The Importance of Financial and Economic Literacy for Policy Makers

By Milenko Sikljovan
posted on March 10, 2014 in Economics and Finance, Global Development, Leadership

The recent financial crisis brought to the fore many of the global interdependencies between government policies and capital markets that had previously been dismissed or overlooked. A report titled “Lessons of the Financial Crisis” by the Council of Foreign Relations argued that the crisis offered “a sobering lesson about the dangers of policies that fuel the rapid buildup of debt across the economy”. Back in 2010, Joseph Stiglitz in his book “Freefall”, argued that “the length of the [financial] crisis will depend on the policies pursued”. Just recently he followed up on this development in an article by stating that policymakers’ response to the crisis failed to address many of the issues and, in some cases, even exacerbated them and created new ones. To mitigate these unintentional spillover effects in the future, it is paramount that foreign policy leaders acquire a strong understanding of capital markets, corporate finance, and economics.

Working in professional service firms allowed me to see first-hand how quickly capital market professionals absorb and react to any proposed policy change worldwide. The attention to policies is emphasized through their training: many MBA programs as well as professional investment institutions (e.g. CFA Institute) emphasize studies in global economics and international finance. In order to understand the capital market response to international policy changes, it is essential that policy leaders develop a strong understanding of how these markets operate.

Public policy schools have identified this need. Columbia University’s School of International and Public Affairs (SIPA), Harvard’s Kennedy School of Government, and John Hopkins’ School of Advanced International Studies (SAIS), among others, all offer concentrations focused on international finance, trade, and economics.  As a current student at SIPA, this concentration has allowed me to build on a finance background by developing an understanding of how to interpret economic policies. Alternatively, the concentration has allowed many of my peers with a policy or international affairs background to gain an understanding of how their policies might be interpreted by global markets. However, what may be most important is that these programs offer an effective learning and networking platform that will bridge the knowledge gap between future capital market professionals and policy makers.

Going forward, a strong understanding of how policies and capital markets behave independently and interdependently will be a key requirement to anticipate risks and improve the efficiency of capital markets. Future policy makers should emphasize studies of capital markets, corporate finance, and economics in order to have a better understanding of one of their key stakeholders. For while they might be making the policies, it is the markets themselves that ultimately decide how to react to the economic conditions that policy makers enable them to operate in.

 

Milenko Sikljovan is a graduate student at Columbia University’s School of International and Public Affairs concentrating on international finance and economic policy 

Comments