the last. yet the history of political and economic progress offers a clue to solving these problems. this has relied heavily on long - lived, far - sighted institutions which are able to tackle the problems complex, integrated, information - rich societies throw up. post - crisis financial reform has recognised that, giving system - wide regulatory responsibilities to a set of arms - length, long - lived institutions. there are many other areas of public policy where long - tailed risks loom large – pandemics, cyber risks, trade disputes, carbon emissions. left to their own devices, societies may underinsure against these tail risks too. that is why institutions matter, now more than ever. they explain why nations failed in the past. they may be even more important in helping them succeed in the future. see fsb ( 2011 ), “ macroprudential policy tools and frameworks ”. bis central bankers ’ speeches bis central bankers ’ speeches references acemoglu, d and robinson j ( 2012 ), “ why nationals fail. the origins or power, prosperity and poverty ”. profile books. acemoglu, d, ozdaglar, a and tahbaz - salehi, a ( 2013 ), “ systemic risk and stability in financial networks ”. nber working paper no. 18727. aikman, d, haldane, a and nelson, b ( 2010 ), “ curing the credit cycle ”, columbia university centre on capitalism and society annual conference “ micro foundations for modern macroeconomics ” new york. available at : http : / / www. bankofengland. co. uk / publications / documents / speeches / 2010 / speech463. pdf alloy, b and ahrens, a ( 1987 ), “ depression and pessimism for the future : biased use of statistically relevant information in predictions for self versus others ” journal of personality and social psychology, vol 52 ( 2 ), pp. 366 – 378. arthur, w b ( 2009 ) “ the nature of technology : what it is and how its evolves ”, penguin. banerjee, a and duflo, e ( 2011 ), “ poor economics ”, publicaffairs. barro, r and gordon, j ( 1983 ), “ a positive theory of monetary policy in a natural rate model ”, journal of political economy, vol. 91, no. 4 pp 589 – 610. barton, d

latter for progress. whether old or new, institutions seem to matter. their secret lies in solving societal problems of knowledge, co - ordination and incentives. institutional memory can help lengthen and strengthen otherwise short and subjective minds. and institutional investment can help build public goods and flatten otherwise fat tails. in other words, institutions are the perfect antidote to the dark sides of integration and information. bis central bankers ’ speeches institutions in economics and finance these features of institutions – memory of the past, investment for the future – are particularly acute when tackling economic and financial policy problems. very often, these involve difficult trade - offs between today and tomorrow : is growth today worth trading - off against higher inflation tomorrow or a greater probability of crisis the day after tomorrow? not only are these choices difficult, but policymakers may have an inbuilt tendency to get them wrong. in economics, this is often termed the “ time consistency ” problem ( kydland and prescott ( 1977 ) ). the problem arises when policymakers have incentives to promise good behaviour ex - ante, but then renege on that promise ex - post. policymakers are prone to making st augustinian pledges to be chaste, just not yet. this is a classic myopia trap. the roots of this problem are often felt to be political – a desire to court near - term popularity to achieve re - election. yet the true roots may be more neurological than political. experimental evidence shows that people ’ s preferences are themselves time - inconsistent or “ hyperbolic ” ( laibson ( 1997 ) ). people become increasingly myopic as payoffs become visible, elections approach, nest eggs near hatching. this is true for everything from pigeons pecking corn to mothers seeking pain relief during childbirth ( haldane ( 2010 ) ). one man ’ s hyperbolic preferences are another ’ s policy time - inconsistencies. for example, when setting monetary policy, there may be a desire to go for growth today at the expense of inflation tomorrow – to seek the drugs rather than gas and air option. because people over time build that behaviour into their expectations, the result may be a permanent upwards inflation bias, the like of which blighted many advanced economies in the 1970s ( barro and gordon ( 1983 ) ). over the past 30 years, practical solutions have been sought to this monetary policy myopia problem. interestingly, these solutions have often been explicitly institutional. over that period, monetary