A Speech by Mr Andrew Haldane, Executive Director, Financial Stability, Bank of England, at the Oxford China Business Forum, Beijing, 9 September 2010.
… Immediate gratification (drugs, alcohol, sex, food) is sought irrespective of the long-term consequences. There is a neurological explanation for such behaviour. Drugs and some foodstuffs flood the brain with dopamine, which stimulates the midbrain associated with instant reward. This might explain why addictive behaviour appears to be more prevalent in humans than in animals. While few squirrels are dieters, even fewer are glue-sniffers.
Impatience has implications for economic and financial systems every bit as profound as its well-behaved twin. For economies, hyperbolic discounting would tend to generate under- saving, as people seek instant gratification. And neo-classical growth theory says that under- saving has adverse implications for long-run investment and growth. Some jam today would come at the expense of a whole jam-jar tomorrow.
For financial systems, the implications are just as far-reaching. The flipside of under-saving is over-borrowing. Consumer credit is one means of bringing forward tomorrow’s spending to today. In that sense, credit addiction and drug addiction are close relatives. And accompanying over-borrowing is likely to be over-trading: a propensity to realise investments sooner rather than later, to twist rather than stick.
So where does this leave us? Patience is an evolutionary human trait which has played an important role in the development of economic and financial systems. But impatience is also a human trait whose implications for growth are potentially malign. How have these two traits evolved over time? Has the good gene, by a Darwinian process, deselected the bad? …
Read the entire paper