Credit Ratings

Decision analysis is based on knowing the model of inter-relationships between relevant determinants of economic performance, the probabiliites of different events and processes occuring as a result of inter-actions betwen determinants and lastly the quality of information available on the state of determinants. In part, some of Mervyn King's appeal for the development of macro-prudential management requires a high degree os transparency revealing accurate transactional information. The current levels of secrecy or poor levels of information quality on the general state of anything in the economy is a reason rating agencies remain "behind the curve", quite often downgrading an economy when it is too late to do anything about it. The current circumstances only reinforce a sort of stop-go assessment rather than the required prudent gradualism that can detect trends and forewarn with a view to providing the opportunity for the introduction of policy to reverse negative trends.

The current ratings situation is unacceptable because of the type of events that occurred recently with politicians in France complaining about a likely downgrade of their status when they considered the UK's AAA rating being more qualified for a downgrade than France. This sort of exchange is typical of politicians who have become frustrated by the fact KM theory and policy provides no clear roadmaps and ratings assessments therefore become an irritant; the politicians are essentially cornered.

Rather than regard these exchanges as some sort of cross-channel cabaret we need to reflect on the paucity of KM economic theory and policy practice. We know that KM policies and the last 65 years have resulted in a 95% decline in the value of the pound. KM policies possess no view of the real economy in terms of necessary transitions in technology, learning and technique so as to achieve real growth and a stabilization or increase in the value of the currency. Lastly, the participatory credentials of both our governance and economic decision making raise serious constitutional economic questions on choice and the effectiveness with which each constituent can satisfy their objectives, economic and others, without imposing on others. Once these factors are factored into policy decision making, ratings could take on a different and more relevant role.