Bank of England Speech: The Short Long

Thanks to Miguel at Simoleon Sense for passing this along.

Is the world becoming short-sighted? As individuals, it sometimes feels that way. Information is streamed in ever greater volumes and at ever rising velocities. Timelines for decision-making appear to have been compressed. Pressures to deliver immediate results seem to have intensified. Tenure patterns for some of our most important life choices (marriage, jobs, money) are in secular decline. Some have called this the era of “quarterly capitalism”.

These forces may be altering not just the way we act, but also the way we think. Neurologically, our brains are adapting to increasing volumes and velocities of information by shortening attention spans. Technological innovation, such as the world wide web, may have caused a permanent neurological rewiring, as did previous technological revolutions such as the printing press and typewriter. Like a transistor radio, our brains may be permanently retuning to a shorter wave-length.

If these forces are real, they might be expected to be particularly important in capital markets. These are a key conduit for choice over time. An efficient capital market transfers savings today into investment tomorrow and growth the day after. In that way, it boosts welfare. Short-termism in capital markets could interrupt this transfer. If promised returns the day after tomorrow fail to induce saving today, there will be no investment tomorrow. If so, long-term growth and welfare would be the casualty.