The time for radical thinking is here

Dealing with the national debt is an issue of fairness to future generations. It is a simple argument and one advanced this week by Deputy PM Nick Clegg and by the Chancellor among others. Of course it cuts both ways. This generation also has a responsibility to bequeath a functioning economy, with sufficient transport, educational, and economic infrastructure for our grandparents.

But how much responsibility do we have for future generations? How far into the future should that concern stretch? Did your great-great-grandparents really care about your welfare?

I pondered these arguments while at the Long Finance conference in the City this week. It is a spin-off from the Long Now movement in California, which has the totemic aim of building a clock that chimes every century. The real aim: to foster a sense of consciousness for the rights of future generations across centuries, and even millennia. 

This is evidently an issue of profound interest to economists and financiers. The financial crisis illustrated bankers and traders were incentivised and thus obsessed with time horizons of no longer than the next bonus round.

High frequency trading in the City and on Wall Street, suggests the natural unit of financial time consciousness is getting shorter, not longer, and is probably close to a nanosecond. Some hedge funds invest hugely in the physics of their telecommunications links to trading systems, so that they can make huge trading profits from giant bets against traders with marginally slower links.

When the Stern report into climate change concluded the economic case for dealing with global warming, the model only came to this conclusion by assuming an infinitely small discount rate.

In other words, yes we should take a hit to current living standards, but only if we value the welfare of our fellow citizens in 2050, as much as we value them today. Could we apply that to pensions policy? Do I get to retire at 50 too? What about university education – perhaps 40 and 50 somethings should pay a retrospective graduate charge to reflect their free education, if future teenagers have to.

Professor Avinash Persaud interpreted such arguments through the filter of reforming our banks, and made a devastating critique of the misguided Basel III capital reforms. Michael Mainelli urged participants to come up with their own version of an eternal store of value, a so-called ‘Eternal Coin’. Gold would be the obvious choice, as it has lasted millennia already (though Gordon Brown sold most of ours). Many suggested a coin that was related to a basket of commodities or land.

There was even a Canadian businessman suggesting a parallel unit of exchange run by an effective private central bank of the Fortune 500. It would be backed by the spare industrial and business capacity of those companies.

Radical stuff. But as the world economy limps out of the financial crisis, it is surprising how little radical thinking there has been. Not just for us, but generations to come.