EXCESSIVE COMPLEXITY—“THE DOG AND THE FRISBEE”.

EXCESSIVE COMPLEXITY—“THE DOG AND THE FRISBEE”. Jason Zweig called it here (Wall Street Journal, August 31): “The Jackson Hole Speech People Should Long Remember”. The speech was given by Andrew Haldane of the Bank of England, and it was entitled “The dog and the frisbee”. The argument is that modern financial regulations and management tools are too complex and too detailed to be useful. Here is the Bank of England’s summary of the paper and here is the text of the paper. Haldane’s central image of a dog catching a frisbee makes the point that a dog (or a man) catching a frisbee ignores thousands of variables which could affect the frisbee’s path. Haldane says: “…studies have shown that the frisbee-catching dog follows the simplest of rules of thumb: run at a speed so that the angle of gaze to the frisbee remains roughly constant. Humans follow an identical rule of thumb.” Haldane contrasts the Glass-Steagall Act of 1933, which was 37 pages long, with his estimate that the Dodd-Frank Act could account for 30,000 pages of regulations when it is fully implemented. Haldane points out that the Basel II Accord moved banks to the evaluation of risks of individual loan exposures rather than analyzing risks of broad asset classes. Haldane says: ” For a large, complex bank, this has meant a rise in the number of calculations required from single figures a generation ago to several million today….” Haldane argues that simple rules will lead to better regulation.