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The Actuary The magazine of the Institute & Faculty of Actuaries

Q&A: Roger Bootle

What led to your interest in economics?
I think it was largely through politics, economic issues being a large part of the political debate. I didn’t start off being that interested in economics at all; at school really my great love was history, and in fact, in many ways I am an historian-manqué. Then when I started doing economics I found it intellectually quite attractive. I started to fall in love with the structure and way of arguing and I found that it suited me quite well. Then I did a graduate degree and later taught economics at Oxford.

I left the academic world and joined Citibank as a dealer of Eurodollar deposits and sterling interbank trading. I really missed not being in the thick of it intellectually, writing about, thinking about it and arguing about it. So gradually I found my way to what’s proved to be my metier - to be thinking and arguing and writing about these issues, not from an academic standpoint but from a practical one.

As a child, what were your aspirations for the future?
Certainly not to become an economist, I probably wanted to become an engine driver I suspect. I do recall actually at a very early being extremely interested by politics. And at some stage actually fancying the idea of becoming a politician. I was fascinated by politics in my teens but that gradually wore off. Over the years I have had quite a lot to do with politicians in one way or another. I find that quite interesting and I quite like being on the fringes of it but in no way would I be interested in becoming one.

In which economic theory are your professional beliefs most grounded?
There are all sorts of theories and thinkers to which I have some adherence. The thinker that I admire the most is Keynes and that’s not changed since I was an undergraduate. I’ve also always admired John Kenneth Galbraith although he has always been much to the left of me politically. I admired him as a writer and I have very great respect for his ideas and approach to the subject. He was, of course, an institutionalist and was never taken up with, what I would say was, the over-mathematisation of the subject, which has proved to be a complete plague.

Has the ongoing financial crisis changed any of your views on economic theory?
It has probably consolidated them I suppose and made me feel more strongly about things that I’ve felt all along. I’ve never been a textbook economist. I’ve always been a believer in institutions, history, the power of accident and human action. This has made all those feelings much stronger and that therefore economics should not be taught as some sort of abstract science. It’s much more art than science and I suppose my admiration for Keynes is growing.

What is your view on the state of the economic recession? Do you foresee and end to the lull in the next six months?
No-one knows. Economists are one of the groups that I have had a go at in the book (many an actuary will be very pleased about that). As economists, we have got a lot to be humble about. There is some sort of recovery going on around the world. The big question is how durable and strong the recovery is going to be. I’m quite pessimistic; it seems to me that this is a very different phenomenon from the usual post-war recession. We shouldn’t expect the recovery to pan out in the usual way. I think we’ll be surprised by how lacklustre the recovery is and there are several dangers yet to be negotiated including danger of significant fiscal tightening after the election.

What lessons have been learned - what measures should be taken now to avoid a repeat situation future?
I don’t think we know quite what the lessons are because in a sense we are still arguing about it. History rarely repeats itself exactly. It’s a bit like generals fighting the last war. My guess is that if we’re not careful we’ll end up preventing a repeat of the last recession and of course it won’t be the last recession we’re confronted with, it will be the next one.

The financial world is one where the pace of innovation has been normally very rapid. Who knows what sort of instruments or practices will dominate in years to come but my instinct tells me that we’re most unlikely to get a repeat of anything like what happened before for a very long time. Too many people are chastened – the lessons have been learned. It is interesting that we’ve got to where we have when we did because certainly in America the lesson of 1929 and the 1930s seems to have been that you can’t just let markets do their thing. The financial markets are very fragile and so they were effectively constrained. On a broader level, of course, there was this heavy level of government intervention and control in the markets.

It was in the 1980s that that lesson was unlearned. A large part of it is simply to do with the fact that the people who’d learned the lessons before had died. You can’t, as it were, live by lessons that you haven’t learned. Most people read the textbooks but it’s not quite the same as having lived through the period.

Your new book The Trouble with Markets: Saving Capitalism from Itself will be released in October. Briefly describe the essence of the book.
It’s an attempt to get beneath the recent crisis to what I might say are the deep causes of it and to ask what I think is now the key question – where are the appropriate boundaries between markets and government. And what is the role of government in restricting as well as encouraging markets? Where can markets go wrong and where do markets need to be constrained? It’s got both a domestic and an international aspect to it.

What inspired you to become an author?
Was writing a skill that you could readily call upon? My first book was an academic textbook and it was written jointly with someone else. I couldn’t write to save my life. Then I wrote a book called Index-Linked Gilts, which many an actuary might well have seen or at least had recourse to on a shelf. I think what was driving me was that I found these things very interesting. The real change was The Death of Inflation. By that stage I’d done a lot more writing and I was more practiced at it. I’d certainly written on an ad hoc basis for a number of newspapers for years. The motivation then was to try and produce something that would be on the stocks a bit longer and would leave a mark.

Thereafter I’ve become not less interested in economics but I’ve become more interested in the writing and communication. I’ve started to enjoy the writing more. I’ve become more practiced at it because all this time I’ve had a weekly column in one or other of Britain’s newspapers. I started off at The Times, and then the Sunday Telegraph and now the Daily Telegraph.

What led to the establishment of Capital Economics, the macro-economic research consultancy of which you are founder and managing director?
It was sort of inevitable but it wasn’t done with a feeling of great confidence. I had reached the end of my tether with big organisations and I reached a point where I realised that I couldn’t go on with any integrity doing what I was doing. I didn’t believe in the model of providing research to clients from a base of that sort. There were enormous conflicts of interest, which I could see even then and I disliked corporate politics.

I’d always had a strong business streak in me, even though I’d been an academic. This is the second time I’ve done something like this. With my career earlier on at Oxford as a don, I had the prospect of staying in the academic world and being a fellow at Oxford College but I left that world to join Citibank. So far, we’ve done remarkably well. We’ve now got offices in London, Toronto and Singapore, I employ about 50 people and we’ve got just under 1000 institutional clients around the world.

What is the greatest risk you have taken either personally or professionally?
The set up of Capital Economics was both a huge personal and professional risk. Since I made that decision the overall climate of opinion with regard to independent research has completely changed. Whereas most people thought I was doing something unfathomable, the prevailing view now seems to be it is very important to have independent research.

There was another risk; professional rather than personal, which was the Death of Inflation thesis. I stuck my neck on the block and took a real risk with a view, which could have proved to be totally wrong. I thought I had a well-worked-out set of reasons why the future would take a certain shape and a lot of people criticised me for it. But broadly speaking, events have indicated it.

What do you consider as your greatest professional achievement to date?
I’m very proud of The Death of Inflation and I hope to be in due course even prouder of The Trouble with Markets. I’m also proud of the one that comes between, Money for Nothing. That’s the book in which I railed against the excesses of the property market. I suggested there was going to be a massive financial crisis and I recall saying that it is only the strength of the property market that stands between us all and an enormous slump.

Building Capital Economics has given me enormous satisfaction. It’s been about the entrepreneurial risk and the management thereof, and also about the social aspect and creating the working environment. Although we work hard it is a civilised environment, people enjoy it and I feel proud to have created it.

As an honorary fellow of the Institute of Actuaries how do you believe actuaries can add value in the wider field of economics?
I’ve always felt that economists and actuaries needed to get together much more and actually discuss things. The appointment of me and a few other economists as honorary actuaries was part of an attempt by the actuarial profession to do that, but I don’t think economists actually have done enough in reaching out to talk to actuaries. Actuaries have got to get down, get their hands dirty metaphorically and deal with real problems. I’ve always thought that there’s potential there for a lot of cross fertilisation if only we could get the economists to get out of their ivory tower and actually confront the structure or real-world problem to see how to deal with it.

How do you measure your success?
What matters to me is feeling that I’m making a contribution, and that I’m helping our clients to make good decisions. I get a kick out of making a judgment which proves correct. That gives me tremendous satisfaction. My reputation among people who know me is really how I measure my success.

With your role as a Daily Telegraph columnist and other professional commitments, when do you find time to relax and what is your favourite pastime?
The sheer number of things I’m involved in probably gives a misleading impression of the amount of time I am working. I try to do a bit of sport: I play squash, I play bridge, I am interested in cinema, theatre, concerts, opera, seeing friends and holidaying with family. I am rather too interested in food and wine! I suppose over the last year I haven’t had a great deal of relaxation. I’ve been heavily involved in writing the book.

You have expertise in many areas from journalism to consulting. Are there other opportunities at which you would like to try your hand?
I have still got a fair bit to do at Capital Economics but I would like, if the call came, to do something more in government. I would appreciate that I’d enjoy making a contribution in that regard and if I can do something to try and help this country. It’s not often that economic theory is very important in a country’s history but it is now. Over and above that I’ve got lots of things I’d want to do, one of which is to take part in and maybe establish and run a whole new course in economics which puts the subject on a sound footing and returns it to maybe where it was maybe 60 or 70 years ago.

If I had the money I would like to found an institute that does that. I’ve also got ambitions to write things completely outside the sphere of economics - in the realm of social affairs and public policy.


Roger Bootle is the founder and managing director of Capital Economics. He is also the economics adviser to Deloitte, a specialist adviser to the House of Commons Treasury Committee, and an honorary fellow of the Institute of Actuaries

An extract from Roger Bootle’s book The Trouble with Markets can be found at www.the-actuary.org.uk/870181.