Andrew G Haldane: The dog and the frisbee Speech by Mr Andrew G Haldane, Executive Director, Financial Stability, Bank of England, and Mr Vasileios Madouros, Economist, Bank of England, at the Federal Reserve Bank of Kansas City’s 366th economic policy symposium, “The changing policy landscape”, Jackson Hole, Wyoming, 31 August 2012. *  *  *  The views are not necessarily those of the Bank of England or the Financial Policy Committee. We would like to thank Dele Adeleye, Rita Babihuga, Tamiko Bayliss, James Benford, Charles Bean, Johanna Cowan, Jas Ellis, Sujit Kapadia, Kirsty Knott, Priya Kothari, David Learmonth, Colin Miles, Emma Murphy, Paul Nahai-Williamson, Tobias Neumann, Victoria Saporta, Rhiannon Sowerbutts, Gowsikan Shugumaran and Iain de Weymarn for their comments and contributions. We are particularly grateful to Gerd Gigerenzer for stimulating conversations on these issues. (1)  Introduction  Catching a frisbee is difficult. Doing so successfully requires the catcher to weigh a complex array of physical and atmospheric factors, among them wind speed and frisbee rotation. Were a physicist to write down frisbee-catching as an optimal control problem, they would need to understand and apply Newton’s Law of Gravity. Yet despite this complexity, catching a frisbee is remarkably common. Casual empiricism reveals that it is not an activity only undertaken by those with a Doctorate in physics. It is a task that an average dog can master. Indeed some, such as border collies, are better at frisbee-catching than humans. So what is the secret of the dog’s success?

That centre must be able to take the relevant fiscal, economic and financial decisions for the euro area as a whole in a swift and transparent manner with full democratic legitimacy and a clear set of responsibilities determined by the legislators. This requires a move from rules-based coordination to sharing of sovereignty within common institutions. One proposal that now needs to be developed further in terms of scope, function, and democratic accountability is a euro area treasury. But – and this is the second important element from the ECB’s perspective – we should also go further with our current policies. It is clear that Europe’s economic and monetary union will need to strengthen its tools to manage and prevent the build-up of fiscal, financial and other macroeconomic risks. Recent reforms include strengthening the framework of economic governance and establishing the European Stability Mechanism, the Single Supervisory Mechanism and the Single Resolution Mechanism. These are important first steps in improving our toolkit for crisis prevention and crisis management, but further progress is needed. In the nearer term, we should move towards completing Europe’s banking union through a common backstop for the Single Resolution Fund as well as a roadmap towards a European deposit insurance scheme. Both are essential for creating a truly single banking system to mirror our single currency. Both are also crucial for underpinning the credibility of the banking union and achieving its initial promise of breaking the bank-sovereign nexus, making the financial system more resilient and protecting taxpayers’ interests.