On one side of this line is the self-improving cycle of increased saving, investment and growth – the patience path. On the other is the self-destructive path of increased volatility and consumption – the impatient path. China today is an intriguing mix of the two paths. Patience is the dominant gene in the high savings rates of households and corporations. Yet the impatience gene is dominant in the behaviour of frothy equity and property markets. Finance in China is being buffeted by opposing winds – the mild east and the wild west. Dynastically, it is part Ming, part Yuan. China today is proof that financial innovation can be a double-edged sword. It is important to keep on the right side of that sword. That calls for careful sequencing of financial reform, in China and elsewhere. (b)  If excess volatility in market prices is a distortionary tax on long-duration investments, policy measures may be needed to offset this distortion. Pigou’s defective telescope may need to be repaired, perhaps reversed. One way of doing so is to provide incentives for longer-duration asset holdings. Another would be to introduce disincentive devices for short-termist behaviour: holding period-related levies on financial investments is one such example. 42 A third potential instrument is governance – for example, some have proposed that voting rights and the appointment of board members could be made conditional on the duration of equity holdings. 43  (c)  Impatient preferences can be constrained by pre-commitment devices – diets, exercise regimes, tattoos of your partner’s name.
Nowhere are these trends more striking than in the market for CEOs in a particular high profile, high finance industry – the football industry. As high frequency traders are to the financial sector, football clubs are to the corporate sector. In the English Football League, the average tenure of departing football club managers has close to halved since 1993. 41 Today, it stands at less than 1 ½ years, a managerial half-life of less than a full football season. Put differently, there are 92 English football league clubs. Among that 92, only two managers – Sir Alex Ferguson at Manchester United and Arsene Wenger at Arsenal – have been in post significantly longer than the average departing CEO in non-football companies. Since 1993, these two clubs have between them won the Premier league on three-quarters of occasions. Patience has brought its own reward. 38  For example, Campbell and Shiller (1988). 39  For example, Black and Fraser (2002), Cuthbertson et al (1997). 40  Karlsson et al (2008) and Favaro et al (2010). 41  League Managers Association (2010). 12  BIS Review 114/2010  Patience and public policy This evidence is no more than illustrative. But it does point to the potentially adverse sideeffects of improved information and liquidity in markets. The public good of information and liquidity may unleash the public bad of myopia and volatility. So what are the potential public policy implications? These include: (a)  Countries, like China, embarking on financial liberalisation need to walk a fine line.