The Labour-commissioned Cox report (pdf) argues that short-termism is widespread, and a disincentive to invest and develop new products.However, I fear it under-rates the possibility that short-termism is often rational.

The problem here is one of uncertainty, in the sense of unknown unknowns.Think of any company you know reasonably well. On a short-term horizon - one or two years - you probably have a fair idea of its SWOTs or five forces, or any other way of analysing the firms' prospects.But on a long-term horizon - ten or 20 years - you don't have a clue, not least because for very many businesses it's impossible to forecast whether they'll be brought low by technical change (which by nature is unpredictable at long horizons) or bad management. For a long time Polaroid seemed a sound company, until digital cameras came along; Nokia was doing OK until the iPhone appeared; RBS and GEC did well for years until bad takeovers and strategy killed them. And so on.

Company death rates are high, and their chances of dying can change unpredictably.Whereas risk is roughly quantifiable - under reasonable assumptions it increases with the square root of time - uncertainty is not. Faced with massive uncertainty, it is surely reasonable for investors not to want to commit to long-term investment.

In fact, there's one piece of evidence which suggests that, far from being too short-termism, equity investors haven't been short-termist enough. This is that value stocks - generally, those which offer short-term cashflows - have tended to out-perform glamour ones, which claim to offer growth. This suggests that investors have often been too long-termist, paying for future growth which hasn't materialized.

There are two possible objections to this which I don't think are convincing.

"Short-termism isn't ubiquitous: look at much of Asia." I suspect, however, that insofar as private (as opposed to state) investors there are long-termists, it's because uncertainty is mitigated by the optimism bias; in a fast-growing economy, animal spririts improve.

"Warren Buffett has succeeded by taking long-term investments." True. But they have been in companies which have good short-term cashflows and which can be monitored by short-term results. Buffett tends not to invest in startups or "growth" stories.

I don't say all this to rubbish the Cox report. Instead, it is to suggest that policies to encourage long-termism should be seen another example of anti-nudge; it can sometimes be a good idea to encourage irrationality. The best way to get finance flowing to new and small businesses is to have big dose of irrational exuberance.