In particular, I wish to argue that the twin forces of integration and information may have increased the severity of the tail risks facing global systems, as recently evidenced by the global financial crisis. Insuring against those rising tail risks may call for a fresh policy response – for example, a strengthening of public policy institutions. Integration and systemic risk Consider first the relationship between integration and systemic risk. It is well-known that deeper integration of a network does not have a straightforward impact on its stability. Integration can be a double-edged sword – and the greater the degree of integration, the sharper this sword. This is sometimes known as the “robust-yet-fragile” property of connected webs (Watts (2002)). The intuition is beguilingly simple. Within limits, connectivity acts as a shock-absorber, a riskspreader. Links in the system act as a mutual insurance device as risk is distributed and diversified away. That results in connected networks appearing “robust” to shocks. But when shocks are sufficiently large, the same connectivity serves as a shock-transmitter. Risksharing becomes risk-spreading. Links in the system act as a mutual incendiary device as risk is amplified across the wider web. Connected networks become “fragile”. In short, connected networks tend simultaneously to be stable and unstable, calm and turbulent, robust-yet-fragile. They sit atop a cliff-edge, on one side of which are the sunny uplands of stability, on the other the stormy lowlands of fragility. The more connected and integrated the system, the more precipitate this cliff-edge (Acemoglu et al.
Perhaps that is why marriage rates have halved, and divorce rates doubled, in the UK since 1970; why the tenure of global CEOs has halved since 1995; and why holding periods for stocks has more than halved since 1980. For many key decisions, myopia has been mounting. It may also have become self-reinforcing – a myopia trap. For addicts, shortened horizons generate a quest for quick fixes which further shorten horizons in a downward spiral (Coffey et al. (2003)). For gamblers, a sequence of losses shortens horizons and increases risk-  BIS central bankers’ speeches  3  taking (Xiu et al. (2011)). For depression-sufferers, low confidence in the future becomes self-fulfilling (Alloy and Ahrens (1987)). Myopia traps affect countries as well as individuals – and their macro-economic costs can be large. For developing countries, they often materialise as “poverty traps” (Sachs (2005)). That trap is self-sustaining because poverty leads to under-investment in the human and financial capital that would allow the country to break free in the future (Banerjee and Duflo (2011)). Low future prospects for growth become self-fulfilling. Advanced economies are not immune to these problems. An information-rich-attention-poor world will generate under-investment in physical and human capital, infrastructure, the environment. That will be self-sustaining if it lowers future prospects or heightens future risks (Davies et al. (2013)). More hurry then assuredly means less speed. This is not a poverty trap. It is a poverty of attention trap. Policymakers have recently begun to focus on shorttermism, perhaps for that reason (G30 (2012), FSB (2013)).