclosure continues to pop up as a reform demand.

So perhaps a (rather laboured) version of the line above should be: ‘If you work with a ‘market’ mindset, every problem looks like a lack of information.’

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