Readers of Safe and Fair Finance Blog will be pleased to see intellectual support from an unexpected source. Kenneth Rogoff was formerly head of economic research of the International Monetary Fund. He is now professor of economics at Harvard University. In 2009, he co-authored with Carmen Reinhart the ground-breaking book on financial crises, This Time is Different: Eight Centuries of Financial Folly. Their book has become the bible of economic long-term forecasters.Pin It Now!
In his February 1st letter to the Financial Times, Professor Rogoff comments on recent commentaries about the future of capitalism. He notes that. “Entrepreneurs who have earned billions, world leaders who have spent trillions, journalists, academics, and even ‘Occupiers’ have all weighed in.”
He notes that even China’s recent economic successes are not sustainable. “Creating impressive infrastructure eventually runs into diminishing returns, as evidenced by the history of Japan and the Soviet Union,” and he might have noted the U.S. in the 19th century.
Professor Rogoff also emphasizes the point made by Martin Wolf that “contemporary capitalism, which does such an extraordinary job of generating a cornucopia of private goods, is far less effective at generating public goods, whether it be education, infrastructure, environment or financial stability.”
The question is how to strike a balance that creates a wealth of both private and public goods. His solution is education. He points to the arguments made by David Rubenstein of the current inadequacies of primary and secondary education, as well as the need to re-educate and retrain adults.
However Professor Rogoff goes much further, arguing that, “Societies need to find ways to make adult education, including economic and financial literacy, far more available and far more compelling… The idea that the masses are indifferent to education, and that any broader notion of literacy beyond the three R’s (reading, writing and arithmetic) is a hopeless cause, is nonsense.” He further notes that, “As someone who has spoken to all kinds of people in the wake of the financial crisis, my sense is that most citizens are starved of information, and would consume it hungrily if offered in a palatable form.”
Starved of information on economic issues and personal finance—that is the plight of the vast majority of the population is today’s economies. However it need not be the case.
Professor Rogoff lays out a few suggestions: (1) attractive web learning platforms, (2) expanded public radio and television, and (3) greater educational choice for children. These are all useful programs but far more is needed. Follow Safe and Fair Finance Blog for more ideas.
Safe and Fair Finance Blog argues that financial education, contributing to improved levels of financial literacy, is an essential element in staving off the next financial crisis. Without both improved financial literacy and financial consumer protection, the next decade will become the subject of Professor Rogoff’s next book, How we Failed to Learn the Lessons of the Last 80o Years of Financial Crises.
As Professor Rogoff concludes, “Improved education alone will not resolve the flaws inherent in today’s capitalism, but it is an essential first step down any path to a solution.” Safe and Fair Finance Blog can only agree.