It’s hard to account for flaws in the rule-book


In my latest City AM column I discuss Gordon Kerr’s recent book, which points to the role of accounting regulations in the obfuscation of the price system that contributed to the financial crisis:

When economists talk about the efficiency of the profit and loss system, we tend to take for granted that the profit and loss we observe matches with reality. But government interventions are liable to disrupt these signals – inefficient taxes, arbitrary subsidies, and monetary debasement all separate prices from the underlying conditions of demand and supply. Another source of noise is faulty accounting standards – as Gordon Kerr has pointed out in his fascinating new book The Law of Opposites: Illusory profits and the financial sector.