Apollo 13 and Kay's idea of financial system designs

Comments on John Kay “Economic lunacy”, 22/07/2009, http://www.businessspectator.com.au/bs.nsf/Article/Economic-lunacy-pd20090722-U7CQ9?OpenDocument&src=sph

Kay’s idea sounds interesting and innovative. It deserves to be carefully analysis to see if that can work. It would be nice if the economy and financial system can be designed according to the modular approach that used in appliance and the Apollo 13 system.

The financial and economic systems are definitely more complex and the trade off between safety and efficiency gains are much greater. That can be a key difference between the financial and economic systems and other much smaller system.

A key issue in the financial system is the asymmetric risks and rewards. A person may gain many millions or more as rewards, but may lose little such as lost a job as risks. This kind of asymmetry results in people work in a way that maximise their rewards but can leave the accordingly high risks for others to bear. Any system designs need to address this asymmetry issue between risks and rewards for people working in it.

It may be the case that one’s rewards should be partly held until sometime well after the time period that can be said risks were not increased due to their efforts in achieving those rewards. Alternatively, there should be some retrospect civil and criminal responsibilities that are applied to people who had contributed to failures before.

Any system designs need to be clear, so people understand them and always take due risk management in their work. They should also avoid undue adverse effects on incentives for individual innovations.